Inside the quarterly earnings process

Behind the scenes of financial reporting

BY JOHN MORROCCO

It starts with a news release early in the morning before the stock market opens. Then Chairman and CEO Phil Condit and Chief Financial Officer Mike Sears conduct a webcast conference call with financial analysts and the media, followed by television and radio appearances. It’s earnings day—the day that the company reports its financial results for the latest quarter.

It’s all part of a process that publicly traded companies go through four times a year to provide an accurate picture of their financial performance. Quarterly earnings reflect how a company is performing compared to prior results, as the information is often presented in the form of a comparison with the results from the same quarter in the previous year.

Boeing is one of the most proactive in the way it reaches out to share this information with financial analysts, its own employees, the media and other stakeholders. But many only see the final results amid the splash of earnings day itself, as was the case last month when the company announced its third-quarter results on Oct. 16. Producing the quarterly earnings report takes a lot of hard work and attention to detail by a number of people throughout the company.

So how does it all work? It’s a complex process, especially for a company the size of Boeing, with annual revenues of more than $50 billion. But there are very structured and rigorous processes in place to ensure the integrity of the numbers.

“We’ve got documented accounting policies and procedures in place that provide the framework for our processes across the business units and at World Headquarters,” said Boeing Corporate Controller James Bell. “These processes give us great confidence that our financial statements are accurate and of the highest integrity.”

It all starts in the individual business units. Quarterly, they record the costs and revenues generated from delivering products and services. Estimates At Completion are used to measure the total estimated costs for a given contract. Performance is measured against planned completion criteria to determine progress to be recorded at the end of the quarter and what it will cost to complete it. To obtain the latter, they use a variety of measurements such as historical performance, learning curves and inputs from the people actually performing the work.

The Finance team at World Headquarters then reviews the quarter-end financial statements from the business units. The Corporate Controller’s office is responsible for consolidating these inputs with all the financial transactions conducted by World Headquarters during the quarter. The Corporate Controller’s office also reviews the consolidated statements to ensure they meet appropriate accounting standards and gives its final “blessing” of the numbers.

Simultaneously, the Financial Planning and Analysis team is also reviewing the quarterly financial statements and forecasts provided by the business units. Their analysis helps provide two important products. One is an internal measure of how the company is performing to its business plan. The other is an assessment of future performance, along with associated risks and opportunities.

This assessment is used by the company’s senior leadership to develop an outlook for future performance. This outlook, sometimes called “guidance” by financial analysts, provides investors and the public with the company’s financial projections over a two-year period.

The entire process is monitored by Boeing’s Internal Audit staff, which also keeps an eye on the processes followed, and the company’s external auditors, Deloitte & Touche. External auditors are located in each of the business units, as well as at World Headquarters. Every quarter they review the financials, asking questions and corroborating the numbers. Additionally, they conduct audits of major transactions that may have occurred, which are rolled into an annual audit of the company’s books. Finally, the Audit Committee of the company’s Board of Directors also reviews the financial statements.

All of the information, plus supporting analysis from the business units, is provided to the Investor Relations and Communications teams. They are responsible for pulling it all together in a comprehensive package that is clear and understandable to investors, financial analysts, employees and the media.

And the process doesn’t stop with the earnings day news release and conference call. Investor Relations and Communications people continue the dialogue throughout the day, answering questions from financial analysts and the media to help them further understand the details.

Finally, in addition to the earnings news release and conference call, the company is required to file a more formal and comprehensive statement of its quarterly financial results with the U.S. Securities and Exchange Commission, which is charged with ensuring investors receive meaningful and accurate information. In SEC parlance the quarterly filings are called 10–Qs, while the filing for the full year’s results, or annual report, is called a 10–K. Company 10–Qs must be filed within 45 days of the close of the quarter and 10–Ks within 90 days of the close of a company’s fiscal year. The SEC is phasing in shorter deadlines for these filings over the next few years as a result of new Congressional legislation.

john.d.morrocco@boeing.com