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Strato2
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Boeing 787 deferred production cost watch

Sun Oct 28, 2018 6:56 pm

Boeing numbers for Q3 are out.

2018

Q1 deliveries 32 planes
Q1 Deferred production cost reduction 668 (million)
Q1 Unamortized Tooling and Other Non-Recurring Cost reduction 131

Q1 reduction per plane 23,5 million
Q1 Total deferred cost + tooling left 27732 million


Q2 deliveries 38 planes
Q2 Deferred production cost reduction 449 (million)
Q2 Unamortized Tooling and Other Non-Recurring Cost 143

Q2 reduction per plane 15,6 million
Q2 Total deferred cost + tooling left 27140 million


Q3 deliveries 34 planes
Q3 Deferred production cost reduction 657 (million)
Q3 Unamortized Tooling and Other Non-Recurring Cost 115

Q3 reduction per plane 22,7 million
Q3 Total deferred cost + tooling left 26358 million


787 Backlog at the end of September: 656 planes

Reduction needed to get rid of Deferred cost + tooling with 656 orders = 40,17 million/plane

Backlog needed to get rid of 26358 million Deferred cost + tooling with a reduction of 22,7 million/plane = 1161 planes
 
iahcsr
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 7:51 pm

So all they need do is sell another 600 planes....
Working Hard, Flying Right Friendly....
 
smartplane
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:16 pm

Do Boeing transfer / sell 787 (and 748) to BCC at list, or cost plus targetted deferred cost return, or on some other basis?
 
Turnhouse1
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:21 pm

So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?
 
Jet-lagged
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:22 pm

Good idea for a thread.
 
Waterbomber
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:26 pm

Wow 38 widebodies delivered in a quarter.
That must be a new record.
 
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Revelation
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:35 pm

Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do (a) Boeing have a loan for $26Bn which they are repaying or (b) did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?

(b).

The cash has long since been paid out, so they actually get the money.

It's an accounting procedure that Boeing has been doing for decades now and even Airbus now does to a small degree these days.
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mjoelnir
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:56 pm

Revelation wrote:
Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do (a) Boeing have a loan for $26Bn which they are repaying or (b) did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?

(b).

The cash has long since been paid out, so they actually get the money.

It's an accounting procedure that Boeing has been doing for decades now and even Airbus now does to a small degree these days.


I am a bit tired of this. Boeing has declared profits to the tune of the deferred cost. They have spend this profits, that they did not yet make, on bonuses, dividends and share buy backs. Declaring profits one still has to make, is not just an accounting procedure.
If they do not bring in this deferred cost, Boeing has to declare the rest as a loss.
 
justloveplanes
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 8:57 pm

Does it mention profit for the program?
 
bigjku
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 10:46 pm

mjoelnir wrote:
Revelation wrote:
Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do (a) Boeing have a loan for $26Bn which they are repaying or (b) did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?

(b).

The cash has long since been paid out, so they actually get the money.

It's an accounting procedure that Boeing has been doing for decades now and even Airbus now does to a small degree these days.


I am a bit tired of this. Boeing has declared profits to the tune of the deferred cost. They have spend this profits, that they did not yet make, on bonuses, dividends and share buy backs. Declaring profits one still has to make, is not just an accounting procedure.
If they do not bring in this deferred cost, Boeing has to declare the rest as a loss.


You can’t spend profits. You still don’t understand the issues at hand. I would suggest getting educated.
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 10:58 pm

If people want to emphasize the 787 is deep in the red, ok. But also mention how Boeing has very little external debt. At this point, these costs are future tax breaks for R&D already spent.

There is no cash here per se. While bad, the 787 has more chance of breaking even than the A380.

Lightsaber

PS
And mention the ramp to 168 per year. ;). That should drop costs and this speed payback.

But again, look at Boeing corporate debt, it isn't much.

Lightsaber
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scbriml
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:09 pm

Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?


The money has been spent, but not allowed for in the accounts.

Effectively, Boeing has to work -$26+ billion thought the books as they deliver each 787. They could book it all in one quarter and take a huge paper loss, but that would have a massive negative impact on the share price and, more importantly, executives bonuses.

Cynical, me? :duck:
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Turnhouse1
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:14 pm

bigjku wrote:
mjoelnir wrote:
Revelation wrote:
(b).

The cash has long since been paid out, so they actually get the money.

It's an accounting procedure that Boeing has been doing for decades now and even Airbus now does to a small degree these days.


I am a bit tired of this. Boeing has declared profits to the tune of the deferred cost. They have spend this profits, that they did not yet make, on bonuses, dividends and share buy backs. Declaring profits one still has to make, is not just an accounting procedure.
If they do not bring in this deferred cost, Boeing has to declare the rest as a loss.


You can’t spend profits. You still don’t understand the issues at hand. I would suggest getting educated.


So of 3 replies, I thought I understood the first, then the second and third confused me again.

In 2005 Boeing received payment for selling 737s, 747s and 777s, they then spent some of this on developing the 787 rather than paying it as dividends, but put an amount on their balance sheet, which may have had benefits for corporation tax (or US/Washington State equivalent)

In 2018 they sell a 787 and receive payment which they can then pay a dividend with or spend on 777-X or 797 development. They also write off part of the amount on the balance sheet.
 
mjoelnir
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:17 pm

lightsaber wrote:
If people want to emphasize the 787 is deep in the red, ok. But also mention how Boeing has very little external debt. At this point, these costs are future tax breaks for R&D already spent.

There is no cash here per se. While bad, the 787 has more chance of breaking even than the A380.

Lightsaber

PS
And mention the ramp to 168 per year. ;). That should drop costs and this speed payback.

But again, look at Boeing corporate debt, it isn't much.

Lightsaber


If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.
 
Max Q
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:26 pm

iahcsr wrote:
So all they need do is sell another 600 planes....



I think that will happen, this is an aircraft
that’s just hitting it’s stride


The combination of range, performance
and efficiency in its size range just blows
everything else away


Airbus doesn’t really have a competing
product, the A350 is a great aircraft but
it’s the next step up in capacity



In fact the two aircraft complement
each other quite well as can be seen from
the airlines that have ordered both


600 more ?


I think they’ll build twice that
The best contribution to safety is a competent Pilot.


GGg
 
sxf24
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:28 pm

mjoelnir wrote:
lightsaber wrote:
If people want to emphasize the 787 is deep in the red, ok. But also mention how Boeing has very little external debt. At this point, these costs are future tax breaks for R&D already spent.

There is no cash here per se. While bad, the 787 has more chance of breaking even than the A380.

Lightsaber

PS
And mention the ramp to 168 per year. ;). That should drop costs and this speed payback.

But again, look at Boeing corporate debt, it isn't much.

Lightsaber


If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


Until you can tell us why Boeing has negative equity (hint: it is not because of deferred production costs), then I suggest you stay silent on the subject. You continue to complain about issues that you can’t explain.

A better measure of a company’s performance is cash flow. In fact, that’s what shareholders care about and what Boeing executives get bonuses based on. Focusing on GAAP profit is like arguing about where the fire truck should park when then come to put your house fire out. In the scheme of things, it’s not the most important.
 
DfwRevolution
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:33 pm

mjoelnir wrote:
lightsaber wrote:
If people want to emphasize the 787 is deep in the red, ok. But also mention how Boeing has very little external debt. At this point, these costs are future tax breaks for R&D already spent.

There is no cash here per se. While bad, the 787 has more chance of breaking even than the A380.

Lightsaber

PS
And mention the ramp to 168 per year. ;). That should drop costs and this speed payback.

But again, look at Boeing corporate debt, it isn't much.

Lightsaber


If you want to start again.
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.


This is just so, so very wrong.

Cash is not simply a measure of liquidity. It is a measure of a company’s ability to distribute earnings to shareholders. The entire point of the Cash Flow Statement is precisely to identify whether cash is borrowed or earned from operations.

You do not understand the implications of equity on a corporate balance sheet. It’s just assets minus liabilities. Nothing more. This is not personal finance. The reality is that liabilities can be cash producing while assets can be cash consuming.
Last edited by DfwRevolution on Sun Oct 28, 2018 11:39 pm, edited 1 time in total.
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musman9853
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Re: Boeing 787 deferred production cost watch

Sun Oct 28, 2018 11:38 pm

iahcsr wrote:
So all they need do is sell another 600 planes....



that'll almost certainly happen over the course of the 787's life
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Dan23
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 12:26 am

It might be a number of years from now but its going to be quite a day here on A.net when the deferred costs reach zero. That will be one thread worth a read :cloudnine:
 
PlanesNTrains
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 12:31 am

It’s become an obsession for some. Why, I don’t know.
-Dave


MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
cledaybuck
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 12:43 am

PlanesNTrains wrote:
It’s become an obsession for some. Why, I don’t know.
You know why.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
United857
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:32 am

mjoelnir wrote:
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.

If you take a look into Boeing's 2018 Q3 10-Q (search it up on SEC Edgar, or go to: https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292718000065/a201809sep3010-q.htm), you will see that deferred production costs are recorded under the "inventories" account, an asset, not a liability. In essence, Boeing is amortizing the deferred production cost in the same way they would depreciate Property, Plant, & Equipment. It has nothing to do with liabilities/debt.

As it currently stands, the deferred production costs according to the footnotes is $26.358 billion in deferred production costs ($23.584 billion in actual deferred production costs and $2.774 billion in unamortized tooling costs). If Boeing were to write off all the deferred production costs tomorrow, Inventories would simply fall to $35.680 billion ($62.038 - $26.358) while a simultaneous entry will be made to reduce Retained Earnings in the equity portion of the balance sheet, which would fall to $28.308 billion ($54.666 - $26.358) to keep the balance sheet balanced, as Assets = Liabilities + Equity. A third entry would be then made on the income statement for "Loss on xxx related to deferred production costs on the 787" at an amount of $26.358 billion.

Writing off the deferred production cost to $0 is nothing more than a simple paper exercise that Boeing can do tomorrow if they are willing to completely screw their earnings in Q4. It has no real-life impact on the health of the company. There is no cash changing hands or loans being repaid to write it off, just a couple of computer entries into their accounting program.
Last edited by United857 on Mon Oct 29, 2018 1:45 am, edited 2 times in total.
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braddmlewis
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:39 am

Thank god - someone making sense who actually understands how publicly traded companies do their accounting. But for those who are fixated on this topic and it’s impending disastrous impact on Boeing (hint - there won’t be one) keep at it. I also suggest to not apply for any position requiring P&L authority. Signed -
Someone who has that authority and an Ivy League MBA.
 
bigjku
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:53 am

United857 wrote:
mjoelnir wrote:
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.

If you take a look into Boeing's 2018 Q3 10-Q (search it up on SEC Edgar, or go to: https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292718000065/a201809sep3010-q.htm), you will see that deferred production costs are recorded under the "inventories" account, an asset, not a liability. In essence, Boeing is amortizing the deferred production cost in the same way they would depreciate Property, Plant, & Equipment. It has nothing to do with liabilities/debt.

As it currently stands, the deferred production costs according to the footnotes is $26.358 billion in deferred production costs ($23.584 billion in actual deferred production costs and $2.774 billion in unamortized tooling costs). If Boeing were to write off all the deferred production costs tomorrow, Inventories would simply fall to $35.680 billion ($62.038 - $26.358) while a simultaneous entry will be made to reduce Retained Earnings in the equity portion of the balance sheet, which would fall to $28.308 billion ($54.666 - $26.358) to keep the balance sheet balanced, as Assets = Liabilities + Equity. A third entry would be then made on the income statement for "Loss on xxx related to deferred production costs on the 787" at an amount of $26.358 billion.

Writing off the deferred production cost to $0 is nothing more than a simple paper exercise that Boeing can do tomorrow if they are willing to completely screw their earnings in Q4. It has no real-life impact on the health of the company. There is no cash changing hands or loans being repaid to write it off, just a couple of computer entries into their accounting program.


He has been told all of this multiple times. He has been told that Boeing has negative equity essentially because they choose too and the market allows it. He refuses to understand this.

Once again, anyone looking from the outside, the quoted post has this exactly right.
 
RJMAZ
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 2:08 am

That is big profit margin per plane actually. It looks like the program will easily break even.

The 787 airframe will be in production for a long time. There will be lots of A330's that need to be replaced with orders yet to placed.

Boeing will most likely fit new engines to the 787 in 10-15 years time. That will be a cheap development with the first 100 aircraft sold paying for the NEO program then another 500+ sales to cover anything left from the original 787 program.
 
JayinKitsap
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 5:10 am

A 'not accountant' here. But my understanding is that for each plane delivered the accounting would take the sale price less costs of the sale such as "commissions" and the like, and the in house and subcontracted costs, the overheads that are pro rated etc to these to achieve a gross profit (or loss on that plane). From that will be allocated the profit, the deferred production costs, R&D contributions, and the like.

The coverage of deferred production costs are rising, Q1 it was 23.5 M, 15.6M in Q2, and 22.7M in Q3. If the plane was sold for $150M and Boeing is writing off 23.5 M and taking possibly a 10% profit also it really indicates they have a great trend line on their production costs. Also, it is normal for the planes in backlog to have a higher average price than the ones produced, it is known the first 3 to 400 sales were are launch pricing before the true costs of production were known. LN1300 should be selling at a far higher number that LN400 did. Q2 was also probably affected by the -10, a new model so slower to produce and also a lower sales price. Soon the -10 will cost not a lot more to produce than the -9

Two years ago the contribution per plane was less than half what it is now. In a couple of years the contributions will be over 35M. But what makes the Boeing Sales VP happy is that soon they will not need to price in this so they might have an extra 20M/plane to play with to land that 'special' order.
 
majano
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 6:04 am

bigjku wrote:
United857 wrote:
mjoelnir wrote:
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.

If you take a look into Boeing's 2018 Q3 10-Q (search it up on SEC Edgar, or go to: https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292718000065/a201809sep3010-q.htm), you will see that deferred production costs are recorded under the "inventories" account, an asset, not a liability. In essence, Boeing is amortizing the deferred production cost in the same way they would depreciate Property, Plant, & Equipment. It has nothing to do with liabilities/debt.

As it currently stands, the deferred production costs according to the footnotes is $26.358 billion in deferred production costs ($23.584 billion in actual deferred production costs and $2.774 billion in unamortized tooling costs). If Boeing were to write off all the deferred production costs tomorrow, Inventories would simply fall to $35.680 billion ($62.038 - $26.358) while a simultaneous entry will be made to reduce Retained Earnings in the equity portion of the balance sheet, which would fall to $28.308 billion ($54.666 - $26.358) to keep the balance sheet balanced, as Assets = Liabilities + Equity. A third entry would be then made on the income statement for "Loss on xxx related to deferred production costs on the 787" at an amount of $26.358 billion.

Writing off the deferred production cost to $0 is nothing more than a simple paper exercise that Boeing can do tomorrow if they are willing to completely screw their earnings in Q4. It has no real-life impact on the health of the company. There is no cash changing hands or loans being repaid to write it off, just a couple of computer entries into their accounting program.


He has been told all of this multiple times. He has been told that Boeing has negative equity essentially because they choose too and the market allows it. He refuses to understand this.

Once again, anyone looking from the outside, the quoted post has this exactly right.


My first post and unfortunately I have to disagree with somebody. The accounting entries in the post you refer to are not entirely correct. There will be no entry posted to retained earnings and there will be no third entry. If we take a very simplistic view and we ignore taxes, subsidiary ledgers and all other vagaries of an accounting system, there will be just one entry with a debt to the income statement (statement of profit and/or loss) and a credit to the balance sheet (statement of financial position).

At the end of the accounting period, what is referred to as closing journal entries will be passed, largely automated. At this point only, retained earnings will be impacted. The real number of entries will be at least a dozen.
 
VV
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 6:36 am

Dan23 wrote:
It might be a number of years from now but its going to be quite a day here on A.net when the deferred costs reach zero. That will be one thread worth a read :cloudnine:


It will not reach zero, by definition. It is "deferred production cost", so as long as the aircraft is in production there will be a certain amount of deferred production cost.
It may reach zero when the last aircraft of the program will be delivered.

If people are crazy enough to track 787's deferred production cost then be it. They will do it during decades.
 
aviationaware
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:40 am

Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?


They did not charge those costs to their profit and loss statement but instead recognized them as an asset on the balance sheet. That asset is now being amortized (and hence recognized as costs in the P&L) pro rata as deliveries happen. This process is completely divorced from the cash flows of the program and has nothing to do with them "actually getting the money".
 
mjoelnir
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:41 am

United857 wrote:
mjoelnir wrote:
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.

If you take a look into Boeing's 2018 Q3 10-Q (search it up on SEC Edgar, or go to: https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292718000065/a201809sep3010-q.htm), you will see that deferred production costs are recorded under the "inventories" account, an asset, not a liability. In essence, Boeing is amortizing the deferred production cost in the same way they would depreciate Property, Plant, & Equipment. It has nothing to do with liabilities/debt.

As it currently stands, the deferred production costs according to the footnotes is $26.358 billion in deferred production costs ($23.584 billion in actual deferred production costs and $2.774 billion in unamortized tooling costs). If Boeing were to write off all the deferred production costs tomorrow, Inventories would simply fall to $35.680 billion ($62.038 - $26.358) while a simultaneous entry will be made to reduce Retained Earnings in the equity portion of the balance sheet, which would fall to $28.308 billion ($54.666 - $26.358) to keep the balance sheet balanced, as Assets = Liabilities + Equity. A third entry would be then made on the income statement for "Loss on xxx related to deferred production costs on the 787" at an amount of $26.358 billion.

Writing off the deferred production cost to $0 is nothing more than a simple paper exercise that Boeing can do tomorrow if they are willing to completely screw their earnings in Q4. It has no real-life impact on the health of the company. There is no cash changing hands or loans being repaid to write it off, just a couple of computer entries into their accounting program.


That is absolute unsubstantiated bla bla. You can not proof that if Boeing would write off the deferred cost tomorrow, producing a loss of 28 billion USD and going negative in equity to the tune of 30 billion USD, that that will have no influence on the stock market value. You just assume. You will not be able to find an example, because nobody else is accounting in this way.
We all know what would happen, the stock price would tank, that is why Boeing would never try out what would happen. The written off losses of the tanker or the 787-8 produced a reaction, being peanuts compared to this losses. The deferred cost are a real loss that, has not yet been booked. All talk about it being only a paper exercise, is just talk.
 
Bricktop
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:46 am

Come on folks. Boeing is a shell game. Inferior products, sold ar a loss because that’s the only way people will buy them. The investors and analysts are all dupes. All per one Airbus fanboy on an island in the North Atlantic.

As I have posted to him before... just short Boeing stock if you’re so thoroughly convinced in the rectitude of your own analysis. You’ll have the last laugh then.
 
81819
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 7:48 am

At a hunch, I think the markets would place some value on the $500 billion order book. At a 10% margin over seven years there's $8 billion in value every year.
 
QXAS
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 8:52 am

So if I understand this correctly, Boeing owes Boeing 26.358 Billion dollars on the 787? They owe no other company or bank any money. So if they wanted, they could write it all off tomorrow morning and it simply wouldn’t exist? Obviously share prices would change but short term, cash flow is far more important than share price. Would cash flow change? When Boeing puts 22.5 million toward paying down the production cost where is that cash going?
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Revelation
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 11:03 am

scbriml wrote:
The money has been spent, but not allowed for in the accounts.

Nope, it is completely allowed for in the books, that's how we know the amounts posted in #1 above, and that's what triggers this quarterly slag fest.

bigjku wrote:
He has been told all of this multiple times. He has been told that Boeing has negative equity essentially because they choose too and the market allows it. He refuses to understand this.

:checkmark:

The whole idea of "deferred production costs" is to defer production costs. Everyone involved knows exactly what is going on here, to several places of precision. The fact it pisses some people off is also just their choice, a pretty odd one, IMHO.
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boeing773er
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 12:45 pm

QXAS wrote:
So if I understand this correctly, Boeing owes Boeing 26.358 Billion dollars on the 787? They owe no other company or bank any money. So if they wanted, they could write it all off tomorrow morning and it simply wouldn’t exist? Obviously share prices would change but short term, cash flow is far more important than share price. Would cash flow change? When Boeing puts 22.5 million toward paying down the production cost where is that cash going?


In a sense you can call it owing that money, but it’s not a liability. Boeing has a unique accounting system that is approved by the SEC/FASB, and as far as I know they are the only American company to use the system.

Their cash flow is not going to be affected.
I’m guessing the posting entry would be:
Amortization expense (or something around those lines)
——> Inventory
So it’s a NCE (non cash entry) that is merely affecting their NI at the end of the quarter. If they for whatever reason wanted to write it all off tomorrow I believe they could, it it would make no sense to do that since it would be a ~30 billion expense.
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ElroyJetson
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 12:59 pm

This has been rehashed countless times. I am not an accountant but it seems pretty straightforward to me.

I have no doubt based on the 787 order book the deferred costs will get at or close to zero.

Why are people obsessing about this?
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:04 pm

Revelation wrote:
scbriml wrote:
The money has been spent, but not allowed for in the accounts.

Nope, it is completely allowed for in the books, that's how we know the amounts posted in #1 above, and that's what triggers this quarterly slag fest.

bigjku wrote:
He has been told all of this multiple times. He has been told that Boeing has negative equity essentially because they choose too and the market allows it. He refuses to understand this.

:checkmark:

The whole idea of "deferred production costs" is to defer production costs. Everyone involved knows exactly what is going on here, to several places of precision. The fact it pisses some people off is also just their choice, a pretty odd one, IMHO.


It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.

I very much doubt that most investors really understand what is going on, why otherwise use this smokescreen. If it makes no difference to the perception, why use it at all?
 
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ElroyJetson
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:07 pm

This has been rehashed countless times. I am not an accountant but it seems pretty straightforward to me.

I have no doubt based on the 787 order book the deferred costs will get at or close to zero.

Why are people obsessing about this?
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SEPilot
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:10 pm

I am completely ignorant on corporate accounting. However, I can understand that if a company develops and sells a product they must sell it for more than it costs to produce it, and they must sell enough of them to cover development costs. If they have multiple products, and one ends up losing money overall, they can cover that loss with other profitable products if the profit is enough. If a company has no external debt it is in good financial shape, period. It is earning at least as much money as it is spending. So Boeing spent a whole boatload of money, much of it wasted, developing the 787, but at the same time they were selling 737s and 777s like mad and making good profit on them and hence did not have to borrow much, if any. This is very different from when they developed the 707 and the 747, both of which cost more than the net worth of the company to develop, and hence involved massive borrowing. The 747 very nearly brought Boeing down as a recession came just as it was entering service, PW was having trouble delivering reliable engines, and Boeing had to go through massive layoffs and brutal cost cutting to survive. But there are no such problems this time around. The 787 is performing extremely well, 737s are still selling like hot cakes, and money is pouring in. The 777 is not selling like it did earlier, but the 787 is now making up for it. Boeing has been able to design the 777X, build the wing facility and start work on the 797 without borrowing money. So when the 787 makes enough money to completely repay all that was spent developing it (which it certainly will) is to me irrelevant. It is now selling for enough to bring in a healthy profit per plane and is enabling Boeing to continue developing new planes and improve existing ones without their having to borrow money. That sounds healthy to me.
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nikeherc
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:12 pm

mjoelnir wrote:
United857 wrote:
mjoelnir wrote:
The liabilities of a company are their whole dept, as something that has to be paid or wares to be delivered for. The equity is what a company owns.
Cash is just a measurement if a company is liquid at this time. Cash accounting does not bother if you own the cash or have it on loan.
Boeing has still a negative equity, so all their cash is on loan and the liabilities are not covered by their assets.

If you take a look into Boeing's 2018 Q3 10-Q (search it up on SEC Edgar, or go to: https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292718000065/a201809sep3010-q.htm), you will see that deferred production costs are recorded under the "inventories" account, an asset, not a liability. In essence, Boeing is amortizing the deferred production cost in the same way they would depreciate Property, Plant, & Equipment. It has nothing to do with liabilities/debt.

As it currently stands, the deferred production costs according to the footnotes is $26.358 billion in deferred production costs ($23.584 billion in actual deferred production costs and $2.774 billion in unamortized tooling costs). If Boeing were to write off all the deferred production costs tomorrow, Inventories would simply fall to $35.680 billion ($62.038 - $26.358) while a simultaneous entry will be made to reduce Retained Earnings in the equity portion of the balance sheet, which would fall to $28.308 billion ($54.666 - $26.358) to keep the balance sheet balanced, as Assets = Liabilities + Equity. A third entry would be then made on the income statement for "Loss on xxx related to deferred production costs on the 787" at an amount of $26.358 billion.

Writing off the deferred production cost to $0 is nothing more than a simple paper exercise that Boeing can do tomorrow if they are willing to completely screw their earnings in Q4. It has no real-life impact on the health of the company. There is no cash changing hands or loans being repaid to write it off, just a couple of computer entries into their accounting program.


That is absolute unsubstantiated bla bla. You can not proof that if Boeing would write off the deferred cost tomorrow, producing a loss of 28 billion USD and going negative in equity to the tune of 30 billion USD, that that will have no influence on the stock market value. You just assume. You will not be able to find an example, because nobody else is accounting in this way.
We all know what would happen, the stock price would tank, that is why Boeing would never try out what would happen. The written off losses of the tanker or the 787-8 produced a reaction, being peanuts compared to this losses. The deferred cost are a real loss that, has not yet been booked. All talk about it being only a paper exercise, is just talk.


Ok, we know that in your world, the 787 will destroy Boeing, ruin the atmosphere and start falling from the sky like autumn leaves. Give it a rest.

There are several things peculiar to A.net. They include 787 deferred cost, A380 neo/stretch, 777 folding wingtips will fail in flight and doom the program. Enough has been said. Say no more.
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marcelh
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:20 pm

ElroyJetson wrote:
Why are people obsessing about this?


Perhaps it gives Boeing an advantage compared to their competitor? I’m not an accountant either (thank God), I’m just guessing.
 
TheOldDude
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:32 pm

mjoelnir wrote:
That is absolute unsubstantiated bla bla....
We all know what would happen, the stock price would tank,


I submit that your assertion is unsubstantiated bla bla as well. If you want to argue the point, prove that "We all know what would happen..."

I understand your main point is that Boeing's financials are not comparable to other public company financials, and you are concerned investors are not aware of the difference. I suggest that you address your concern to the SEC and the FASB rather than this board. They can do something about it. We can't.
 
Newbiepilot
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 1:48 pm

mjoelnir wrote:
I very much doubt that most investors really understand what is going on


That is a very telling statement. If someone truly thinks this, we aren’t going to change their mind on this forum.

Let’s keep the discussion in this thread. If we can’t agree here, discussing 787 deferred costs is only going to sidetrack other threads like the A330neo delivery delay thread

viewtopic.php?f=3&t=1407015&start=50

mjoelnir wrote:

Very simple. IFRS does not allow Airbus to just defer cost when ramping up a production like the A350, the costs have to be booked the year they arise and lower so the shown profits.

Boeing just defers the cost of ramping up a production, keep showing astonishing profits and than according to Boeing fan boys these costs just disappear, because once deferred, they exists only on paper.
 
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 2:00 pm

mjoelnir wrote:
Revelation wrote:
scbriml wrote:
The money has been spent, but not allowed for in the accounts.

Nope, it is completely allowed for in the books, that's how we know the amounts posted in #1 above, and that's what triggers this quarterly slag fest.

bigjku wrote:
He has been told all of this multiple times. He has been told that Boeing has negative equity essentially because they choose too and the market allows it. He refuses to understand this.

:checkmark:

The whole idea of "deferred production costs" is to defer production costs. Everyone involved knows exactly what is going on here, to several places of precision. The fact it pisses some people off is also just their choice, a pretty odd one, IMHO.


It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.

I very much doubt that most investors really understand what is going on, why otherwise use this smokescreen. If it makes no difference to the perception, why use it at all?


And they would have gotten away with it too if it wasn’t for you meddling kids..... smh
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MAX’d out on MAX threads. If you are starting a thread, and it’s about the MAX - stop. There’s already a thread that covers it.
 
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lightsaber
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 3:18 pm

Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?

This is future tax write-offs of $26 billion.
Please see the Boeing quarterly report. Total external debt is $11.9 billion for all programs, that isn't much below their cash on hand.

That debt is for the MAX (and the engine delays), 777X R&D, tanker (hundreds of millions in losses), trainer (loss lead position), 767 (ok, probably no debt), 748 (large write-offs in prior years), and the $26 billion of 787 debt.

For a company with $4.2 billion of free cash flow per quarter, they are doing good enough.

With the manufacturing improvements, we should see a faster burn down.

This isn't ideal, but Boeing, for their size, should have a bond rating improvement due to the cash generated. Their total external debt is only three quarters of free cash...

Now, ROI is a different discussion. ;)

Lightsaber
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lightsaber
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 3:26 pm

marcelh wrote:
ElroyJetson wrote:
Why are people obsessing about this?


Perhaps it gives Boeing an advantage compared to their competitor? I’m not an accountant either (thank God), I’m just guessing.

From a tax perspective it is a disadvantage (tax breaks in later years).

From an investor standpoint it has overstated earnings by about 20% to 25%. Meh...

Everyone is treating this like a debt that must be repaid. Boeing only has $11.9 billion in external debt across everything.

What this does do is make future 787 sales harder.
Once the RR engine issue is fixed, costs will go down.

Lightsaber
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bigjku
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 3:42 pm

lightsaber wrote:
Turnhouse1 wrote:
So complete non accountant lack of understanding question, but do Boeing have a loan for $26Bn which they are repaying or did they just run up a charge on their balance sheet, either for an intangible asset or the physical tooling, which they're depreciating as they sell planes and actually get the money?

This is future tax write-offs of $26 billion.
Please see the Boeing quarterly report. Total external debt is $11.9 billion for all programs, that isn't much below their cash on hand.

That debt is for the MAX (and the engine delays), 777X R&D, tanker (hundreds of millions in losses), trainer (loss lead position), 767 (ok, probably no debt), 748 (large write-offs in prior years), and the $26 billion of 787 debt.

For a company with $4.2 billion of free cash flow per quarter, they are doing good enough.

With the manufacturing improvements, we should see a faster burn down.

This isn't ideal, but Boeing, for their size, should have a bond rating improvement due to the cash generated. Their total external debt is only three quarters of free cash...

Now, ROI is a different discussion. ;)

Lightsaber


Really I would not attribute the debt to anything in particular other than financial planning on Boeing’s part. With something over $30 billion in share buybacks over the past several years Boeing basically has debt because it wants to. Likely it’s a pretty smart choice as Boeing is paying something like 3.5% on its debt near as I can figure and holding it let them buy back an equivalent number of shares essentially and their shares have appreciated 35.6% over the last year.

Paying off the debt would be somewhat silly. With rates rising I do expect Boeing to deploy some cash to reduce debt over the next several years.
 
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 4:52 pm

mjoelnir wrote:
We all know what would happen, the stock price would tank, that is why Boeing would never try out what would happen. The written off losses of the tanker or the 787-8 produced a reaction, being peanuts compared to this losses. The deferred cost are a real loss that, has not yet been booked. All talk about it being only a paper exercise, is just talk.


:checkmark:
 
bigjku
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 4:56 pm

Strato2 wrote:
mjoelnir wrote:
We all know what would happen, the stock price would tank, that is why Boeing would never try out what would happen. The written off losses of the tanker or the 787-8 produced a reaction, being peanuts compared to this losses. The deferred cost are a real loss that, has not yet been booked. All talk about it being only a paper exercise, is just talk.


:checkmark:


Strato being the living embodiment of the “hold my beer meme” is good for a chuckle.
 
United857
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Re: Boeing 787 deferred production cost watch

Mon Oct 29, 2018 5:48 pm

mjoelnir wrote:
It is not about deferring production cost, it is about inflating profits. As there will always be deferred cost at Boeing, the next project produces cost deferrals before the former projects deferrals are written off, profits and accumulated profits at Boeing have been off for years. Some of the most ardent supporters of the cost for accounting model at Boeing, turn than around and ask why are the profits at other companies lower, without accounting for the cost deferrals in the comparison.


If Boeing followed IFRS and did not defer costs, all those losses would have been sustained in 2007-2013 during the massive cost overruns during the delays and production ramp-up. That also means that because they would have recorded the cost of developing the 787 during that time, resulting in losses in 2007-2013, but profits today would actually be HIGHER than they are now.

Currently, if Boeing sells a 787 for $150 million that cost $100 million to produce, it does not record $50 million in profit, but instead records around $25 million as profit and records the other $25 million in amortization of deferred production costs. If those deferred costs were instead expensed in 2007-2013 according to IFRS that does not allow deferred cost accounting, Boeing would be recording the full $50 million in profit instead of $25 million today in 2018 and in future periods.

So what the deferred production cost accounting has essentially done is allow Boeing to overstate earnings during 2007-2013 when 787's were making a loss per-frame, at the cost of reducing earnings today now that the 787 is profitable on a per-frame basis. So, no, Boeing's profits today in 2018 would not be lower, but instead HIGHER, if Boeing did not defer production costs. It is Boeing's profits in 2007-2013 that would have been much lower than officially reported.

Now it is true that the cumulative amount that earnings have been overstated when 787's were losing money each frame is much larger than the cumulative amount earnings have been understated now that the 787 is making money each frame. However, take a valuation class and you'll learn that investing is based on the future potential of the firm, and in that regard Boeing will be doing very well. Deferred cost accounting is simply allowing Boeing to spreading out the negative impact of writing off it's deferred cost over numerous periods on its stock price by understating its earnings a little each period instead of doing it all in one big swoop.
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