Basis Of Presentation

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The condensed consolidated interim financial statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing”, the “Company”, “we”, “us”, or “our”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended March 31, 2020 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2019 Annual Report on Form 10-K. Certain amounts in prior periods have been adjusted to conform with the current year presentation.

Liquidity Matters

The global outbreak of COVID-19 coupled with the ongoing grounding of the 737 MAX airplane is having a significant adverse impact on our business and is expected to significantly reduce revenue, earnings and operating cash flow in future quarters. The aerospace industry is facing an unprecedented shock to demand for air travel which creates a tremendous challenge for our customers, our business and the entire aerospace manufacturing and services sector. We currently expect it will take 2-3 years for travel to return to 2019 levels and a few years beyond that for the industry to return to long-term trend growth. There is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.

During the first quarter of 2020, net cash used by operating activities was $4.3 billion and we expect negative operating cash flows in future quarters until deliveries resume and ramp up. At March 31, 2020, cash and short-term investments totaled $15.5 billion. Our debt balance totaled $38.9 billion at March 31, 2020 up from $27.3 billion at December 31, 2019. The major credit rating agencies downgraded our short term and long term credit ratings during the first quarter of 2020 and there is risk for further downgrades. At March 31, 2020, debt includes $4.7 billion of commercial paper down from $6.1 billion at December 31, 2019. Commercial paper at March 31, 2020 includes $2.3 billion, $0.5 billion and $1.9 billion maturing in the second, third and fourth quarter of 2020, respectively. In the current environment, we may have limited future access to the commercial paper market. In addition, we have term notes of $350 million maturing in the fourth quarter of 2020. At March 31, 2020, trade payables included $4.5 billion payable to suppliers who have elected to participate in supply chain financing programs compared with $5.2 billion at December 31, 2019. In future quarters, access to supply chain financing could be curtailed if our credit ratings are further downgraded. At March 31, 2020 and December 31, 2019 we had $9.6 billion of unused borrowing capacity on revolving credit agreements. We anticipate that these credit lines will primarily serve as back-up liquidity to support our general corporate borrowing needs. We plan to negotiate extending it in the fourth quarter of 2020 when $3.2 billion of the $9.6 billion comes up for renewal.

We are taking a number of actions to improve liquidity. We had paused our open market share repurchase program since last year, and in March 2020 our Board of Directors terminated its prior authorization to repurchase shares of the Company’s outstanding common stock. In March 2020, we also suspended the declaration and/or payment of dividends until further notice. We have also taken actions to reduce production rates in our commercial business to reflect the COVID-19 impact on the industry. We have furloughed certain employees and recently announced a voluntary employee layoff program which we plan to implement in the second quarter of 2020. We are also planning to further reduce our workforce by the end of this year through a combination of attrition and involuntary layoffs, as necessary. We are reducing discretionary spending as well as reducing or deferring research and development and capital expenditures. We are also working with our customers and supply chain to accelerate receipts and conserve cash. For example, the United States Department of Defense has taken steps to work with its industry partners to increase liquidity in the form of increased progress payment rates and reductions in withholds among other initiatives. We are also deferring certain tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Notwithstanding the actions described above to improve liquidity, we expect negative operating cash flows in 2020 and will need to obtain additional financing to fund our operations and obligations. The COVID-19 crisis is constraining the credit and capital markets and our ability to access credit markets may be reduced. We believe, based on an assessment of current market conditions, that there are sufficient sources of liquidity available to us that will enable us to fund our ongoing operations. Sources we are evaluating include funding options from the public and private markets, as well as from the U.S. government via the U.S. Treasury and various Federal Reserve programs. We currently plan to raise additional liquidity in the second quarter, which, together with other actions we are taking to improve liquidity, we expect will provide us with sufficient liquidity to fund our operations and obligations.

Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, our ability to successfully implement actions to improve liquidity as well our ability to access additional liquidity, we believe it is probable that we will be able to fund our operations for the foreseeable future.

Standards Issued and Implemented

In the first quarter of 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), using a modified retrospective method, which resulted in the recognition of allowances for credit losses on our Condensed Consolidated Statement of Financial Position as of January 1, 2020 and a $162 cumulative-effect adjustment to retained earnings to align our credit loss methodology with the new standard. The standard replaces the incurred loss impairment methodology under Topic 310 with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and certain other financial assets. See Note 6 and 9 for additional disclosures.

In the first quarter of 2020, we also adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). See Note 3 for additional disclosures.

Significant Accounting Policies - Update

Our significant accounting policies are described in "Note 1: Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2019. Our updated significant accounting policies described below reflect the impact of adopting Topic 326.

Allowances for losses on certain financial assets

We establish allowances for credit losses on accounts receivable, unbilled receivables, customer financing receivables, and certain other financial assets. The adequacy of these allowances are assessed quarterly through consideration of factors including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of the receivable, expected loss rates and collateral exposures. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by major credit rating agencies.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the accounting estimates and assumptions made by management are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ materially from those estimates.

Changes in estimated revenues, cost of sales and the related effect on operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a long-term contract’s percentage-of-completion. When the

current estimates of total sales and costs for a long-term contract indicate a loss, a provision for the entire reach-forward loss on the long-term contract is recognized.

Net cumulative catch-up adjustments to prior years' revenue and earnings, including certain reach-forward losses, across all long-term contracts were as follows:



(In millions - except per share amounts)	Three months ended March 31
	2020			2019
(Decrease)/increase to Revenue		($434	)		$160
(Decrease)/increase to (Loss)/earnings from operations		($839	)		$147
(Decrease)/increase to Diluted EPS		($0.63	)		$0.24