Boeing Company — 2009 Q3 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2009. Financial statements are unaudited; the interim information was reviewed by Deloitte & Touche, not audited. Amounts are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $16,688 | $15,293 | $50,344 | $48,245 |
| Operating earnings/(loss) | $(2,151) | $1,147 | $403 | $4,193 |
| Operating margin | (12.9)% | 7.5% | 0.8% | 8.7% |
| Net earnings/(loss) | $(1,564) | $695 | $44 | $2,758 |
| Diluted EPS | $(2.23) | $0.96 | $0.06 | $3.76 |
- Revenue rose 9% in Q3 and 4% year to date, driven mainly by more commercial aircraft deliveries and growth in defense services.
- Commercial Airplanes recorded operating losses of $2,837 in Q3 and $1,603 year to date. Integrated Defense Systems earned $885 in Q3 and $2,470 year to date, with a 9.8% year-to-date margin.
- Operating cash flow was $2,391 for the first nine months, versus $1,240 in 2008. Investing activities used $2,149; financing activities provided $2,545. Cash ended the period at $6,095, up from $3,268 at year-end 2008.
- At September 30, current assets were $30,227 and current liabilities $32,049. Debt was $11,038, including $973 current and $10,065 long-term. Shareholders’ equity was negative $877, largely reflecting pension-related balances.
- Cash dividends were $1.26 per share for the first nine months, compared with $1.20 in 2008. Contractual backlog was $298,959, down from $323,860 at December 31, 2008.
Material changes and unusual items
- The principal earnings driver was a $2,619 charge to research and development for the first three 787 flight-test aircraft, which Boeing determined could not be sold. The charge comprised $2,481 reclassified from inventory and $138 of additional costs.
- Boeing recorded an additional $1,005 747 program reach-forward loss in Q3; the 2009 year-to-date increase in 747 reach-forward losses was $1,352. Boeing cited rework, production disruption, supplier costs, and market-related production-rate decisions.
- Commercial Airplanes revenue increased year over year, but segment operating results deteriorated sharply. For the first nine months, deliveries rose to 359 from 325.
- Boeing acquired Vought’s North Charleston 787 business in July for $592 cash and released Vought from repayment of $416 previously advanced. The preliminary purchase-price allocation included $605 goodwill.
- Debt rose from $7,512 at year-end 2008 to $11,038, following $3,800 of notes issued in March and July. Interest and debt expense increased year over year.
Outlook, risks, and contingencies
- Boeing expected the 787’s first flight by year-end 2009 and first delivery in Q4 2010, citing structural modifications, supply-chain and assembly challenges, and testing and certification risk. It cautioned that additional aircraft could require charges if they also prove unsaleable.
- The 747-8 Freighter’s first flight was expected in Q1 2010 and first delivery in Q4 2010; the passenger variant’s first delivery remained scheduled for Q4 2011. Boeing reduced or delayed planned production-rate increases amid weak aviation markets.
- Management described a severe commercial aviation downturn: passenger traffic was contracting, air cargo was especially weak, airline profitability was under pressure, and customers could seek order cancellations, rescheduling, or financing changes. Boeing’s long-term outlook projected a $3.2 trillion market for 29,000 new aircraft over 20 years.
- Sea Launch filed for Chapter 11. Boeing paid $448 under a guarantee and recorded reserves against potential recovery shortfalls; failure to recover specified amounts could result in up to $478 of additional pretax charges.
- Boeing had directed suppliers to begin work on 23 C-17 aircraft beyond the 205 then under contract. Related inventory and potential termination liabilities were about $425; if further orders do not materialize, Boeing might decide to end production.
- Other exposures include $732 of recorded environmental liabilities, $9,599 of financing commitments, and $6,602 of contingent letters of credit and surety bonds. The A-12 litigation could result in approximately $1,681 of pretax charges in an adverse final outcome; Boeing continued to contest the ruling.
- Boeing reported access to liquidity sources and compliance with debt covenants, but noted that capital-market disruption, customer financing needs, pension funding, litigation, and program cost or schedule overruns could affect results. No new full-year earnings guidance is stated in the supplied filing text.
Most important facts for investors to verify
- Whether the 787 and 747-8 schedules, cost estimates, and customer delivery commitments remain achievable, and whether further reach-forward losses or charges arise.
- Whether commercial aircraft demand, customer financing conditions, cancellations, and Boeing’s backlog stabilize or deteriorate.
- Recovery prospects for Sea Launch guarantee and loan amounts, and the outcome of the C-17 production decision and related supplier commitments.
- Developments in major legal contingencies, particularly A-12, satellite disputes, and environmental matters.
- Cash generation, debt levels, pension funding requirements, and the potential effect of negative shareholders’ equity on financing flexibility.