Boeing Earnings 2021-03-31
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
|
Assets, Equity
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Rev, G Profit, Net Income
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Ops, Inv, Fin
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended March 31, 2021
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission file number 1-442
THE BOEING COMPANY | ||||||||
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405/ of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
As of April 21, 2021, there were 584,810,068 shares of common stock, $5.00 par value, issued and outstanding.
THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended March 31, 2021
INDEX
| Part I. Financial Information (Unaudited) | Page | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II. Other Information | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
Part I. Financial Information
Item 1. Financial Statements
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| (Dollars in millions, except per share data) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Sales of products | $ | $ | |||||||||
| Sales of services | |||||||||||
| Total revenues | |||||||||||
| Cost of products | ( | ( | |||||||||
| Cost of services | ( | ( | |||||||||
| Boeing Capital interest expense | ( | ( | |||||||||
| Total costs and expenses | ( | ( | |||||||||
| Income/(loss) from operating investments, net | ( | ||||||||||
| General and administrative expense | ( | ( | |||||||||
| Research and development expense, net | ( | ( | |||||||||
| Gain on dispositions, net | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Other income, net | |||||||||||
| Interest and debt expense | ( | ( | |||||||||
| Loss before income taxes | ( | ( | |||||||||
| Income tax benefit | |||||||||||
| Net loss | ( | ( | |||||||||
| Less: net loss attributable to noncontrolling interest | ( | ( | |||||||||
| Net loss attributable to Boeing Shareholders | ($ | ($ | |||||||||
| Basic loss per share | ($ | ($ | |||||||||
| Diluted loss per share | ($ | ($ | |||||||||
| Weighted average diluted shares (millions) | |||||||||||
See Notes to the Condensed Consolidated Financial Statements.
1
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| (Dollars in millions) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Net loss | ($ | ($ | |||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||
| Currency translation adjustments | ( | ( | |||||||||
| Unrealized gain/(loss) on derivative instruments: | |||||||||||
Unrealized gain/(loss) arising during period, net of tax of ($ | ( | ||||||||||
Reclassification adjustment for (gains)/losses included in net loss, net of tax of $ | ( | ||||||||||
| Total unrealized gain/(loss) on derivative instruments, net of tax | ( | ||||||||||
| Defined benefit pension plans and other postretirement benefits: | |||||||||||
Amortization of prior service credits included in net periodic pension cost, net of tax of $ | ( | ( | |||||||||
Amortization of actuarial losses included in net periodic pension cost, net of tax of ($ | |||||||||||
Settlements and curtailments included in net loss, net of tax of $ | |||||||||||
Pension and postretirement cost related to our equity method investments, net of tax of ($ | |||||||||||
| Total defined benefit pension plans and other postretirement benefits, net of tax | |||||||||||
| Other comprehensive income/(loss), net of tax | ( | ||||||||||
| Comprehensive loss, net of tax | ( | ( | |||||||||
| Less: Comprehensive loss related to noncontrolling interest | ( | ( | |||||||||
| Comprehensive loss attributable to Boeing Shareholders, net of tax | ($ | ($ | |||||||||
See Notes to the Condensed Consolidated Financial Statements.
2
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
| (Dollars in millions, except per share data) | March 31 2021 | December 31 2020 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term and other investments | |||||||||||
| Accounts receivable, net | |||||||||||
| Unbilled receivables, net | |||||||||||
| Current portion of customer financing, net | |||||||||||
| Inventories | |||||||||||
| Other current assets, net | |||||||||||
| Total current assets | |||||||||||
| Customer financing, net | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||||||||
| Goodwill | |||||||||||
| Acquired intangible assets, net | |||||||||||
| Deferred income taxes | |||||||||||
| Investments | |||||||||||
Other assets, net of accumulated amortization of $ | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Advances and progress billings | |||||||||||
| Short-term debt and current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Accrued retiree health care | |||||||||||
| Accrued pension plan liability, net | |||||||||||
| Other long-term liabilities | |||||||||||
| Long-term debt | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity: | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, at cost - | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ deficit | ( | ( | |||||||||
| Noncontrolling interests | |||||||||||
| Total equity | ( | ( | |||||||||
| Total liabilities and equity | $ | $ | |||||||||
See Notes to the Condensed Consolidated Financial Statements.
3
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| (Dollars in millions) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows – operating activities: | |||||||||||
| Net loss | ($ | ($ | |||||||||
Adjustments to reconcile net loss to net cash (used)/provided by operating activities: | |||||||||||
| Non-cash items – | |||||||||||
| Share-based plans expense | |||||||||||
| Treasury shares issued for 401(k) contribution | |||||||||||
| Depreciation and amortization | |||||||||||
| Investment/asset impairment charges, net | |||||||||||
| Gain on dispositions, net | ( | ( | |||||||||
| Other charges and credits, net | |||||||||||
| Changes in assets and liabilities – | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Unbilled receivables | ( | ( | |||||||||
| Advances and progress billings | |||||||||||
| Inventories | ( | ( | |||||||||
| Other current assets | |||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued liabilities | ( | ( | |||||||||
| Income taxes receivable, payable and deferred | ( | ( | |||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Pension and other postretirement plans | ( | ( | |||||||||
| Customer financing, net | |||||||||||
| Other | |||||||||||
| Net cash used by operating activities | ( | ( | |||||||||
| Cash flows – investing activities: | |||||||||||
| Property, plant and equipment additions | ( | ( | |||||||||
| Property, plant and equipment reductions | |||||||||||
| Contributions to investments | ( | ( | |||||||||
| Proceeds from investments | |||||||||||
| Other | |||||||||||
| Net cash provided/(used) by investing activities | ( | ||||||||||
| Cash flows – financing activities: | |||||||||||
| New borrowings | |||||||||||
| Debt repayments | ( | ( | |||||||||
| Stock options exercised | |||||||||||
| Employee taxes on certain share-based payment arrangements | ( | ( | |||||||||
| Dividends paid | ( | ||||||||||
| Net cash (used)/provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents, including restricted | ( | ( | |||||||||
| Net (decrease)/increase in cash & cash equivalents, including restricted | ( | ||||||||||
| Cash & cash equivalents, including restricted, at beginning of year | |||||||||||
| Cash & cash equivalents, including restricted, at end of period | |||||||||||
| Less restricted cash & cash equivalents, included in Investments | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See Notes to the Condensed Consolidated Financial Statements.
4
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
For the three months ended March 31, 2021 and 2020
(Unaudited)
| Boeing shareholders | |||||||||||||||||||||||
| (Dollars in millions) | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total | ||||||||||||||||
| Balance at January 1, 2020 | $ | $ | ($ | $ | ($ | $ | ($ | ||||||||||||||||
| Net loss | ( | ( | ( | ||||||||||||||||||||
Other comprehensive income, net of tax of $ | ( | ( | |||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||
Treasury shares issued for stock options exercised, net | ( | ||||||||||||||||||||||
Treasury shares issued for other share-based plans, net | ( | ( | |||||||||||||||||||||
| Changes in noncontrolling interests | |||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | ($ | $ | ($ | $ | ($ | ||||||||||||||||
| Balance at January 1, 2021 | $ | $ | ($ | $ | ($ | $ | ($ | ||||||||||||||||
Net loss | ( | ( | ( | ||||||||||||||||||||
Other comprehensive income, net of tax of ($ | |||||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||
Treasury shares issued for stock options exercised, net | ( | ||||||||||||||||||||||
| Treasury shares issued for other share-based plans, net | ( | ( | |||||||||||||||||||||
| Treasury shares issued for 401(k) contribution | |||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ($ | $ | ($ | $ | ($ | ||||||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
5
The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
| (Dollars in millions) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Revenues: | |||||||||||
| Commercial Airplanes | $ | $ | |||||||||
| Defense, Space & Security | |||||||||||
| Global Services | |||||||||||
| Boeing Capital | |||||||||||
| Unallocated items, eliminations and other | ( | ( | |||||||||
| Total revenues | $ | $ | |||||||||
| Loss from operations: | |||||||||||
| Commercial Airplanes | ($ | ($ | |||||||||
| Defense, Space & Security | ( | ||||||||||
| Global Services | |||||||||||
| Boeing Capital | |||||||||||
| Segment operating earnings/(loss) | ( | ||||||||||
| Unallocated items, eliminations and other | ( | ( | |||||||||
| FAS/CAS service cost adjustment | |||||||||||
| Loss from operations | ( | ( | |||||||||
| Other income, net | |||||||||||
| Interest and debt expense | ( | ( | |||||||||
| Loss before income taxes | ( | ( | |||||||||
| Income tax benefit | |||||||||||
| Net loss | ( | ( | |||||||||
| Less: Net loss attributable to noncontrolling interest | ( | ( | |||||||||
| Net loss attributable to Boeing Shareholders | ($ | ($ | |||||||||
This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 18 for further segment results.
6
The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except otherwise stated)
(Unaudited)
Note 1 – 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, 2021 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 2020 Annual Report on Form 10-K.
Liquidity Matters
The global outbreak of COVID-19 and residual impacts from the grounding of the 737 MAX airplane in 2019 are having a significant adverse impact on our business and are expected to continue to negatively impact revenue, earnings and operating cash flow in future quarters. The COVID-19 pandemic has caused an unprecedented shock to demand for air travel, creating a tremendous challenge for our customers, our business and the entire aerospace manufacturing and services sector. We continue to expect commercial air travel to return to 2019 levels in 2023 to 2024. We expect it will take 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 recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.
During the first three months of 2021, net cash used by operating activities was $3.4 billion. Our operating cash flows continue to be impacted by lower commercial airplane deliveries and increases in commercial airplane inventory. We expect negative operating cash flows until commercial deliveries ramp up. In the first quarter of 2021, we issued $9.8 billion of fixed rate senior notes that mature between 2023 and 2026. We used the net proceeds of these note issuances to repay $9.8 billion outstanding under our two-year delayed draw term loan credit agreement. The remaining $4.0 billion of our two-year delayed draw term loan matures in February 2022. As a result, our cash and short-term investment balance was $21.9 billion at March 31, 2021, down from $25.6 billion at December 31, 2020, while our debt balance was $63.6 billion at March 31, 2021, unchanged from December 31, 2020. Short-term debt and the current portion of long-term debt increased to $6.0 billion at March 31, 2021, up from $1.7 billion at December 31, 2020. The current portion of long term debt includes term notes of $1.5 billion maturing in 2021. Our short-term and long-term credit ratings remained unchanged during the first quarter of 2021.
In the first quarter of 2021, we entered into a $5.3 billion two-year revolving credit agreement, which we have not drawn upon. As a result, our unused borrowing capacity on revolving credit agreements increased to $14.8 billion at March 31, 2021 from $9.5 billion at December 31, 2020. We anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs. See Note 11.
At March 31, 2021, trade payables included $3.8 billion payable to suppliers who have elected to participate in supply chain financing programs. While access to supply chain financing has been reduced due to our credit ratings and debt levels, we do not believe that these or future changes in the availability of supply chain financing will have a significant impact on our liquidity.
In addition to our debt issuances, we have taken a number of actions to improve liquidity. During 2020, our Board of Directors terminated its prior authorization to repurchase shares of the Company’s outstanding common stock and suspended the declaration and/or payment of dividends until further notice. We have also reduced production rates in our commercial business to reflect the impact of COVID-19 on the industry. We are executing on our plans to reduce our workforce through a combination of voluntary and involuntary layoffs and natural turnover. We have recorded severance costs for approximately 23,000 employees, of which approximately 5,000 are expected to leave in the remainder of
7
2021. In the fourth quarter of 2020, we began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans. In December 2020, in lieu of merit pay increases, we awarded most of our employees a one-time stock grant that will vest in three years. We have reduced discretionary spending, including reducing or deferring research and development and capital expenditures. We expect these actions will further enable the Company to conserve cash.
We are also working with our customers and supply chain to accelerate receipts and conserve cash. For example, the United States Department of Defense (U.S. DoD) 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 also deferred certain tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
In July 2020, we announced our business transformation efforts to assess our business across five key pillars: infrastructure, overhead and organization, portfolio and investments, supply chain health and operational excellence. Within the infrastructure pillar we are assessing our overall facility requirements in light of reduced demand in our commercial businesses and remote and virtual work opportunities for large numbers of our workforce. We also anticipate a reduction in office space needs compared to our pre-COVID capacity. However, as we consolidate our footprint, terminate leases and dispose of properties, we may incur near term adverse impacts to earnings. The overhead and organization pillar is focused on our cost structure and how we are organized so we can right size our workforce and simplify and reduce management layers and bureaucracy. The portfolio and investments pillar includes aligning our portfolio and investments to focus on our core business and the changes in market conditions. The supply chain pillar is focused on supply chain health and stability, reducing indirect procurement spend and streamlining our transportation, logistics and warehousing approach. The operational excellence pillar is focused on improving performance, enhancing quality and reducing rework. These activities are not intended to constrain our capacity, but rather to enable the Company to emerge stronger and be more resilient when the market recovers.
Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, our ability to successfully implement further actions to improve liquidity, as well as our ability to access additional liquidity, if needed, we believe it is probable that we will be able to fund our operations for the foreseeable future.
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 are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ 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.
8
Net cumulative catch-up adjustments to prior periods' 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 | ||||||||||
| 2021 | 2020 | ||||||||||
| Increase/(decrease) to Revenue | $ | ($ | |||||||||
| Increase to Loss from operations | ($ | ($ | |||||||||
| Decrease to Diluted EPS | ($ | ($ | |||||||||
Note 2 – Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.
The elements used in the computation of basic and diluted earnings per share were as follows:
| (In millions - except per share amounts) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Net loss attributable to Boeing Shareholders | ($ | ($ | |||||||||
| Less: earnings available to participating securities | |||||||||||
| Net loss available to common shareholders | ($ | ($ | |||||||||
| Basic | |||||||||||
Basic weighted average shares outstanding | |||||||||||
| Less: participating securities | |||||||||||
Basic weighted average common shares outstanding | |||||||||||
| Diluted | |||||||||||
Basic weighted average shares outstanding | |||||||||||
Dilutive potential common shares(1) | |||||||||||
Diluted weighted average shares outstanding | |||||||||||
Less: participating securities | |||||||||||
Diluted weighted average common shares outstanding | |||||||||||
| Net loss per share: | |||||||||||
Basic | ($ | ($ | |||||||||
Diluted | ( | ( | |||||||||
(1)Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
As a result of incurring a net loss for the three months ended March 31, 2021 and 2020, potential common shares of 1.7 million and 2.3 million were excluded from diluted loss per share because the effect would have been antidilutive. In addition, the following table includes the number of shares that may
9
be dilutive potential common shares in the future. These shares were not included in the computation of diluted loss per share because the effect was either antidilutive or the performance condition was not met.
| (Shares in millions) | Three months ended March 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Performance awards | |||||||||||
| Performance-based restricted stock units | |||||||||||
| Restricted stock units | |||||||||||
| Stock options | |||||||||||
Note 3 – Income Taxes
The first quarter of 2021 tax rate of 1.9 % reflects a projected tax benefit from current operations substantially offset with discrete tax expenses impacting the quarter. The 2021 tax benefit reflects pre-tax losses that are generating a tax benefit at the 21 % federal tax rate plus research and development tax credits. These tax benefits were offset by discrete tax expenses recorded in the first quarter of 2021 related to adjustments to the valuation allowance and CARES Act tax carryback benefits recorded in 2020. The 2020 tax rate includes tax benefits from the CARES Act enacted on March 27, 2020 that included a five-year net operating loss carryback provision which enabled us to benefit certain 2020 losses and re-measure certain deferred tax assets and liabilities at the former federal tax rate of 35 %. The 2020 tax rate also includes research and development tax credits and excess tax benefits related to share-based payments.
As of March 31, 2021 and December 31, 2020, the Company had recorded valuation allowances of $3,192 and $3,094 primarily for certain federal deferred tax assets, state net operating loss carryforwards, and state tax credits. To measure the valuation allowance, the Company estimated in what year each of its deferred tax assets and liabilities would reverse using systematic and logical methods to estimate the reversal patterns. Based on these methods, deferred tax liabilities were assumed to reverse and generate taxable income over the next 5 to 10 years while deferred tax assets related to pension and other postretirement benefit obligations were assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily resulted from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of certain deferred tax assets.
As of March 31, 2021, based on the estimated reversal patterns of the Company’s deferred tax assets and liabilities, it is more likely than not that the Company will realize the federal deferred tax assets generated in 2021 as there is sufficient projected income from reversals of deferred tax liabilities in the next five years.
Federal income tax audits have been settled for all years prior to 2018. The Internal Revenue Service (IRS) began the 2018-2019 federal tax audit in the first quarter of 2021. We are also subject to examination in major state and international jurisdictions for the 2007-2019 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
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Note 4 – Allowances for Losses on Financial Assets
The changes in allowances for expected credit losses for the three months ended March 31, 2021 and 2020 consisted of the following:
| Accounts receivable, net | Unbilled receivables, net | Other current assets, net | Customer financing, net | Other assets, net | Total | |||||||||||||||
| Balance at January 1, 2020 | ($ | ($ | ($ | ($ | ($ | ($ | ||||||||||||||
| Changes in estimates | ( | ( | ( | |||||||||||||||||
| Write-offs | ||||||||||||||||||||
| Balance at March 31, 2020 | ($ | ($ | ($ | ($ | ($ | ($ | ||||||||||||||
| Balance at January 1, 2021 | ($ | ($ | ($ | ($ | ($ | ($ | ||||||||||||||
| Changes in estimates | ( | ( | ( | ( | ||||||||||||||||
| Write-offs | ||||||||||||||||||||
| Balance at March 31, 2021 | ($ | ($ | ($ | ($ | ($ | ($ | ||||||||||||||
Note 5 – Inventories
Inventories consisted of the following:
| March 31 2021 | December 31 2020 | ||||||||||
| Long-term contracts in progress | $ | $ | |||||||||
| Commercial aircraft programs | |||||||||||
Commercial spare parts, used aircraft, general stock materials and other | |||||||||||
| Total | $ | $ | |||||||||
Commercial spare parts, used aircraft, general stock materials and other includes capitalized precontract costs of $571 at March 31, 2021 and $733 at December 31, 2020 primarily related to KC-46A Tanker and Commercial Crew. See Note 9.
Commercial Aircraft Programs
The increase in commercial aircraft programs inventory during 2021 reflects a continued buildup of 787 aircraft caused by 787 production issues and associated rework, which resulted in a significant reduction in 787 deliveries. This was partially offset by a decrease in 737 inventory reflecting the resumption of deliveries. Commercial aircraft programs inventory includes approximately 400 737 MAX aircraft and 100 787 aircraft at March 31, 2021 as compared with 425 737 MAX aircraft and 80 787 aircraft at December 31, 2020.
We are currently remarketing certain aircraft and may have to remarket additional aircraft in future periods. If we are unable to successfully remarket the aircraft, determine further production rate reductions are necessary, and/or contract the program accounting quantities, future earnings may be reduced and/or additional reach-forward losses may have to be recorded.
At March 31, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 737 program: deferred production costs of $1,861 and $2,159 and unamortized tooling and other non-recurring costs of $632 and $480 . At March 31, 2021, $2,391 of 737 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $102 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
11
At March 31, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 777X program: unamortized tooling and other non-recurring costs of $3,351 and $3,295 . During the fourth quarter of 2020, we determined that estimated costs to complete the 777X program plus costs already included in 777X inventory exceed estimated revenues from the program. The resulting reach-forward loss of $6,493 was recorded as a reduction to deferred production costs. As a result, 777X deferred production costs were immaterial at March 31, 2021 and December 31, 2020. The level of profitability on the 777X program will be subject to a number of factors. These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification. One or more of these factors could result in additional reach-forward losses on the 777X program in future periods.
At March 31, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 787 program: deferred production costs of $14,803 and $14,976 , $1,795 and $1,865 of supplier advances, and $1,857 and $1,863 of unamortized tooling and other non-recurring costs. At March 31, 2021, $11,557 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $5,103 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $3,114 and $2,992 at March 31, 2021 and December 31, 2020.
Note 6 – Contracts with Customers
Unbilled receivables increased from $7,995 at December 31, 2020 to $8,785 at March 31, 2021, primarily driven by revenue recognized at Defense, Space & Security (BDS) and Global Services (BGS) in excess of billings .
Advances and progress billings increased from $50,488 at December 31, 2020 to $50,908 at March 31, 2021, primarily driven by advances on orders received at Commercial Airplanes (BCA), BDS, and BGS, partially offset by revenue recognized and the return of customer advances at BCA.
Note 7 – Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following:
| March 31 2021 | December 31 2020 | ||||||||||
| Financing receivables: | |||||||||||
| Investment in sales-type/finance leases | $ | ||||||||||