BOEING CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Consolidated Results of Operations and Financial Condition Overview The lingering effects of the COVID-19 pandemic, 787 production issues and associated rework, and the residual impacts of the 737 MAX grounding continue to have significant adverse impacts on our business and are expected to continue to negatively impact revenue, earnings and operating cash flow in future quarters. We expect domestic travel to continue to recover faster than international travel, and we expect the narrow-body market to continue to recover faster than the wide-body market. The pace of the commercial market recovery is heavily dependent on COVID-19 infection rates and resultant government restrictions. We are seeing a strong recovery in travel demand for our airline customers in North and South America, the Middle East, and Europe. Demand for dedicated freighters continues to be strong, underpinned by a strong recovery in global trade and overall air cargo growth. In addition, we and our suppliers are experiencing supply chain disruptions as a result of the impacts of COVID-19, global supply chain constraints, and labor shortages. We and our suppliers are also experiencing inflationary pressures. We continue to monitor the health and stability of the supply chain as we ramp up production. These measures and disruptions have reduced overall productivity and adversely impacted our financial position, results of operations and cash flows. Airline financial performance, which influences demand for new capacity, has been adversely impacted by the COVID-19 pandemic. According to the International Air Transport Association (IATA), net losses for the airline industry were $138 billion in 2020 and are estimated to be $42 billion in 2021. IATA also forecasts $9.7 billion of losses for the industry globally in 2022, with approximately $8.8 billion of profits in North America driven by the robust domestic market being more than offset by losses in other regions. While the outlook continues to improve, we continue to face a challenging environment in the near- to medium-term as airlines are facing increased fuel and other costs, and the global economy is experiencing high inflation. The current environment is also affecting the financial viability of some airlines. During the first quarter of 2022, we made adjustments to our estimates regarding timing of 777X-9 entry into service. We now anticipate that the first 777X-9 delivery will be delayed until 2025, based on an updated assessment of the time required to meet certification requirements. During the first quarter of 2022, we launched the 777X-8 freighter, and we expect first delivery to be in 2027. The 737 MAX 7 and MAX 10 models are also currently going through Federal Aviation Administration (FAA) certification activities. The 737 MAX 7 is expected to be certified in 2022 and enter service in 2023. The 737 MAX 10 is expected to begin FAA certification flight testing later in 2022 and enter service in 2023. Section 116 of the December 2020 Aircraft Certification, Safety and Accountability Act (ACSAA) prohibits the FAA from issuing a type certificate to aircraft after December 27, 2022 unless the aircraft’s flight crew alerting system meets certain requirements. We are working closely with the FAA on implementation of ACSAA legislation and expect any necessary actions to be defined later this year. If we are unable to achieve certification and/or entry into service consistent with our current assumptions, future revenues, earnings and cash flows will be adversely impacted. Deliveries of the 737 MAX resumed in the fourth quarter of 2020, when the FAA rescinded the order that grounded 737 MAX aircraft in the U.S. Over 190 countries have approved the resumption of 737 MAX operations. The 737 MAX has yet to return to service in China and a small number of other countries. The Civil Aviation Administration of China issued an airworthiness directive in the fourth quarter of 2021 outlining actions required for airlines to return to service. While we expect 737 MAX deliveries to our customers in China to resume in 2022, subject to final regulatory approvals, risk remains around the timing and rate of those deliveries. 34 Table of Contents Deliveries and production have also been impacted by production issues and associated rework. For example, deliveries of the 787 are currently paused and the production rate has been reduced while we focus on rework of undelivered aircraft and continue to engage in detailed discussions with the FAA regarding required actions for resuming deliveries. Risk remains that these issues may continue to impact the timing of airplane deliveries in inventory and/or our ability to achieve planned production rates. Revenues, earnings and cash flows will continue to be impacted until we are able to resume timely deliveries. The long-term outlook for the industry remains positive due to the fundamental drivers of air travel demand: economic growth, increasing propensity to travel due to increased trade, globalization and improved airline services driven by liberalization of air traffic rights between countries. Our Commercial Market Outlook forecast projects a 3.8% growth rate for passenger and cargo traffic over a 20 year period. Based on long-term global economic growth projections of 2.6% average annual gross domestic product (GDP) growth, we project demand for approximately 41,170 new airplanes over the next 20 years. The industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics and increased global environmental regulations. While commercial services volume at Global Services (BGS) is recovering, it remains below pre-pandemic levels. We expect the impacts of the COVID-19 pandemic to continue to have an adverse impact on BGS commercial revenues in future quarters until the commercial airline industry fully recovers. The demand outlook for our government services business remains stable. At Defense, Space & Security (BDS), we continue to see stable demand reflecting the important role our products and services have in ensuring our national security. Outside of the U.S., we are seeing similar solid demand as governments prioritize security, defense technology and global cooperation given evolving threats. We continue to experience near-term production disruptions and inefficiencies due to COVID-19 impacts, supplier disruption and factory performance. On July 24, 2022, employees represented by the International Association of Machinists and Aerospace Workers (IAM) District 837 voted to reject Boeing’s compensation and benefits offer. The Collective Bargaining agreement expired on July 25, 2022. The IAM District 837, which represents approximately 2,500 of Boeing’s employees, announced that the employees plan to go on strike effective August 1, 2022. While we currently do not expect a material impact to our business, a prolonged strike could disrupt our St. Louis based operations and adversely impact revenues, earnings and cash flows. As a result of the war in Ukraine, we recorded earnings charges totaling $212 million during the first quarter of 2022, primarily related to asset impairments. We have closed our facilities in Ukraine and Russia. We are focused on the safety of our employees and retaining the strength of our engineering talent through voluntary transfers to other countries. We have also suspended our business in Russia, including parts, maintenance and technical support for Russian airlines, and purchases from Russian suppliers. We are complying with U.S. and international sanctions and export control restrictions. We have sufficient material and parts to avoid production disruptions in the near-term, but future impacts to our production from disruptions in our supply chain are possible. The war in Ukraine continues to impact our airline and lessor customers. We continue to monitor developments and potential Boeing impacts, and take mitigating actions as appropriate. 35 Table of Contents Consolidated Results of Operations The following table summarizes key indicators of consolidated results of operations: (Dollars in millions, except per share data) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $30,672 $32,215 $16,681 $16,998 GAAP (Loss)/earnings from operations ($395) $940 $774 $1,023 Operating margins (1.3) % 2.9 % 4.6 % 6.0 % Effective income tax rate 12.8 % 126.1 % 57.6 % (3.3) % Net (loss)/earnings attributable to Boeing Shareholders ($1,026) $50 $193 $587 Diluted (loss)/earnings per share ($1.73) $0.09 $0.32 $1.00 Non-GAAP (1) Core operating (loss)/earnings ($962) $402 $490 $755 Core operating margins (3.1) % 1.2 % 2.9 % 4.4 % Core (loss)/earnings per share ($3.11) ($1.12) ($0.37) $0.40 (1) These measures exclude certain components of pension and other postretirement benefit expense. See pages 51-53 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures. Revenues The following table summarizes Revenues: (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Commercial Airplanes $10,380 $10,284 $6,219 $6,015 Defense, Space & Security 11,674 14,061 6,191 6,876 Global Services 8,612 7,816 4,298 4,067 Boeing Capital 98 138 52 78 Unallocated items, eliminations and other (92) (84) (79) (38) Total $30,672 $32,215 $16,681 $16,998 Revenues for the six months ended June 30, 2022 decreased by $1,543 million compared with the same period in 2021 driven by lower revenues at BDS, partially offset by higher revenues at BGS and Commercial Airplanes (BCA). BDS revenues decreased by $2,387 million primarily due to lower revenue on the KC-46A Tanker program from new orders for 27 aircraft received during the first quarter of 2021, lower P-8 volume as production was reduced to one per month, and timing of material receipts. BDS revenues for the six months ended June 30, 2022 also decreased due to charges on development programs discussed below, unfavorable performance across other programs, and the absence of revenue recorded in the second quarter of 2021 related to a favorable adjustment on a non-U.S. contract. BGS revenues increased by $796 million primarily due to higher commercial services volume, partially offset by lower government services volume. BCA revenues increased by $96 million primarily driven by higher 737 MAX deliveries, partially offset by lower 787 deliveries. Revenues for the three months ended June 30, 2022 decreased by $317 million compared with the same period in 2021 driven by lower revenues at BDS, partially offset by higher revenues at BGS and BCA. BDS revenues decreased by $685 million due to charges on development programs discussed below, 36 Table of Contents unfavorable performance across other programs, lower P-8 volume, and the absence of revenue recorded in the prior year quarter related to a favorable adjustment on a non-U.S. contract. BGS revenues increased by $231 million due to higher commercial services volume, partially offset by lower government services volume. BCA revenues increased by $204 million driven by higher 737 MAX deliveries, partially offset by lower 787 deliveries. Revenues will continue to be significantly impacted until the global supply chain stabilizes, labor shortages diminish, deliveries ramp up, and the commercial airline industry recovers from the lingering impacts of the COVID-19 pandemic. Loss/Earnings From Operations The following table summarizes (Loss)/earnings from operations: (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Commercial Airplanes ($1,101) ($1,328) ($242) ($472) Defense, Space & Security (858) 1,363 71 958 Global Services 1,360 972 728 531 Boeing Capital (9) 57 27 36 Segment operating (loss)/earnings (608) 1,064 584 1,053 Pension FAS/CAS service cost adjustment 413 384 205 191 Postretirement FAS/CAS service cost adjustment 154 154 79 77 Unallocated items, eliminations and other (354) (662) (94) (298) (Loss)/earnings from operations (GAAP) ($395) $940 $774 $1,023 FAS/CAS service cost adjustment * (567) (538) (284) (268) Core operating (loss)/earnings (Non-GAAP) ** ($962) $402 $490 $755 * The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. ** Core operating earnings/(loss) is a Non-GAAP measure that excludes the FAS/CAS service cost adjustment. See pages 51-53. Loss from operations for the six months ended June 30, 2022 was $395 million compared with earnings of $940 million during the same period in 2021. BDS had a loss from operations of $858 million, compared with earnings of $1,363 million during the same period in 2021, primarily due to charges on the VC-25B, T-7A Red Hawk, KC-46A Tanker, and MQ-25 programs totaling $1,270 million recorded in the first quarter of 2022 as well as the year over year decrease in second quarter earnings of $887 million discussed below. BGS earnings from operations increased by $388 million primarily due to higher commercial services volume and favorable mix. BCA loss from operations decreased by $227 million primarily due to higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war in Ukraine and other period expenses. Earnings from operations for the three months ended June 30, 2022 decreased by $249 million compared with the same period in 2021. BDS earnings from operations decreased by $887 million. The year over year decrease reflects a number of factors including charges in the second quarter of 2022 on MQ-25 ($147 million), Commercial Crew ($93 million), T-7A Red Hawk Production Options ($51 million), and T-7A Red Hawk Engineering, Manufacturing, and Development (EMD) ($36 million). Other programs recorded lower earnings during the second quarter of 2022 due to lower volumes, supplier disruption and factory performance. BCA loss from operations decreased by $230 million due to higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending and other period expenses. BGS earnings from operations increased by $197 million due to higher commercial services volume and favorable mix. 37 Table of Contents Core operating losses for the six months ended June 30, 2022 were $962 million compared with core operating earnings of $402 million for the same period in 2021. Core operating earnings for the three months ended June 30, 2022 decreased by $265 million compared with the same period in 2021. The changes in core operating (loss)/earnings were primarily due to changes in Segment operating (loss)/earnings as described above. For discussion related to Postretirement Plans, see Note 11 to our Condensed Consolidated Financial Statements. Unallocated Items, Eliminations and Other The most significant items included in Unallocated items, eliminations and other are shown in the following table: (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Share-based plans ($108) ($142) ($25) ($14) Deferred compensation 166 (94) 124 (42) Amortization of previously capitalized interest (47) (44) (24) (22) Research and development expense, net (118) (85) (66) (43) Eliminations and other unallocated items (247) (297) (103) (177) Unallocated items, eliminations and other ($354) ($662) ($94) ($298) Share-based plans expense for the six months ended June 30, 2022 decreased by $34 million compared with the same period in 2021 due to expenses incurred in 2021 associated with a grant of restricted stock units to most employees in December 2020. Share-based plans expense for the three months ended June 30, 2022 was consistent with the same period in 2021. Deferred compensation income was $166 million and $124 million for the six and three months ended June 30, 2022 compared with expense of $94 million and $42 million in the same periods in 2021 primarily driven by broad market conditions and changes in our stock price. Unallocated research and development expense for the six and three months ended June 30, 2022 increased by $33 million and $23 million compared with the same periods in 2021 due to higher enterprise investments in product development. Other Earnings Items (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 (Loss)/earnings from operations ($395) $940 $774 $1,023 Other income, net 434 389 253 199 Interest and debt expense (1,280) (1,352) (650) (673) (Loss)/earnings before income taxes (1,241) (23) 377 549 Income tax benefit/(expense) 159 29 (217) 18 Net (loss)/earnings from continuing operations (1,082) 6 160 567 Less: Net loss attributable to noncontrolling interest (56) (44) (33) (20) Net (loss)/earnings attributable to Boeing Shareholders ($1,026) $50 $193 $587 38 Table of Contents For the six months ended June 30, 2022 and 2021, non-operating pension income included in Other income, net was $441 million and $352 million. The increased income was primarily due to lower amortization of net actuarial losses, partially offset by higher interest cost and lower expected return on plan assets. Non-operating postretirement income was $29 million and $10 million during the six months ended June 30, 2022 and 2021. Other income, net also included losses of $50 million during the six months ended June 30, 2022 reclassified in the first quarter of 2022 from Accumulated other comprehensive loss (AOCI) associated with certain cash flow hedges because it is probable the forecasted transactions will not occur. For the three months ended June 30, 2022 and 2021, non-operating pension income included in Other income, net was $221 million and $175 million. The increased income was primarily due to lower amortization of net actuarial losses, partially offset by higher interest cost and lower expected return on plan assets. Non-operating postretirement income was $14 million and $5 million during the three months ended June 30, 2022 and 2021. Interest and debt expense for the six and three months ended June 30, 2022 was lower compared with the same period in the prior year primarily as a result of lower debt balances. For discussion related to Income Taxes, see Note 3 to our Condensed Consolidated Financial Statements. Total Costs and Expenses (“Cost of Sales”) Cost of sales, for both products and services, consists primarily of raw materials, parts, sub-assemblies, labor, overhead and subcontracting costs. Our BCA segment predominantly uses program accounting to account for cost of sales. Under program accounting, cost of sales for each commercial airplane program equals the product of (i) revenue recognized in connection with customer deliveries and (ii) the estimated cost of sales percentage applicable to the total remaining program. For long-term contracts, the amount reported as cost of sales is recognized as incurred. Substantially all contracts at our BDS segment and certain contracts at our BGS segment are long-term contracts with the U.S. government and other customers that generally extend over several years. Costs on these contracts are recorded as incurred. Cost of sales for commercial spare parts is recorded at average cost. The following table summarizes cost of sales: (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 Change 2022 2021 Change Cost of sales $28,204 $28,396 ($192) $14,559 $14,588 ($29) Cost of sales as a % of Revenues 92.0 % 88.1 % 3.9 % 87.3 % 85.8 % 1.5 % Cost of sales for the six months ended June 30, 2022 decreased by $192 million, or 1% compared with the same period in 2021, primarily due to lower revenues at BDS in 2022, partially offset by charges recorded at BDS in 2022. Cost of sales as a percentage of Revenues increased during the six months ended June 30, 2022 compared with the same period in 2021 primarily due to higher charges recorded at BDS in 2022 than in 2021. Cost of sales for the three months ended June 30, 2022 was consistent with the same period in 2021. Cost of sales as a percentage of Revenues increased during the three months ended June 30, 2022 compared with the same period in 2021 primarily due to higher charges recorded at BDS in 2022 than in 2021, partially offset by lower abnormal production costs at BCA. 39 Table of Contents Research and Development Research and development expense, net is summarized in the following table: (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Commercial Airplanes $693 $524 $372 $255 Defense, Space & Security 466 337 233 174 Global Services 54 50 27 25 Other 118 85 66 43 Total $1,331 $996 $698 $497 Research and development expense increased by $335 million and $201 million during the six and three months ended June 30, 2022 compared to the same periods in 2021. The increase at BCA is due to higher spending on the 777X Freighter. The increase at BDS reflects higher research and product development expenditures. Backlog (Dollars in millions) June 30 2022 December 31 2021 Commercial Airplanes $297,044 $296,882 Defense, Space & Security 55,401 59,828 Global Services 18,960 20,496 Unallocated items, eliminations and other 325 293 Total Backlog $371,730 $377,499 Contractual backlog $351,242 $356,362 Unobligated backlog 20,488 21,137 Total Backlog $371,730 $377,499 Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed, orders where customers have the unilateral right to terminate, and unobligated U.S. and non-U.S. government contract funding. The decrease in contractual backlog at BDS and BGS during the six months ended June 30, 2022 was partially offset by an increase in contractual backlog at BCA. If 787 aircraft deliveries continue to be paused, we remain unable to deliver 737 MAX aircraft in China for an extended period of time, and/or entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations. Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has not been authorized. The decrease in unobligated backlog during the six months ended June 30, 2022 was primarily due to reclassifications to contractual backlog related to BDS and BGS contracts, partially offset by contract awards. Additional Considerations Global Trade We continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements, or sanctions that may impact the Company. The current state of U.S.-China relations remains an ongoing watch item. China is a significant market for commercial airplanes. Boeing has long-standing relationships with our Chinese customers, who represent a key component of our commercial airplanes backlog. Since 2018, the U.S. and China have imposed 40 Table of Contents tariffs on each other’s imports. Certain aircraft parts and components that Boeing procures are subject to these tariffs. Overall, the U.S.-China trade relationship remains stalled as economic and national security concerns continue to be a challenge . We continue monitoring developments for any adverse impacts to the Company. Beginning in June 2018, the U.S. Government has imposed tariffs on steel and aluminum imports. In response to these tariffs, several major U.S. trading partners have imposed, or announced their intention to impose, tariffs on U.S. goods. In May 2019, the U.S. Government, Mexico and Canada reached an agreement to end the steel and aluminum tariffs between these countries. Implementation of the U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower tariffs. The U.S. Government has also reached agreements to ease steel and/or aluminum tariffs with the United Kingdom, the European Union (EU) and Japan. We continue to monitor the potential for any extra costs that may result from the remaining global tariffs. We are complying with all U.S. and other government export control restrictions and sanctions imposed on certain businesses and individuals in Russia. We continue to monitor and evaluate additional sanctions and export restrictions that may be imposed by the U.S. Government or other governments, as well as any responses from Russia that could affect our supply chain, business partners or customers, for any additional impacts to our business. Segment Results of Operations and Financial Condition Commercial Airplanes Business Environment and Trends See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment. Results of Operations (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $10,380 $10,284 $6,219 $6,015 Loss from operations ($1,101) ($1,328) ($242) ($472) Operating margins (10.6) % (12.9) % (3.9) % (7.8) % Revenues BCA revenues increased by $96 million and $204 million for the six and three months ended June 30, 2022 compared with the same periods in 2021 primarily due to higher 737 MAX deliveries partially offset by lower 787 deliveries. We resumed deliveries of 737 MAX aircraft in December 2020 following rescission by the FAA of its grounding order. While most non-U.S. jurisdictions have approved return to service of the 737 MAX, the 737 MAX has yet to return to service in China and deliveries have not yet resumed. Labor shortages and supplier issues contributed to lower deliveries of both stored and produced aircraft during the six months ended June 30, 2022. 787 deliveries have been paused since May 2021. Revenues will continue to be impacted until deliveries of the 737 MAX further ramp up, deliveries of the 787 resume and the commercial airline industry recovers from the lingering effects of impacts of COVID-19. 41 Table of Contents Commercial airplane deliveries, including intercompany deliveries, were as follows: 737 * 747 767 * 777 787 Total Deliveries during the first six months of 2022 189 (8) 3 12 (7) 12 216 Deliveries during the first six months of 2021 113 (8) 2 13 (4) 14 14 156 Deliveries during the second quarter of 2022 103 (3) 2 7 (4) 9 121 Deliveries during the second quarter of 2021 50 (3) 1 8 (3) 8 12 79 Cumulative deliveries as of 6/30/2022 7,934 1,570 1,250 1,689 1,006 Cumulative deliveries as of 12/31/2021 7,745 1,567 1,238 1,677 1,006 * Intercompany deliveries identified by parentheses. Loss From Operations BCA loss from operations was $1,101 million for the six months ended June 30, 2022 compared with $1,328 million in the same period in 2021 reflecting higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war in Ukraine and other period expenses. Abnormal production costs for the six months ended June 30, 2022 were $885 million including $595 million related to the 787 program, $188 million related to 737 MAX and $102 million related to the 777X program. Abnormal production costs for the six months ended June 30, 2021 were $1,083 million related to 737 MAX. BCA loss from operations was $242 million for the three months ended June 30, 2022 compared with $472 million in the same period in 2021 reflecting higher 737 MAX deliveries and lower abnormal production costs, partially offset by higher research and development spending and other period expenses. Abnormal production costs for the three months ended June 30, 2022 were $385 million, including $283 million related to the 787 program and $102 million related to the 777X program. Abnormal production costs for the three months ended June 30, 2021 were $515 million related to 737 MAX Backlog Our total backlog represents the estimated transaction prices on unsatisfied and partially satisfied performance obligations to our customers where we believe it is probable that we will collect the consideration due and where no contingencies remain before we and the customer are required to perform. Backlog does not include prospective orders where customer controlled contingencies remain, such as the customer receiving approval from its board of directors, shareholders or government or completing financing arrangements. All such contingencies must be satisfied or have expired prior to recording a new firm order even if satisfying such conditions is highly certain. Backlog excludes options and Boeing Capital (BCC) orders as well as orders where customers have the unilateral right to terminate. A number of our customers may have contractual remedies, including rights to reject individual airplane deliveries if the actual delivery date is significantly later than the contractual delivery date. We address customer claims and requests for other contractual relief as they arise. The value of orders in backlog is adjusted as changes to price and schedule are agreed to with customers and is reported in accordance with the requirements of Accounting Standards Codification (ASC) 606. BCA total backlog increased from $296,882 million as of December 31, 2021 to $297,044 million at June 30, 2022 reflecting new orders in excess of deliveries and price escalation, offset by order cancellations and by an increase in the value of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog. Aircraft order cancellations during the six months ended June 30, 2022 totaled $7,524 million and primarily relate to 737 MAX and 787 aircraft. The net ASC 606 adjustments for the six months ended June 30, 2022 resulted in a decrease to backlog of $4,916 million primarily due to a net increase of 777X aircraft in the ASC 606 reserve, partially offset by net decreases in 737 MAX and 787 aircraft in the ASC 606 reserve. ASC 606 adjustments include consideration of aircraft orders where a customer controlled contingency may exist, as well as an assessment of whether the customer is committed to perform, impacts of geopolitical events or related sanctions, or whether it is probable that the customer will pay the full amount of consideration when it is 42 Table of Contents due. If 787 aircraft deliveries continue to be paused, we are unable to ramp up deliveries of 737 MAX aircraft, and/or if entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations. Accounting Quantity The following table provides details of the accounting quantities and firm orders by program. Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders. Firm orders include military derivative aircraft that are not included in program accounting quantities. All revenues and costs associated with military derivative aircraft production are reported in the BDS segment. Program As of 6/30/2022 737 747 767 777 777X 787 † Program accounting quantities 10,800 1,574 1,255 1,790 400 1,500 Undelivered units under firm orders 3,431 3 96 71 231 407 (11) Cumulative firm orders 11,365 1,573 1,346 1,760 231 1,413 As of 12/31/2021 737 747 767 777 777X 787 † Program accounting quantities 10,400 1,574 1,243 1,750 350 1,500 Undelivered units under firm orders 3,414 6 108 58 253 411 (14) Cumulative firm orders 11,159 1,573 1,346 1,735 253 1,417 † Aircraft ordered by BCC are identified in parentheses. Program Highlights 737 Program The accounting quantity for the 737 program increased by 400 units during the three months ended March 31, 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes. See further discussion of the 737 MAX in Note 9 to our Condensed Consolidated Financial Statements . 747 Program We are currently producing at a rate of 0.5 aircraft per month. We expect to complete production of the 747 in the fourth quarter of 2022. We believe that ending production of the 747 will not have a material impact on our financial position, results of operations or cash flows. 767 Program The accounting quantity for the 767 program increased by 12 units during the three months ended March 31, 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes. The 767 assembly line includes the commercial program and a derivative to support the tanker program. The commercial program has near break-even gross margins. We are currently producing at a rate of 3 aircraft per month. 777 and 777X Programs During the first quarter of 2022, we launched the 777X-8 freighter with first delivery expected in 2027. The accounting quantity for the 777X program increased by 50 units during the three months ended March 31, 2022 reflecting the launch of the 777X-8 freighter. During the first quarter of 2022, we revised the estimated first delivery date of the 777X-9, previously expected in late 2023, and now expect it will occur in 2025, based on an updated assessment of the time required to meet certification requirements. We are working towards Type Inspection Authorization (TIA) which will enable us to begin FAA certification flight testing. The timing of TIA and certification will ultimately be determined by the regulators, and further determinations with respect to anticipated 43 Table of Contents certification requirements could result in additional delays in entry into service and/or additional cost increases. In April 2022, we decided to pause production of the 777X-9 during 2022 and 2023. We implemented the production pause during the second quarter of 2022, and it is expected to result in abnormal production costs of approximately $1.5 billion that are being expensed as incurred until 777X-9 production resumes. The 777X program has near break-even gross margins at June 30, 2022. 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, customer negotiations, 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. The accounting quantity for the 777 program increased by 40 and 10 units during the six and three months ended June 30, 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes. The production rate for the combined 777/777X program is expected to increase from 2 per month to 3 per month in the second half of 2022. 787 Program At June 30, 2022 we have approximately 120 aircraft in inventory. Deliveries remain paused due to production quality issues. We continue to conduct inspections and rework on undelivered aircraft and engage in detailed discussions with the FAA regarding required actions for resuming delivery of the 787. We are currently producing at very low rates and expect that to continue until deliveries resume, gradually returning to 5 per month over time. In the third quarter of 2021, we determined that in the current environment production rates below 5 per month represent abnormally low production rates and result in abnormal production costs, and that inspections and rework costs on inventoried aircraft are excessive and should also be accounted for as abnormal production costs that are required to be expensed as incurred. As a result of these impacts, we continue to expect to incur approximately $2 billion of abnormal production costs on a cumulative basis with most being incurred by the end of 2023. We continue to work with customers and suppliers regarding timing of future deliveries and production rate changes. We are also continuing to implement changes in the production process designed to ensure that newly-built airplanes meet our specifications and do not require further inspections and rework. During the fourth quarter of 2021, we recorded a loss of $3.5 billion on the program primarily due to the additional rework, as well as other actions required to resume 787 deliveries taking longer than expected. These impacts have resulted in longer than expected delivery delays and associated customer considerations. The timing of the resumption of deliveries and future production rates will depend upon rework, ongoing customer and supplier engagement, production stability and our activities with the FAA. China is a significant market for the 787 program, and if the program is unable to obtain additional orders from China in future quarters, we may be required to further adjust production rate assumptions. If we are required to further reduce the accounting quantity and/or production rates, experience further delivery delays or experience other factors that result in lower margins, the program could record additional losses and higher abnormal production costs in future periods. Additional Considerations The development and ongoing production of commercial aircraft is extremely complex, involving extensive coordination and integration with suppliers and highly-skilled labor from employees and other partners. Meeting or exceeding our performance and reliability standards, as well as those of customers and regulators, can be costly and technologically challenging, such as the 787 production issues and associated rework. In addition, the introduction of new aircraft and derivatives, such as the 777X and 737 MAX derivatives, involves increased risks associated with meeting development, production and certification schedules. These challenges include increased global regulatory scrutiny of all development 44 Table of Contents aircraft in the wake of the 737 MAX accidents. As a result, our ability to deliver aircraft on time, satisfy performance and reliability standards and achieve or maintain, as applicable, program profitability is subject to significant risks. Factors that could result in lower margins (or a material charge if an airplane program has or is determined to have reach-forward losses) include the following: changes to the program accounting quantity, customer and model mix, production costs and rates, changes to price escalation factors due to changes in the inflation rate or other economic indicators, performance or reliability issues involving completed aircraft, capital expenditures and other costs associated with increasing or adding new production capacity, learning curve, additional change incorporation, achieving anticipated cost reductions, the addition of regulatory requirements in connection with certification in one or more jurisdictions, flight test and certification schedules, costs, schedule and demand for new airplanes and derivatives and status of customer claims, supplier claims or assertions and other contractual negotiations. While we believe the cost and revenue estimates incorporated in the consolidated financial statements are appropriate, the technical complexity of our airplane programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, order cancellations or other financially significant exposure. Defense, Space & Security Business Environment and Trends United States Government Defense Environment Overview The Consolidated Appropriations Act, 2022, enacted in March 2022, provided fiscal year 2022 (FY22) appropriations for government departments and agencies, including $742.3 billion for the United States Department of Defense (U.S. DoD) and $24 billion for the National Aeronautics and Space Administration (NASA). The enacted FY22 appropriations included funding for Boeing’s major programs, including the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A tanker, and the Space Launch System. In April 2022, the U.S. government released details of the President’s budget request for fiscal year 2023 (FY23), which included requests for $773 billion in funding for the U.S. DoD and $26 billion for NASA. The FY23 defense budget requests funding for many of Boeing’s programs, but does not request funding for F/A-18, CH-47F Block II, V-22, or P-8 production aircraft. These programs also continue to pursue non-U.S. sales opportunities. There is ongoing uncertainty with respect to program-level appropriations for U.S. DoD, NASA and other government agencies for FY23 and beyond. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on our results of operations, financial position, and/or cash flows. Results of Operations (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $11,674 $14,061 $6,191 $6,876 (Loss)/earnings from operations ($858) $1,363 $71 $958 Operating margins (7.3 %) 9.7 % 1.1 % 13.9 % Since our operating cycle is long-term and involves many different types of development and production contracts with varying delivery and milestone schedules, the operating results of a particular period may not be indicative of future operating results. In addition, depending on the customer and their funding sources, our orders might be structured as annual follow on contracts, or as one large multi-year order or long-term award. As a result, period-to-period comparisons of backlog are not necessarily indicative of future workloads. The following discussions of comparative results among periods should be viewed in this context. 45 Table of Contents Deliveries of units for new-build production aircraft, including remanufactures and modifications, were as follows: Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 F/A-18 Models 8 11 4 7 F-15 Models 5 8 4 5 CH-47 Chinook (New) 9 6 5 3 CH-47 Chinook (Renewed) 4 4 1 1 AH-64 Apache (New) 13 15 6 6 AH-64 Apache (Remanufactured) 28 31 13 16 P-8 Models 6 6 3 3 KC-46 Tanker 8 4 4 2 Total 81 85 40 43 Revenues BDS revenues for the six months ended June 30, 2022 decreased by $2,387 million compared with the same period in 2021, primarily due to lower revenue on the KC-46A Tanker program from new orders for 27 aircraft received during the first quarter of 2021, lower P-8 volume as production was reduced to one per month, and timing of material receipts. BDS revenues for the six months ended June 30, 2022 also decreased due to charges on development programs discussed below, unfavorable performance across other programs, and the absence of revenue recorded in the second quarter of 2021 related to a favorable adjustment on a non-U.S. contract. Cumulative contract catch-up adjustments for the six months ended June 30, 2022 were $1,018 million more unfavorable than the comparable period in the prior year largely due to charges on VC-25B, KC-46A Tanker, and MQ-25 and the prior year favorable contract adjustment. BDS revenues for the three months ended June 30, 2022 decreased by $685 million compared with the same period in 2021, due to charges on development programs discussed below, unfavorable performance across other programs, lower P-8 volume, and the absence of revenue recorded in the prior year quarter related to a favorable adjustment on a non-U.S. contract. Cumulative contract catch-up adjustments were $448 million more unfavorable than the comparable period in the prior year largely due to charges on development programs, the prior year favorable contract adjustment and other program performance. Loss/Earnings From Operations BDS loss from operations was $858 million for the six months ended June 30, 2022 compared with earnings from operations of $1,363 million in the same period in 2021 primarily due to charges on the VC-25B, T-7A Red Hawk, KC-46A Tanker, and MQ-25 programs totaling $1,270 million recorded in the first quarter of 2022 as well as the year over year decrease in second quarter earnings of $887 million discussed below. The net unfavorable cumulative contract catch-up adjustments for the six months ended June 30, 2022 were $1,510 million higher than the comparable period in the prior year. BDS earnings from operations was $71 million for the three months ended June 30, 2022 compared with earnings from operations of $958 million in the same period in 2021. The year over year decrease reflects a number of factors including charges in the second quarter of 2022 on MQ-25 ($147 million), Commercial Crew ($93 million), T-7A Red Hawk Production Options ($51 million), and T-7A Red Hawk EMD ($36 million). Other programs recorded lower earnings during the second quarter of 2022 due to lower volumes, supplier disruption and factory performance. Net unfavorable cumulative contract catch-up adjustments for the three months ended June 30, 2022 were $620 million higher than the comparable period in the prior year reflecting the charges and performance issues described above. The year over 46 Table of Contents year decrease also reflects the absence of gains recorded in the prior year quarter largely related to a favorable adjustment on a non-U.S. contract. See further discussion of fixed-price contracts in Note 9 to our Condensed Consolidated Financial Statements. BDS loss/earnings from operations includes equity earnings of $40 million and $13 million for the six and three months ended June 30, 2022 compared with equity earnings of $37 million and $30 million for the same periods in 2021. The year over year variances reflect changes in earnings from our United Launch Alliance joint venture. Backlog BDS backlog decreased from $59,828 million as of December 31, 2021 to $55,401 million at June 30, 2022, primarily due to revenue recognized on contracts awarded in prior periods. Additional Considerations Our BDS business includes a variety of development programs which have complex design and technical challenges. Many of these programs have cost-type contracting arrangements. In these cases, the associated financial risks are primarily in reduced fees, lower profit rates or program cancellation if cost, schedule or technical performance issues arise. Examples of these programs include Ground-based Midcourse Defense, Proprietary and Space Launch System programs. Some of our development programs are contracted on a fixed-price basis and BDS customers are increasingly seeking fixed-price proposals for new programs. Examples of significant fixed-price development programs include Commercial Crew, KC-46A Tanker, MQ-25, T-7A Red Hawk, VC-25B, and commercial and military satellites. New programs could also have risk for reach-forward loss upon contract award and during the period of contract performance. Many development programs have highly complex designs. As technical, quality or similar issues in the supply chain arise during development, we may experience schedule delays and cost impacts, which could increase our estimated cost to perform the work or reduce our estimated price, either of which could result in a material charge or otherwise adversely affect our financial condition. These programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, the loss of satellite in-orbit incentive payments, or other financially significant exposure. These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues. 47 Table of Contents Global Services Results of Operations (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $8,612 $7,816 $4,298 $4,067 Earnings from operations $1,360 $972 $728 $531 Operating margins 15.8 % 12.4 % 16.9 % 13.1 % Revenues BGS revenues for the six months ended June 30, 2022 increased by $796 million compared with the same period in 2021 primarily due to higher commercial services volume, partially offset by lower government services volume. The decrease in government services volume is partly driven by the discontinuation of an engine distribution agreement in the second quarter of 2022. The net favorable impact of cumulative contract catch-up adjustments for the six months ended June 30, 2022 was $97 million lower than the comparable period in the prior year. BGS revenues for the three months ended June 30, 2022 increased by $231 million compared with the same period in 2021 primarily due to higher commercial services volume, partially offset by lower government services volume. The decrease in government services volume is partly driven by the discontinuation of an engine distribution agreement. The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended June 30, 2022 was $48 million higher than the comparable period in the prior year. Earnings From Operations BGS earnings from operations for the six months ended June 30, 2022 increased by $388 million compared with the same period in 2021, primarily due to higher commercial services volume and favorable mix. The net favorable impact of cumulative contract catch-up adjustments for the six months ended June 30, 2022 was $89 million lower than the comparable period in the prior year. BGS earnings from operations for the three months ended June 30, 2022 increased by $197 million compared with the same period in 2021, primarily due to higher commercial services volume and favorable mix. The net favorable impact of cumulative contract catch-up adjustments for the three months ended June 30, 2022 was $25 million lower than the comparable period in the prior year. Backlog BGS backlog decreased from $20,496 million as of December 31, 2021 to $18,960 million at June 30, 2022, primarily due to revenue recognized on contracts awarded in prior years. Boeing Capital Results of Operations (Dollars in millions) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $98 $138 $52 $78 (Loss)/earnings from operations ($9) $57 $27 $36 Operating margins (9.2) % 41.3 % 51.9 % 46.2 % 48 Table of Contents Revenues BCC segment revenues consist principally of lease income from equipment under operating lease, interest income from financing receivables and notes, and other income. BCC’s revenues for the six and three months ended June 30, 2022 decreased by $40 million and $26 million compared with the same periods in 2021 primarily due to lower gains on re-lease of assets and lower commitment fee income. Loss/Earnings From Operations BCC’s earnings from operations is presented net of interest expense, provision for (recovery of) losses, asset impairment expense, depreciation on leased equipment and other operating expenses. For the six months ended June 30, 2022, BCC had a loss from operations of $9 million, compared with earnings from operations of $57 million during the same period in 2021, primarily due to an increase in the allowance for losses on receivables as a result of the war in Ukraine and lower revenues. Earnings from operations during the three months ended June 30, 2022 and 2021 were $27 million and $36 million due to lower revenues. Financial Position The following table presents selected financial data for BCC: (Dollars in millions) June 30 2022 December 31 2021 Customer financing and investment portfolio, net $1,613 $1,720 Other assets, primarily cash and short-term investments 418 462 Total assets $2,031 $2,182 Other liabilities, primarily deferred income taxes $203 $347 Debt, including intercompany loans 1,525 1,525 Equity 303 310 Total liabilities and equity $2,031 $2,182 Debt-to-equity ratio 5-to-1 4.9-to-1 BCC’s customer financing and investment portfolio at June 30, 2022 decreased $107 million from December 31, 2021 primarily due to an increase in the allowance for losses and portfolio run-off, partially offset by new volume. BCC enters into certain intercompany transactions with other Boeing segments, reflected in Unallocated items, eliminations and other, in the form of intercompany guarantees and other subsidies that mitigate the effects of certain credit quality or asset impairment issues on the BCC segment. 49 Table of Contents Liquidity and Capital Resources Cash Flow Summary (Dollars in millions) Six months ended June 30 2022 2021 Net (loss)/earnings ($1,082) $6 Non-cash items 2,320 2,130 Changes in assets and liabilities (4,373) (6,006) Net cash used by operating activities (3,135) (3,870) Net cash provided by investing activities 6,231 4,423 Net cash used by financing activities (998) (67) Effect of exchange rate changes on cash and cash equivalents (71) (14) Net increase in cash & cash equivalents, including restricted 2,027 472 Cash & cash equivalents, including restricted, at beginning of year 8,104 7,835 Cash & cash equivalents, including restricted, at end of period $10,131 $8,307 Operating Activities Net cash used by operating activities was $3.1 billion during the six months ended June 30, 2022, compared with $3.9 billion during the same period in 2021. Net loss for the six months ended June 30, 2022 was $1.1 billion compared with net earnings of $6 million during the same period in 2021. Changes in assets and liabilities for the six months ended June 30, 2022 were $4.4 billion compared with $6.0 billion during the same period in 2021 driven by changes in Accounts payable and Accrued liabilities, partially offset by Inventories and Advances and progress billings. Compensation payments to 737 MAX customers totaled $0.8 billion and $1.5 billion during the six months ended June 30, 2022 and 2021. In the first quarter of 2021, we paid $0.7 billion consistent with the terms of the Deferred Prosecution Agreement between Boeing and the U.S. Department of Justice. Cash used by Advances and progress billings was $0.9 billion in 2022, as compared with $0.3 billion of cash provided in 2021. Cash used by Inventories was $1.3 billion in 2022, as compared with $0.4 billion of cash provided in 2021 primarily reflecting the continued build-up of 787 aircraft, as well as growth in 777X inventory. The pause in 787 deliveries and the residual impacts of the 737 MAX grounding are expected to continue to have a significant negative impact on our operating cash flows until 787 deliveries resume and 737 MAX deliveries ramp up. Payables to suppliers who elected to participate in supply chain financing programs increased by $0.1 billion during the six months ended June 30, 2022 and decreased by $0.4 billion during the six months ended June 30, 2021. Supply chain financing is not material to our overall liquidity. Investing Activities Cash provided by investing activities was $6.2 billion during the six months ended June 30, 2022, compared with $4.4 billion during the same period in 2021, primarily due to net proceeds from investments of $6.8 billion in 2022 compared to $4.9 billion in 2021. In the six months ended June 30, 2022 and 2021, capital expenditures were $0.6 billion and $0.5 billion. We expect capital expenditures in 2022 to be higher than in 2021. Financing Activities Cash used by financing activities was $1.0 billion during the six months ended June 30, 2022 compared with $67 million during the same period in 2021. During the six months ended June 30, 2022, net repayments were $1.0 billion compared with $56 million in the same period in 2021. As of June 30, 2022 the total debt balance was $57.2 billion, down from $58.1 billion at December 31, 2021. At June 30, 2022, $5.4 billion of debt was classified as short-term. Debt, including intercompany loans, attributable to BCC totaled $1.5 billion, $0.3 billion of which was classified as short-term. Capital Resources The impacts of the COVID-19 pandemic, 787 production issues and associated rework, and residual impacts of the 737 MAX grounding are having a significant negative impact on our liquidity and ongoing operations and creating significant uncertainty. We have and are continuing to take 50 Table of Contents significant actions to manage and preserve our liquidity. For further discussion see Liquidity Matters in Note 1 to our Condensed Consolidated Financial Statements. At June 30, 2022, we had $10.1 billion of cash and $1.4 billion of short-term investments. At June 30, 2022, we had $14.7 billion of unused borrowing capacity on revolving credit line agreements, of which $6.3 billion expires in October 2022, $5.3 billion expires in March 2023, and $3.2 billion expires in October 2024. Of the $6.3 billion scheduled to expire in October 2022, $3.1 billion has a one-year term out option that allows us to extend the maturity of any borrowings one additional year. We anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs. Any future borrowings may affect our credit ratings and are subject to various debt covenants. At June 30, 2022, we were in compliance with the covenants for our debt and credit facilities. The most restrictive covenants include a limitation on mortgage debt and sale and leaseback transactions as a percentage of consolidated net tangible assets (as defined in the credit agreements), and a limitation on consolidated debt as a percentage of total capital (as defined). When considering debt covenants, we continue to have substantial borrowing capacity. Customer Financing commitments totaled $13.1 billion and $12.9 billion at June 30, 2022 and December 31, 2021. The increase relates to the addition of new financing commitments in excess of expirations. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. Historically, we have not been required to fund significant amounts of outstanding commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required. Off-Balance Sheet Arrangements We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 10 to our Condensed Consolidated Financial Statements. Contingent Obligations We have significant contingent obligations that arise in the ordinary course of business, which include the following: Legal Various legal proceedings, claims and investigations are pending against us. Legal contingencies are discussed in Note 16 to our Condensed Consolidated Financial Statements. Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $725 million at June 30, 2022. For additional information, see Note 9 to our Condensed Consolidated Financial Statements. Non-GAAP Measures Core Operating Earnings, Core Operating Margin and Core Earnings Per Share Our unaudited condensed consolidated interim financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Core operating earnings, core operating margin and core earnings per share exclude the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the Financial Accounting Standards (FAS) pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core earnings per share excludes both the FAS/CAS service cost adjustment and non- 51 Table of Contents operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to BCA and certain BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. The Pension FAS/CAS service cost adjustments recognized in (Loss)/earnings from operations were benefits of $413 million and $205 million for the six and three months ended June 30, 2022, compared with benefits of $384 million and $191 million for the same periods in 2021. The higher benefits in 2022 were primarily due to increases in allocated pension cost year over year. The non-operating pension expenses included in Other income, net were benefits of $441 million and $221 million for the six and three months ended June 30, 2022, compared with benefits of $352 million and $175 million for the same periods in 2021. The higher benefits in 2022 were primarily due to lower amortization of actuarial losses, partially offset by higher interest cost and lower expected return on plan assets. For further discussion of pension and other postretirement costs see the Management’s Discussion and Analysis on page 39 of this Form 10-Q and on page 29 of our 2021 Annual Report on Form 10-K. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as unallocated pension and other postretirement benefit costs primarily represent costs driven by market factors and costs not allocable to U.S. government contracts. 52 Table of Contents Reconciliation of GAAP Measures to Non-GAAP Measures The table below reconciles the non-GAAP financial measures of core operating earnings/(loss), core operating margin and core earnings/(loss) per share with the most directly comparable GAAP financial measures of earnings/(loss) from operations, operating margins and diluted earnings/(loss) per share. (Dollars in millions, except per share data) Six months ended June 30 Three months ended June 30 2022 2021 2022 2021 Revenues $30,672 $32,215 $16,681 $16,998 (Loss)/earnings from operations, as reported ($395) $940 $774 $1,023 Operating margins (1.3) % 2.9 % 4.6 % 6.0 % Pension FAS/CAS service cost adjustment (1) ($413) ($384) ($205) ($191) Postretirement FAS/CAS service cost adjustment (1) (154) (154) (79) (77) FAS/CAS service cost adjustment (1) ($567) ($538) ($284) ($268) Core operating (loss)/earnings (non-GAAP) ($962) $402 $490 $755 Core operating margins (non-GAAP) (3.1) % 1.2 % 2.9 % 4.4 % Diluted (loss)/earnings per share, as reported ($1.73) $0.09 $0.32 $1.00 Pension FAS/CAS service cost adjustment (1) (0.70) (0.65) (0.35) (0.32) Postretirement FAS/CAS service cost adjustment (1) (0.26) (0.26) (0.13) (0.13) Non-operating pension expense (2) (0.74) (0.60) (0.37) (0.30) Non-operating postretirement expense (2) (0.05) (0.02) (0.02) (0.01) Provision for deferred income taxes on adjustments (3) 0.37 0.32 0.18 0.16 Core (loss)/earnings per share (non-GAAP) ($3.11) ($1.12) ($0.37) $0.40 Weighted average diluted shares (in millions) 592.8 588.6 596.4 590.2 (1) FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. This adjustment is excluded from Core operating earnings/(loss) (non-GAAP). (2) Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. These expenses are included in Other income, net and are excluded from Core earnings/(loss) per share (non-GAAP). (3) The income tax impact is calculated using the U.S. corporate statutory tax rate.