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| BA > SEC Filings for BA > Form 10-Q on 21-Oct-2009 | All Recent SEC Filings |
21-Oct-2009
Quarterly Report
Consolidated Operating Results
The following table summarizes key indicators of consolidated results of
operations:
(Dollars in millions, except per Nine months ended Three months ended
share data) September 30 September 30
2009 2008 2009 2008
Revenues $ 50,344 $ 48,245 $ 16,688 $ 15,293
Earnings/(loss) from operations $ 403 $ 4,193 $ (2,151 ) $ 1,147
Operating margins 0.8 % 8.7 % <12.9 % 7.5 %
Effective income tax rate 71.3 % 36.4 % 30.6 % 40.8 %
Net earnings/(loss) from continuing
operations $ 52 $ 2,740 $ (1,560 ) $ 683
Diluted earnings/(loss) per share $ 0.06 $ 3.76 $ (2.23 ) $ 0.96
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September 30 December 31
(Dollars in millions) 2009 2008
Contractual backlog $ 298,959 $ 323,860
Unobligated backlog 21,054 28,165
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Revenues
The following table summarizes revenues:
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
2009 2008 2009 2008
Commercial Airplanes $ 24,868 $ 23,674 $ 7,883 $ 6,946
Integrated Defense Systems 25,114 24,006 8,744 8,497
Boeing Capital Corporation 496 535 166 171
Other segment 125 527 51 300
Unallocated items and eliminations (259 ) (497 ) (156 ) (621 )
Revenues $ 50,344 $ 48,245 $ 16,688 $ 15,293
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Revenues for the nine and three months ended September 30, 2009 increased by $2,099 million and $1,395 million, a 4% and 9% increase compared with the same periods in 2008. Commercial Airplanes revenues increased by $1,194 million and $937 million for the nine and three month periods compared with the same periods of the prior year primarily due to lower commercial airplane deliveries in 2008 due to a labor strike and supplier production challenges on customer furnished galleys for certain wide-body airplanes. The 2009 revenue increases from higher commercial airplanes deliveries were partially offset by decreases in commercial aviation services revenues and lower intercompany revenue in 2009 compared with 2008. Integrated Defense Systems (IDS) revenues increased by $1,108 million and $247 million primarily due to higher revenues in the Global Services and Support (GS&S) segment and the Boeing Military Aircraft (BMA) segment partially offset by lower Network and Space Systems revenues. Boeing Capital Corporation (BCC) revenues decreased by $39 million during the nine months primarily due to a decrease in the customer financing portfolio. Other segment revenues decreased by $402 million and $249 million partly due to higher revenues in the prior year from the sale of four C-17 aircraft held under operating lease. Lower Unallocated items and eliminations improved revenues by $238 million and $465 million primarily due to lower P-8A Poseidon
program (P-8A) intercompany revenues recognized by Commercial Airplanes during the three months ended September 30, 2009 compared with the same periods in the prior year.
Earnings from Operations
The following table summarizes earnings from operations:
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
2009 2008 2009 2008
Commercial Airplanes $ (1,603 ) $ 2,154 $ (2,837 ) $ 394
Integrated Defense Systems 2,470 2,351 885 854
Boeing Capital Corporation 112 143 39 37
Other segment (105 ) (233 ) (36 ) (48 )
Unallocated items and eliminations (471 ) (222 ) (202 ) (90 )
Earnings/(loss) from operations $ 403 $ 4,193 $ (2,151 ) $ 1,147
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Operating earnings for the nine and three months ended September 30, 2009 decreased by $3,790 million and $3,298 million compared with the same periods in 2008. Commercial Airplanes earnings decreased by $3,757 million and $3,231 million primarily due to $2,619 million of costs related to the first three 787 flight test aircraft included in research and development expense as a result of our determination in August 2009 that these aircraft could not be sold. The earnings decrease is also attributable to reach forward losses on the 747 program which grew by $1,352 million and $1,005 million during the nine and three months ended September 30, 2009. Lower commercial aviation services and intercompany earnings also contributed to lower 2009 earnings. These decreases were partially offset by higher commercial airplane deliveries in 2009 compared with 2008. IDS earnings increased by $119 million during the nine months, primarily due to higher earnings in the BMA segment resulting from a charge of $248 million on the Airborne Early Warning & Control (AEW&C) program in the second quarter of 2008, partially offset by lower earnings in the Network & Space Systems (N&SS) segment. Increased earnings for the three months were due to higher earnings in the BMA segment, partially offset by lower earnings in the N&SS and GS&S segments. BCC operating earnings decreased $31 million for the nine months compared with the same period in 2008 reflecting lower revenues, higher impairment expense and a provision for losses, partially offset by lower interest expense. Other segment losses decreased by $128 million for the nine months compared with the same period in 2008 primarily due to recognition of pre-tax expense of $82 million in the second quarter of the prior year to increase the allowance for losses on customer financing receivables related to lower U.S. airline customer credit ratings.
The most significant expense items not allocated to segments are shown in the table below.
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
2009 2008 2009 2008
Share-based plans $ (140 ) $ (115 ) $ (24 ) $ (70 )
Deferred compensation (134 ) 136 (88 ) 55
Other unallocated items and
eliminations (205 ) 11 (97 ) (4 )
Pension 69 (194 ) 24 (51 )
Postretirement (61 ) (60 ) (17 ) (20 )
Total $ (471 ) $ (222 ) $ (202 ) $ (90 )
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Share-based plans expense in Unallocated items and eliminations is higher in the current year resulting from a decrease in the amount of intercompany allocations compared with the same periods in the prior year.
Deferred compensation expense increased by $270 million and $143 million for the nine and three months ended September 30, 2009 compared with the same periods in the prior year. The year-over-year increases are primarily driven by changes in our stock price and broad stock market conditions.
Other unallocated items and eliminations expense for the nine and three months ended September 30, 2009 increased by $216 million and $93 million compared with the same periods in 2008, primarily due to timing of intercompany expense allocations, elimination of profit on intercompany items and a more favorable insurance adjustment in the same periods of the prior year.
Unallocated pension and other postretirement expense represents the difference between costs recognized under Generally Accepted Accounting Principles in the consolidated financial statements and federal cost accounting standards required to be utilized by our business segments for U.S. government contracting purposes.
We recorded net periodic benefit cost related to pensions and other postretirement benefits of $1,356 million and $452 million for the nine and three months ended September 30, 2009 and $849 million and $283 million for the same periods of the prior year. The increase was primarily due to higher amortization of pension actuarial losses. Not all net periodic benefit cost is recognized in earnings in the period incurred because it is allocated to production as product costs and a portion remains in inventory at the end of the reporting period. A portion of pension and other postretirement expense is recorded in the business segments and the remainder is included in unallocated pension and other postretirement expense.
Earnings from operations included the following amounts allocated to business segments and Other unallocated items and eliminations.
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
Pension Plans 2009 2008 2009 2008
Net periodic benefit cost
allocated to business segments (725 ) (389 ) (254 ) (125 )
Net periodic benefit cost in Other
unallocated items and eliminations 69 (194 ) 24 (51 )
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Net periodic benefit cost included
in Earnings/(loss) from operations $ (656 ) $ (583 ) $ (230 ) $ (176 )
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
Other Postretirement Benefit Plans 2009 2008 2009 2008
Net periodic benefit cost
allocated to business segments (405 ) (358 ) (146 ) (112 )
Net periodic benefit cost in Other
unallocated items and eliminations (61 ) (60 ) (17 ) (20 )
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Net periodic benefit cost included
in Earnings/(loss) from operations $ (466 ) $ (418 ) $ (163 ) $ (132 )
Other Earnings Items
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
2009 2008 2009 2008
Earnings/(loss) from operations $ 403 $ 4,193 $ (2,151 ) $ 1,147
Other income/(loss), net 7 257 (4 ) 55
Interest and debt expense (229 ) (145 ) (92 ) (49 )
Earnings/(loss) before income taxes 181 4,305 (2,247 ) 1,153
Income tax (expense)/benefit (129 ) (1,565 ) 687 (470 )
Net earnings/(loss) from continuing
operations $ 52 $ 2,740 $ (1,560 ) $ 683
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Other income for the nine and three months ended September 30, 2009 decreased by $250 million and $59 million compared with the same periods in 2008 primarily driven by a reduction in investment income as a result of lower interest rates and lower investment balances. Interest and debt expense increased by $84 million and by $43 million due to additional debt issued in 2009.
For a discussion related to Income Taxes see Note 4.
Backlog
Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed and unobligated U.S. and non-U.S. government contract funding. The decrease in contractual backlog during the nine months ended September 30, 2009 was primarily due to lower Commercial Airplanes backlog.
Unobligated backlog includes U.S. and foreign government definitive contracts for which funding has not been authorized. The decrease in unobligated backlog during the nine months ended September 30, 2009 is primarily due to a partial termination for convenience from the U.S. Army of the Future Combat Systems (FCS) System Development and Demonstration contract relating to Manned Ground Vehicles and associated systems and equipment and funding of existing multi-year contracts including the FCS, V-22, Chinook, Proprietary and Ground-Based Midcourse Defense (GMD) programs.
Segment Results of Operations
Commercial Airplanes
Business Environment and Trends
After several months of rapid deterioration during the first half of 2009, world Gross Domestic Product (GDP) growth forecasts are stabilizing. These forecasts continue to project a slow global economic recovery with world real GDP contracting by over 2% in 2009 and remaining below long-term trend growth in 2010.
The sharp economic decline is causing passenger traffic to contract. The International Civil Aviation Organization estimates passenger traffic grew 1% in 2008 with first half growth running fairly close to long-term trend. This was followed by a significant decline in the second half of 2008. There is further downward pressure on 2009 traffic growth. Current forecasts for 2009 global passenger traffic growth are for mid-single digit contraction similar to previous downturns (-3% in 2001 and 1991) followed by moderate growth in 2010. Monthly statistics indicate that world traffic contracted at a pace of approximately 7% in the first half of 2009.
The unprecedented decline in world trade and sharp reduction in credit availability have hit air cargo more severely than passenger traffic. Although the rate of decline is stabilizing, air cargo contracted 25% in the first half of 2009 following a 6% decline in 2008. Full year 2009 air cargo traffic outlooks reflect the first contraction in global trade since 1982 with the International Air Transport Association (IATA) forecasting a 14% contraction in air cargo traffic.
The global airline profitability outlook has deteriorated significantly. Revenues have fallen faster than traffic as fuel surcharges have declined and airlines reduce fares to stimulate travel. In addition, premium class revenues have fallen more sharply than economy revenues due to cuts in business travel and business travelers buying down from premium cabins. Lower fuel prices and airline cost saving measures are only partially offsetting the decline in revenues. Following 2008 net losses of $17 billion, IATA now forecasts the global airline industry will lose $11 billion in 2009 and not return to profitability until 2011. In response to these large losses, airlines have raised $18 billion of cash from capital markets but the finances of many airlines remain under pressure.
In this challenging environment, airlines continue to adapt their operations to meet the realities of the market. Global passenger capacity was down about 3% in the first half of 2009. Capacity cuts are coming through a combination of frequency and route cuts in markets that are no longer profitable, lower daily airplane utilization (flight hours per day), and parking/scrapping of older generation airplanes. Airlines are also replacing older less fuel efficient airplanes, reducing non-fuel costs and finding new ways to partner through alliances or via mergers/acquisitions.
These conditions are causing customers to request cancellations, modifications, or rescheduling of their existing orders and advance payment schedules to meet revised fleet plans or address financing and cash flow issues. Whether such requests will result in a material adverse impact on our earnings, cash flow or financial position depends on a number of factors including the type of aircraft, how much compensation is paid to us for costs already incurred and our ability to reschedule other orders to replace those canceled, modified, or rescheduled.
Beyond the near-term market uncertainties, the long-term outlook for the
industry remains resilient due to the fundamental drivers of air travel growth:
economic growth and the increasing propensity to travel due to increased trade,
globalization and improved airline services driven by liberalization of air
traffic rights between countries. Our 20-year forecast is for a long-term
average growth rate of 5% per year for passenger and cargo traffic based on a
projected average annual worldwide real economic growth rate of 3%. Based on
long-term global economic growth projections, and factoring in increased
utilization of the worldwide airplane fleet and requirements to replace older
airplanes, we project a $3.2 trillion market for 29,000 new airplanes over the
next 20 years.
In 2009, in response to these market dynamics, we announced plans to reduce production rates on the 777 program and to delay planned increases to the production rates of the 747 and 767 programs. These changes are not expected to affect 2009 revenues but did reduce margins on airplane programs. Separately, changes in forecasted escalation price indices reduced margins on all programs for the nine months ended September 30, 2009. The reduction in these escalation indices had the effect of lowering estimated revenues for deliveries predominantly after 2009. The escalation indices are driven by commodity and other inflation price indices and could remain volatile in the current economic environment.
Operating Results
Nine months ended Three months ended
(Dollars in millions) September 30 September 30
2009 2008 2009 2008
Revenues $ 24,868 $ 23,674 $ 7,883 $ 6,946
(Loss)/earnings from operations $ (1,603 ) $ 2,154 $ (2,837 ) $ 394
Operating margins -6.4 % 9.1 % -36.0 % 5.7 %
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September 30 December 31
(Dollars in millions) 2009 2008
Contractual backlog $ 253,938 $ 278,575
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Revenues
Year over year changes in Revenue are shown in the following table:
Nine months ended Three months ended
September 30, 2009 September 30, 2009
(Dollars in millions) vs. September 30, 2008 vs. September 30, 2008
New airplane sales $ 1,648 $ 999
Commercial aviation
services business (434 ) (85 )
Other (20 ) 23
Total $ 1,194 $ 937
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Revenues for the nine months ended September 30, 2009 increased by $1,194 million compared with the same period of 2008. This increase in revenues was primarily attributable to higher new airplane deliveries partially offset by lower commercial aviation services and intercompany revenues in 2009. The decrease in revenues from commercial aviation services business was driven by lower overall volume due to economic conditions.
Revenues for the three months ended September 30, 2009 increased by $937 million compared with the same period of 2008. This increase in revenue was primarily attributable to higher new airplane deliveries partially offset by lower commercial aviation services and intercompany revenues. The increase in new airplane deliveries reflects lower airplane deliveries in 2008 due to a labor strike and supplier production challenges on customer-furnished galleys for certain wide-body aircraft.
Commercial jet aircraft deliveries, including intercompany deliveries were as follows:
Program 737 747 767 777 Total Deliveries during the first nine months of 2009 280 6 10 63 359 Deliveries during the first nine months of 2008 254 13 8 50 325 Deliveries during the third quarter of 2009 90 4 19 113 Deliveries during the third quarter of 2008 67 4 2 11 84 Cumulative deliveries as of 9/30/2009 3,036 1,416 979 811 Cumulative deliveries as of 12/31/2008 2,756 1,410 969 748 |
Earnings from Operations
Earnings from operations for the nine and three months ended September 30, 2009 decreased by $3,757 million and $3,231 million primarily due to the reclassification from inventory to research and
development expense of $2,481 million of costs related to the three 787 flight test aircraft. $138 million of costs incurred on the first three flight test aircraft incurred in August and September 2009 also increased research and development expense and reduced earnings. The earnings' decrease is also attributable to reach forward losses on the 747 program which grew by $1,352 million in 2009, of which $1,005 million was recorded in the third quarter of 2009, primarily due to increased production costs and the difficult market conditions affecting the 747-8. The $2,619 million of costs included in research and development expense for the first three flight-test 787 airplanes was a result of our determination in August 2009 that these aircraft could not be sold and was primarily responsible for an increase in research and development expense of $2,534 million and $2,567 million. Lower commercial aviation services revenues and margins reduced earnings by $288 million and $119 million. Higher infrastructure cost allocations related to the 787 and 747-8 schedule delays announced in 2008 and infrastructure costs incurred during the 2008 IAM strike reduced earnings by $173 million and $28 million. These decreases were partially offset by increased earnings of $717 million and $473 million from new airplane deliveries offset by lower intercompany revenues. Additionally, period and other costs increased for the nine month period by $127 million but decreased for the three month period by $17 million.
Backlog
The decrease in contractual backlog during the nine months ended September 30, 2009 compared with December 31, 2008 was due to deliveries in excess of orders, changes in projected revenue escalation and cancellations of orders.
A number of our customers may have contractual remedies that may be implicated by program delays. We continue to address customer claims and requests for other contractual relief as they arise. However, once orders are included in firm backlog, orders remain in backlog until canceled or fulfilled, although the value of orders is adjusted based upon changing revenue escalation assumptions and as changes to price and schedule are agreed to with customers.
Accounting Quantity
The accounting quantities, undelivered units under firm orders and number of
cumulative firm orders were as follows:
Program
As of 9/30/2009 737 747 767 777 787
Program accounting quantities 4,400 1,499 1,035 1,100 *
Undelivered units under firm orders1 2,118 107 57 303 850
Cumulative firm orders2 5,154 1,523 1,036 1,114
Program
As of 6/30/2009 737 747 767 777 787
Program accounting quantities 4,400 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,137 107 61 314 850
Cumulative firm orders2 5,083 1,523 1,036 1,106
Program
As of 3/31/2009 737 747 767 777 787
Program accounting quantities 4,200 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,203 110 67 331 878
Cumulative firm orders2 5,050 1,524 1,039 1,102
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Program
As of 12/31/2008 737 747 767 777 787
Program accounting quantities 4,200 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,270 114 70 350 910
Cumulative firm orders2 5,026 1,524 1,039 1,098
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* The accounting quantity for the 787 program will be determined in the year of first airplane delivery.
1 Undelivered units are not adjusted for cancellations subsequent to September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008.
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