Business Context and Reporting Period
This Form 10-Q covers The Boeing Company for the quarterly period ended June 30, 2002. The filing includes unaudited condensed consolidated financial statements and management's discussion and analysis. The reporting period reflects the ongoing economic impact of the September 11, 2001 terrorist attacks and the adoption of new accounting standards regarding goodwill.
Key Financial Metrics
| Metric (Dollars in millions) | Six Months Ended June 30, 2002 |
Six Months Ended June 30, 2001 |
Three Months Ended June 30, 2002 |
Three Months Ended June 30, 2001 |
|---|---|---|---|---|
| Sales and Operating Revenues | $27,678 | $28,809 | $13,857 | $15,516 |
| Net Earnings (Loss) | $(470) | $2,077 | $779 | $840 |
| Net Earnings (Excl. Accounting Change) | $1,357 | $2,076 | $779 | $840 |
| Earnings from Operations | $2,267 | $2,585 | $1,275 | $1,367 |
| Operating Margin | 8.2% | 9.0% | 9.2% | 8.8% |
| Net Cash Provided by Operating Activities | $1,390 | $2,226 | N/A | N/A |
| Cash and Cash Equivalents (End of Period) | $816 | $1,502 | $816 | $1,502 |
| Total Debt (Short & Long Term) | $13,156 | $12,265 | $13,156 | $12,265 |
| Shareholders' Equity | $10,402 | $10,825 | $10,402 | $10,825 |
Note: The six-month 2002 Net Loss includes a one-time cumulative effect of accounting change charge of $1,827 million (net of tax) due to the adoption of SFAS No. 142.
Material Changes vs. Prior Period
- Revenue Decline: Sales for the six months ended June 30, 2002, decreased 3.9% to $27.7 billion compared to $28.8 billion in 2001. The second quarter saw a 10.7% decline in sales to $13.9 billion, driven primarily by a reduction in commercial aircraft deliveries (112 in Q2 2002 vs. 141 in Q2 2001) and the lingering effects of the September 11 attacks on the spare parts market.
- Accounting Change Impact: The adoption of SFAS No. 142 (Goodwill and Other Intangible Assets) resulted in a transitional goodwill impairment charge of $2,410 million ($1,827 million net of tax). This charge turned a reported net profit of $1,357 million into a net loss of $470 million for the six-month period.
- Segment Performance:
- Commercial Airplanes: Revenues declined due to lower delivery volumes. Operating margins remained stable at 10.3% for the quarter based on unit cost, though GAAP margins declined to 7.3% due to lower revenue volume.
- Military Aircraft and Missile Systems: Revenues increased 5.4% in the quarter to $3.5 billion, driven by higher deliveries of airlift, tactical aircraft, and weapons systems. Operating earnings rose to $458 million.
- Space and Communications: Revenues increased to $2.7 billion, with operating earnings improving to $181 million due to revenue growth in Missile Defense and Integrated Battlespace markets.
- September 11 Charges: An additional charge of $34 million was recorded in the first quarter of 2002 related to the September 11 attacks (guarantees and asset impairments). No additional charges were recorded in the second quarter.
Guidance, Outlook, and Risks
- Delivery Outlook: The full-year 2002 commercial aircraft delivery projection remains unchanged at 380 units, a significant decrease from 527 units in 2001. Management anticipates continued downsizing through early 2003.
- Organizational Restructuring: On July 10, 2002, Boeing announced the creation of Integrated Defense Systems (IDS), merging Space and Communications with Military Aircraft and Missile Systems. New segment reporting is expected to begin in Q1 2003.
- Liquidity and Capital: As of June 30, 2002, cash totaled $816 million. The company has $4.5 billion in available revolving credit lines and $4.0 billion in commercial paper capacity. Credit ratings remain strong (S&P A+, Moody's A2).
- Key Risks and Contingencies:
- United Airlines Exposure: United Airlines, BCC's largest customer, reported a net loss of $850 million for the six months ended June 30, 2002. While United is current on payments, a default could have a material adverse effect on Boeing.
- A-12 Litigation: Ongoing litigation regarding the A-12 aircraft contract termination. If the trial court's decision is sustained on appeal, Boeing could face an additional loss of approximately $275 million, or up to $1,450 million if required to repay unliquidated progress payments.
- Gender Discrimination Lawsuits: Multiple class-action lawsuits regarding gender discrimination are pending. The potential financial impact is currently unpredictable.
- Tax Litigation: A federal income tax refund suit involving over $400 million is pending before the U.S. Supreme Court.
Investor Verification Checklist
- Goodwill Impairment: Verify the long-term impact of the $2.4 billion goodwill write-down on future earnings and segment valuations.
- Commercial Delivery Rates: Monitor the ability to meet the reduced 380-unit delivery target and the associated cost-per-unit pressures.
- United Airlines Solvency: Track United Airlines' financial health and payment status, given Boeing's significant exposure ($1.27 billion in financing assets).
- A-12 Litigation Status: Follow the appeal process regarding the A-12 contract termination to assess potential additional liabilities up to $1.45 billion.
- Pension Funding: Review future cash requirements for pension plan contributions, as market performance and low interest rates may necessitate significant additional funding.