What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-26 · 194 added, 176 removed, 316 unchanged (54% of the section changed)

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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

(Dollars in millions, except per share data) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

Revenues $55,776 $46,628 $18,104 $15,956

(Loss)/earnings from operations ($248) ($382) ($99) $780

Loss from operations ($1,056) ($3,174) ($808) ($2,792)

Operating margins (1.9) % (6.8) % (4.5) % (17.5) %

Effective income tax rate (10.8) % (0.4) % (48.9) % (5.6) %

Net (loss)/earnings attributable to Boeing Shareholders ($563) ($1,026) ($149) $193

Diluted (loss)/earnings per share ($0.93) ($1.73) ($0.25) $0.32

Core operating (loss)/earnings ($830) ($949) ($390) $496

Net loss attributable to Boeing Shareholders ($2,199) ($4,301) ($1,636) ($3,275)

Diluted loss per share ($3.64) ($7.24) ($2.70) ($5.49)

Core operating loss ($1,919) ($4,020) ($1,089) ($3,071)

Core operating margins (3.4) % (8.6) % (6.0) % (19.2) %

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The following table summarizes Revenues:

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Total $55,776 $46,628 $18,104 $15,956

Revenues for the six months ended June 30, 2023 increased by $7,000 million compared with the same period in 2022 driven by higher revenues at all three operating segments.

Commercial Airplanes (BCA) revenues increased by $5,092 million primarily driven by higher 787 deliveries due to the delivery pause in the prior year and higher 737 deliveries.

Defense, Space & Security (BDS) revenues increased by $1,032 million primarily due to lower charges on development programs, increased sales from space and proprietary programs, and the U.S.

Air Force (USAF) KC-46A Lot 9 Tanker award in the first quarter of 2023.

Global Services (BGS) revenues increased by $854 million primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio and higher government services revenue.

Revenues for the three months ended June 30, 2023 increased by $3,070 million compared with the same period in 2022 driven by higher revenues at BCA and BGS.

BCA revenues increased by $2,582 million driven by higher 787 deliveries.

BGS revenues increased by $448 million due to higher commercial

services revenue driven by market recovery across the commercial portfolio and higher government services revenue.

BDS revenues decreased by $24 million compared with the same period in 2022.

Unfavorable cumulative contract catch-up adjustments were $217 million higher than the comparable period in the prior year largely due to operational instability and charges on development programs.

This was largely offset by increased volume on space and proprietary programs.

Revenues for the nine months ended September 30, 2023 increased by $9,148 million compared with the same period in 2022 driven by higher revenues at all three operating segments.

Commercial Airplanes (BCA) revenues increased by $6,665 million primarily driven by higher 787 and 737 deliveries.

Global Services (BGS) revenues increased by $1,234 million primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio.

Defense, Space & Security (BDS) revenues increased by $1,206 million primarily due to lower charges on development programs and higher revenues on space and proprietary programs.

Revenues for the three months ended September 30, 2023 increased by $2,148 million compared with the same period in 2022 driven by higher revenues at all three operating segments.

BCA revenues increased by $1,573 million driven by higher 787 deliveries, partially offset by lower 737 deliveries.

BGS revenues increased by $380 million due to higher commercial services revenue driven by market recovery across the commercial portfolio.

BDS revenues increased by $174 million compared with the same period

BDS net unfavorable cumulative contract catch-up adjustments were $540 million better than the comparable period in the prior year primarily due lower charges on development programs, partially offset by the KC-46A Tanker Lot 8 award in the third quarter of 2022.

Revenues will continue to be significantly impacted until the global supply chain stabilizes, labor instability diminishes, and deliveries ramp up.

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

Loss from Operations

The following table summarizes Loss from operations:

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Global Services 2,487 2,093 784 733

Segment operating (loss)/earnings (34) (614) (54) 580

Segment operating loss (852) (3,301) (818) (2,687)

Pension FAS/CAS service cost adjustment 663 621 218 208

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Unallocated items, eliminations and other (1,067) (719) (271) (384)

(Loss)/earnings from operations (GAAP) ($248) ($382) ($99) $780

Loss from operations (GAAP)

($1,056) ($3,174) ($808) ($2,792)

FAS/CAS service cost adjustment * (863) (846) (281) (279)

Core operating (loss)/earnings (Non-GAAP) ** ($830) ($949) ($390) $496

Core operating loss (Non-GAAP) **

($1,919) ($4,020) ($1,089) ($3,071)

* 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.

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See pages 48-50.

Loss from operations for the six months ended June 30, 2023 decreased by $134 million compared with the same period in 2022.

BDS loss from operations decreased by $119 million compared to the same period in 2022 primarily due to less unfavorable impacts of cumulative contract catch-up adjustments, which amounted to $242 million less than the prior year comparable period.

BCA loss from operations decreased by $118 million reflecting higher 737 and 787 deliveries, partially offset by higher spending on research and development and abnormal production costs.

BGS earnings from operations increased by $343 million primarily due to higher commercial services revenue, partially offset by lower government services performance.

Loss from operations for the three months ended June 30, 2023 was $99 million compared with earnings of $780 million during the same period in 2022.

BDS loss from operations was $527 million for the three months ended June 30, 2023 compared with earnings from operations of $71 million in the same period in 2022.

The year over year decrease reflects the change in unfavorable cumulative contract catch-up charges which were $428 million higher than the comparable period in the prior year.

BCA loss from operations increased by $164 million reflecting higher spending on research and development, higher abnormal production costs, and 777 delivery timing, partially offset by higher 787 deliveries.

BGS earnings from operations increased by $128 million primarily due to higher commercial services and government services revenue.

Core operating loss for the six months ended June 30, 2023 decreased by $119 million compared with the same period in 2022.

Core operating loss for the three months ended June 30, 2023 was $390 million compared with core operating earnings of $496 million for the same period in 2022.

The changes in core

operating (loss)/earnings were primarily due to changes in Segment operating earnings/(loss) as described above.

For discussion related to Postretirement Plans, see Note 11 to our Condensed Consolidated Financial Statements.

Loss from operations for the nine months ended September 30, 2023 decreased by $2,118 million compared with the same period in 2022.

BDS loss from operations decreased by $1,993 million compared to the same period in 2022 primarily due to a reduction in net unfavorable cumulative contract catch-up adjustments, which were $2,483 million better than the net unfavorable impact in the prior year comparable period.

BCA loss from operations decreased by $62 million reflecting higher 737 and 787 deliveries and lower other period expenses, partially offset by higher spending on research and development and higher abnormal production costs.

BGS earnings from operations increased by $394 million primarily due to higher commercial services revenue, partially offset by lower government services performance and unfavorable mix.

Loss from operations for the three months ended September 30, 2023 decreased by $1,984 million compared to the same period in 2022.

BDS loss from operations decreased by $1,874 million compared with the same period in 2022.

The year over year decrease reflects a reduction in net unfavorable cumulative contract catch-up adjustments, which were $1,891 million better than the net unfavorable impact in the prior year comparable period.

BGS earnings from operations increased by $51 million primarily due to higher commercial services revenue.

BCA loss from operations increased by $56 million reflecting higher spending on research and development, partially offset by lower other period expenses.

Core operating loss for the nine and three months ended September 30, 2023 decreased by $2,101 million and $1,982 million, respectively, compared with the same periods in 2022.

The changes in core operating loss were primarily due to changes in Segment operating loss as described above.

For information related to Postretirement Plans, see Note 12 to our Condensed Consolidated Financial Statements.

Unallocated Items, Eliminations and Other

The most significant items included in Unallocated items, eliminations and other expense/(income) are shown in the following table:

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Unallocated items, eliminations and other ($1,067) ($719) ($271) ($384)

Share-based plans expense for the six months ended June 30, 2023 decreased by $70 million compared with the same period in 2022 due to fewer share-based grants in the first half of 2023.

The difference in share-based plans income of $14 million for the three months ended June 30, 2023 compared with expense of $25 million in the same period in 2022 is attributable to the timing of corporate allocations.

Deferred compensation expense was $96 million and $42 million for the six and three months ended June 30, 2023 compared with income of $166 million and $124 million in the same period in 2022 primarily driven by broad stock market conditions and changes in our stock price.

Research and development expense for the six and three months ended June 30, 2023 increased by $31 million and $7 million compared with the same period in 2022 due to spending on enterprise product development.

Eliminations and other unallocated expense for the six and three months ended June 30, 2023 increased by $238 million and $118 million compared with the same periods in 2022 primarily due to the settlement of a shareholder derivative lawsuit in the prior year which resulted in a benefit of $219 million in the second quarter of 2022.

The year over year variances also reflect timing of allocations.

Share-based plans expense for the nine months ended September 30, 2023 decreased by $31 million compared with the same period in 2022 due to fewer share-based grants in 2023.

Share-based plans income for the three months ended September 30, 2023 decreased by $39 million compared with the same period in 2022 primarily due to the timing of corporate allocations.

Deferred compensation expense of $71 million for the nine months ended September 30, 2023 compared with income of $204 million in the same period in 2022 is driven by broad stock market conditions and changes in our stock price.

Deferred compensation income of $25 million for the three months ended September 30, 2023 compared with $38 million in the same period in 2022 is primarily driven by broad stock market conditions.

Research and development expense for the nine and three months ended September 30, 2023 increased by $61 million and $30 million compared with the same period in 2022 due to spending on enterprise product development.

Eliminations and other unallocated items expense for the nine and three months ended September 30, 2023 increased by $43 million and decreased by $195 million, respectively, compared with the same periods in 2022.

The decrease in the third quarter of 2023 reflects a $200 million settlement in the third quarter of 2022 with the Securities and Exchange Commission related to the 737 MAX accidents.

Other Earnings Items

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

(Loss)/earnings from operations ($248) ($382) ($99) $780

Loss from operations ($1,056) ($3,174) ($808) ($2,792)

Other income, net 919 722 297 288

Interest and debt expense (1,859) (1,921) (589) (628)

(Loss)/earnings before income taxes (896) (1,241) (400) 377

Income tax benefit/(expense) 322 159 251 (217)

Net (loss)/earnings from continuing operations (574) (1,082) (149) 160

Loss before income taxes (1,996) (4,373) (1,100) (3,132)

Income tax expense (216) (17) (538) (176)

Net loss from continuing operations (2,212) (4,390) (1,638) (3,308)

net loss attributable to noncontrolling interest (13) (89) (2) (33)

Net (loss)/earnings attributable to Boeing Shareholders ($563) ($1,026) ($149) $193

Other income, net for the six and three months ended June 30, 2023 increased by $188 million and $67 million compared with the same period in 2022 primarily due to higher interest income on short-term

investments reflecting higher interest rates, partially offset by a decrease in non-operating pension income.

For discussion on changes related to non-operating pension and postretirement expenses, see Note 11 to our Condensed Consolidated Financial Statements.

Other income, net for the six months ended June 30, 2022 included losses of $50 million that were associated with certain cash flow hedges reclassified from Accumulated other comprehensive loss because it was probable the forecasted transactions would not occur.

Net loss attributable to Boeing Shareholders ($2,199) ($4,301) ($1,636) ($3,275)

Other income, net for the nine and three months ended September 30, 2023 increased by $197 million and $9 million compared with the same period in 2022 primarily due to higher interest income on short-term investments reflecting higher investment balances and interest rates, partially offset by a decrease in non-operating pension income.

For information on changes related to non-operating pension and postretirement expenses, see Note 12 to our Condensed Consolidated Financial Statements.

Other income, net for the nine months ended September 30, 2022 included losses of $50 million that were associated with certain cash flow hedges reclassified from Accumulated other comprehensive loss because it was probable the forecasted transactions would not occur.

This also contributed to the increase in Other income, net in 2023.

Interest and debt expense for the six and three months ended June 30, 2023 was largely consistent compared with the same period in the prior year.

Interest and debt expense for the nine and three months ended September 30, 2023 was lower compared with the same period in the prior year primarily as a result of lower debt balances.

In August 2022, the President signed into law the Inflation Reduction Act of 2022, which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we do not expect to have a material impact on our results of operations, financial condition or cash flows.

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The following table summarizes cost of sales:

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 Change 2023 2022 Change

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91.0 % 96.4 % (5.4) % 93.6 % 105.1 % (11.5) %

Cost of sales for the six months ended June 30, 2023 increased by $5,619 million, or 20% compared with the same period in 2022, primarily due to higher revenues at all three operating segments.

Cost of sales as a percentage of Revenues decreased during the six months ended June 30, 2023 compared with the same period in 2022 primarily due to lower charges on BDS development programs.

Cost of sales for the three months ended June 30, 2023 increased by $3,259 million compared with the same period in 2022, primarily due to higher revenues at BCA and BGS.

Cost of sales as a percentage of Revenues for the three months ended June 30, 2023 increased during the three months ended June 30, 2023 compared with the same period in 2022 primarily due to lower margins on several BDS programs.

Cost of sales for the nine and three months ended September 30, 2023 increased by $5,787 million and $168 million, or 13% and 1%, respectively, compared with the same periods in 2022, primarily due to higher revenues at all three operating segments.

Cost of sales as a percentage of Revenues decreased during the nine and three months ended September 30, 2023 compared with the same periods in 2022 primarily due to lower charges on BDS development programs.

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

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Total $2,496 $2,058 $958 $727

Research and development expense increased by $207 million and $99 million during the six and three months ended June 30, 2023 compared to the same period in 2022, primarily due to higher research and development expenditures on the 777X program as well as other BCA and enterprise investments in product development.

(Dollars in millions) June 30

Research and development expense increased by $438 million and $231 million during the nine and three months ended September 30, 2023 compared to the same period in 2022, primarily due to higher research and development expenditures on the 777X program as well as other BCA and enterprise investments in product development.

(Dollars in millions) September 30

2023 December 31

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government contract funding.

The increase in contractual backlog during the six months ended June 30, 2023 was primarily due to increases in BCA and BDS backlog.

The increase in contractual backlog during the nine months ended September 30, 2023 was primarily due to increases in BCA and BDS backlog.

If we remain unable to deliver 737 aircraft in China for an extended period of time, and/or entry into service of the 777X, 737-7 and/or 737-10 is further delayed, we may experience reductions to backlog and/or significant order cancellations.

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government definitive contracts for which funding has not been authorized.

Unobligated backlog was largely unchanged during the six months ended June 30, 2023.

Unobligated backlog was largely unchanged during the nine months ended September 30, 2023.

Additional Considerations

The Continuing Resolution (CR) enacted on September 30, 2023, continues federal funding at fiscal year 2023 appropriated levels through November 17, 2023.

Congress and the President must enact either full-year fiscal year 2024 (FY24) appropriations bills or an additional CR to fund government departments and agencies after November 17, 2023, or a government shutdown could result.

We rely on the U.S.

government in various aspects of our defense, commercial, and services businesses.

In the event of a shutdown, requirements to furlough employees in the U.S.

Department of Defense (U.S.

DoD), the Department of Transportation or other government agencies could result in payment delays, impair our ability to perform work on existing contracts or otherwise impact our operations, negatively impact future orders, and/or cause other disruptions or delays.

There is uncertainty regarding which government

functions would shut down or continue operations during a lapse in appropriations, and corresponding uncertainty regarding the extent or magnitude of potential impacts to our operations.

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.

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Boeing has long-standing relationships with our Chinese customers, who represent a key component of our commercial aircraft backlog.

U.S.-China trade relationship remains stalled as economic and national security concerns continue to be a challenge .

Overall, the U.S.-China trade relationship remains stalled as economic and national security concerns continue to be a challenge .

Beginning in June 2018, the U.S.

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trading partners have imposed, or announced their intention to impose, tariffs on U.S.

has subsequently reached agreements with Mexico, Canada, the United Kingdom, the European Union, and Japan to ease or remove tariffs on steel and/or aluminum.

has subsequently reached agreements with Mexico, Canada, Japan, the United Kingdom, and the European Union to ease or remove tariffs on steel and/or aluminum.

We continue to monitor the potential for any extra costs that may result from the remaining global tariffs.

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These factors have reduced overall productivity and adversely impacted our financial position, results of operations and cash flows.

The current conflict in Israel and the Gaza Strip has the potential to impact certain of our suppliers, and has already impacted some operations for our airline and lessor customers.

We are closely monitoring developments, supporting our employees and customers, and will take mitigating actions as appropriate.

Segment Results of Operations and Financial Condition

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Results of Operations

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Operating margins (7.2) % (10.4) % (8.6) % (9.9) %

BCA revenues increased by $5,092 million for the six months ended June 30, 2023 compared with the same period in 2022 primarily driven by higher 787 deliveries due to the delivery pause in the prior year and higher 737 deliveries.

BCA revenues increased by $2,582 million for the three months ended June 30, 2023 compared with the same period in 2022 driven by higher 787 deliveries.

BCA revenues increased by $6,665 million for the nine months ended September 30, 2023 compared with the same period in 2022 primarily driven by higher 787 and 737 deliveries.

BCA revenues increased by $1,573 million for the three months ended September 30, 2023 compared with the same period in 2022 driven by higher 787 deliveries, partially offset by lower 737 deliveries.

Commercial airplane deliveries, including intercompany deliveries, were as follows:

737 * 747 767 * 777 787 Total

Deliveries during the first six months of 2023 216 (5) 1 9 (1) 9 31 266

Deliveries during the first six months of 2022 189 (8) 3 12 (7) 12 216

Deliveries during the second quarter of 2023 103 (3) 8 (1) 5 20 136

Deliveries during the second quarter of 2022 103 (3) 2 7 (4) 9 121

Deliveries during the first nine months of 2023 286 (6) 1 17 (6) 17 50 371

Deliveries during the first nine months of 2022 277 (10) 3 21 (10) 18 9 328

Deliveries during the third quarter of 2023 70 (1) 8 (5) 8 19 105

Deliveries during the third quarter of 2022 88 (2) 9 (3) 6 9 112

Cumulative deliveries as of 9/30/2023 8,418 1,573 1,288 1,718 1,087

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Loss From Operations

BCA loss from operations was $998 million for the six months ended June 30, 2023 compared with $1,116 million in the same period in 2022 reflecting higher 737 and 787 deliveries, partially offset by higher spending on research and development and abnormal production costs.

Abnormal production costs for the six months ended June 30, 2023 were $955 million including $693 million related to the 787 program and $262 million related to the 777X program.

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 the 737 program and $102 million related to the 777X program.

BCA loss from operations was $383 million for the three months ended June 30, 2023 compared with $219 million in the same period in 2022 reflecting higher spending on research and development, higher abnormal production costs, and 777 delivery timing, partially offset by higher 787 deliveries.

Abnormal production costs for the three months ended June 30, 2023 were $450 million, including $314 million related to the 787 program and $136 million related to the 777X program.

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.

BCA loss from operations was $1,676 million for the nine months ended September 30, 2023 compared with $1,738 million in the same period in 2022 reflecting higher 737 and 787 deliveries and lower other period expenses, partially offset by higher spending on research and development and higher abnormal production costs.

Abnormal production costs for the nine months ended September 30, 2023 were $1,379 million, including $937 million related to the 787 program and $442 million related to the 777X program.

Abnormal production costs for the nine months ended September 30, 2022 were $1,326 million, including $925 million related to the 787 program, $213 million related to the 777X program and $188 million related to the 737 program.

BCA loss from operations was $678 million for the three months ended September 30, 2023 compared with $622 million in the same period in 2022 reflecting higher spending on research and development, partially offset by lower other period expenses.

Abnormal production costs for the three months ended September 30, 2023 were $424 million, including $244 million related to the 787 program and $180 million related to the 777X program.

Abnormal production costs for the three months ended September 30, 2022 were $441 million, including $330 million related to the 787 program and $111 million related to the 777X program.

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.

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 customer financing orders as well as orders where customers have the unilateral right to terminate.

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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 $329,824 million as of December 31, 2022 to $362,866 million at June 30, 2023 reflecting n ew orders in excess of deliveries and a decrease in the value of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog, partially offset by order cancellations.

Aircraft order cancellations during the six months ended June 30, 2023 totaled $10,061 million and primarily relate to 737 aircraft.

The net ASC 606 adjustments for the six months ended June 30, 2023 resulted in an increase to backlog of $12,989 million due to a net decrease of 777X and 737 aircraft, partially offset by an increase in 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 due.

BCA total backlog increased from $329,824 million as of December 31, 2022 to $392,105 million at September 30, 2023 reflecting n ew orders in excess of deliveries and a decrease in the value of existing orders that in our assessment do not meet the accounting requirements of ASC 606 for inclusion in backlog, partially offset by order cancellations.

Aircraft order cancellations during the nine months ended September 30, 2023 totaled $11,612 million and primarily relate to 737 and 777X aircraft.

The net ASC 606 adjustments for the nine months ended September 30, 2023 resulted in an increase to backlog of $17,871 million due to a net decrease of 777X and 737 aircraft, partially offset by an increase in 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 due.

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Program Highlights

737 Program The accounting quantity for the 737 program increased by 400 units during the six months ended June 30, 2023 due to the program's normal progress of obtaining additional orders and delivering airplanes.

737 Program The accounting quantity for the 737 program increased by 400 units during the nine months ended September 30, 2023 due to the program's normal progress of obtaining additional orders and delivering airplanes.

Return-to-service of the China 737 MAX fleet is largely complete.

In April 2023, the Civil Aviation Administration of China released the second 737 Aircraft Evaluation Report, which was another step toward resuming deliveries.

However, there continues to be uncertainty regarding timing of resumption of deliveries in China.

We continue to work with airlines and government officials to resume airplane deliveries to customers in China, however, there continues to be uncertainty regarding timing.

We have approximately 250 aircraft in inventory as of September 30, 2023, including 85 aircraft for customers in China.

We continue to expect to deliver most of the aircraft in inventory by the end of 2024.

In the event that we are unable to resume aircraft deliveries in China and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing could be impacted.

In April 2023, our fuselage supplier notified us that a non-standard manufacturing process was used on two fittings in the aft fuselage section of certain 737-7, 737-8 and 737 military derivative aircraft.

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While this impacted deliveries in the second quarter, newly-built aircraft now meet our specifications.

We have approximately 220 aircraft in inventory as of June 30, 2023, including 85 aircraft for customers in China, as well as 55 aircraft that were originally designated for customers in China and have been remarketed to other customers.

We continue to expect to deliver most of the aircraft in inventory by the end of 2024.

In the event that we are unable to resume aircraft deliveries in China and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing could be impacted.

We are currently transitioning the production rate from 31 per month to 38 per month;

however, we continue to experience supply chain disruptions and are monitoring supply chain readiness to support current production rates as well as planned production rate increases.

During the third quarter of 2023, we discovered non-conforming holes in the aft pressure dome of certain 737-7, 737-8 and 737 military derivative aircraft.

We are working with our fuselage supplier to rework non-conforming fuselages and ensure newly built aircraft meet our specifications.

There is not an immediate safety of flight issue and the in-service fleet can continue operating safely.

Inspections and rework have begun on completed aircraft and resulted in lower than expected deliveries in the third quarter of 2023.

The recent non-conformance has also disrupted and slowed the production of newly built aircraft including the planned transition from 31 per month to 38 per month, which is now expected by the end of 2023.

We are following the lead of the Federal Aviation Administration (FAA) as we work through the certification process of the 737-7 and 737-10 models.

We continue to expect the 737-7 to be certified in 2023, and now expect first delivery in 2024.

We continue to expect the 737-7 to be certified in 2023 with first delivery in 2024.

We continue to expect the 737-10 to begin FAA certification flight testing in 2023 with first delivery in 2024.

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Ending production of the 747 did not have a material impact on our financial position, results of operations or cash flows.

767 Program The 767 assembly line includes the commercial program and a derivative to support the KC-46A Tanker program.

767 Program The accounting quantity for the 767 program increased by 12 units during the three months ended September 30, 2023 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 KC-46A Tanker program.

The commercial program has near break-even gross margins.

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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 now expected to result in abnormal production costs of approximately $1.0 billion that are being period expensed as incurred until 777X-9 production resumes.

Cumulative abnormal costs recorded through June 30, 2023 totaled $587 million including $262 million of abnormal costs expensed during the six months ended June 30, 2023.

The 777X program has near break-even gross margins at June 30, 2023.

We implemented the production pause during the second quarter of 2022, and continue to expect abnormal production costs of approximately $1.0 billion that are being period expensed as incurred until 777X-9 production resumes.

We have been gradually restarting the 777X production system and expect all phases to resume during the fourth quarter of 2023.

Cumulative abnormal costs recorded through September 30, 2023 totaled $767 million including $442 million of abnormal costs expensed during the nine months ended September 30, 2023.

The 777X program has near break-even gross margins at September 30, 2023.

The level of profitability on the 777X program will be subject to a number of factors.

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We received FAA authorization to resume deliveries in March.

We delivered 11 aircraft during the first quarter of 2023 and 20 aircraft during the second quarter of 2023.

At June 30, 2023 and December 31, 2022, we had approximately 85 and 100 aircraft in inventory and expect to deliver most by the end of 2024.

We are currently producing at 4 per month and expect to return to 5 per month in 2023.

At September 30, 2023 and December 31, 2022, we had approximately 75 and 100 aircraft in inventory and expect to deliver most by the end of 2024.

We are currently transitioning the production rate from 4 per month to 5 per month.

In the third quarter of 2021, we determined that production rates below 5 per month represented abnormally low production rates and result in abnormal production costs that are required to be expensed as incurred.

We also determined that the inspections and rework costs on inventoried aircraft are excessive and should also be accounted for as abnormal production costs.

Cumulative abnormal costs recorded through June 30, 2023 totaled $2.4 billion, and we continue to expect to incur up to $2.8 billion with most being

incurred by the end of 2023.

Cumulative abnormal costs recorded through September 30, 2023 totaled $2.6 billion and our estimate of total abnormal costs increased from $2.8 billion to $3.0 billion in the third quarter of 2023 primarily due to supply chain disruption.

We do not expect abnormal costs related to abnormally low production rates to continue beyond September 30, 2023, and we expect the remaining abnormal costs related to inspections and rework to be incurred by the end of 2024.

We continue to work with customers and suppliers regarding timing of future deliveries and production rate changes.

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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.

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 737 and 787 production issues and associated rework.

In addition, the introduction of new aircraft and derivatives, such as the 777X and 737-7 and 737-10, involves increased risks associated with meeting development, production and certification schedules.

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In March 2023, the U.S.

government released the President's budget request for fiscal year 2024 (FY24), which requested $842 billion in funding for the United States Department of Defense (U.S.

government released the President's budget request for FY24, which requested $842 billion in funding for the U.S.

DoD and $27 billion for the National Aeronautics and Space Administration (NASA).

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sales opportunities.

There is ongoing uncertainty with respect to program-level appropriations for the U.S.

In addition, there is ongoing uncertainty with respect to program-level appropriations for the U.S.

DoD, NASA and other government agencies for FY24 and beyond.

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BDS expects that it will continue to have a wide range of opportunities across Asia, Europe and the Middle East given the diverse regional threats.

At June 30, 2023, 31% of BDS backlog was attributable to non-U.S.

At September 30, 2023, 29% of BDS backlog was attributable to non-U.S.

Results of Operations

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

Revenues $18,187 $16,981 $5,481 $5,307

(Loss)/earnings from operations ($739) ($858) ($527) $71

Loss from operations

($1,663) ($3,656) ($924) ($2,798)

Operating margins (9.1) % (21.5) % (16.9) % (52.7 %)

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Deliveries of new-build production units, including remanufactures and modifications, were as follows:

Six months ended June 30 Three months ended June 30

Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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F-15 Models 6 9 4

T-7A Red Hawk 1 1

CH-47 Chinook (New) 8 10 1 1

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AH-64 Apache (Remanufactured) 38 36 9 8

MH-139 1 4 1 4

P-8 Models 7 10 2 4

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Total 108 117 28 36

BDS revenues for the six months ended June 30, 2023 increased by $1,032 million compared with the same period in 2022 primarily due to lower charges on development programs, increased sales from space and proprietary programs, and the USAF KC-46A Lot 9 Tanker award in the first quarter of 2023.

Cumulative contract catch-up adjustments for the six months ended June 30, 2023 were $136 million less unfavorable than the comparable period in the prior year largely due to lower charges on development programs, partially offset by unfavorable performance on other programs.

BDS revenues for the three months ended June 30, 2023 decreased by $24 million compared with the same period in 2022.

Unfavorable cumulative contract catch-up adjustments were $217 million higher than the comparable period in the prior year largely due to operational instability and charges on development programs.

This was largely offset by increased volume on space and proprietary programs.

Loss/Earnings From Operations

BDS loss from operations was $739 million for the six months ended June 30, 2023 compared with $858 million in the same period in 2022 primarily due to less unfavorable impacts of cumulative contract catch-up adjustments, which amounted to $242 million less than the prior year comparable period.

During the first half of 2023, losses incurred on development programs totaled $828 million, including $288 million on the Commercial Crew program, $245 million on the KC-46A Tanker program, and $189 million on the T-7A

During the first half of 2022, losses incurred on development programs totaled $1,667 million, including $686 million on VC-25B, $454 million on T-7A, $225 million on MQ-25 and $209 million on KC-46A Tanker.

The increase in reach-forward losses in 2023 primarily reflect a delay in the Commercial Crew program's crewed flight test previously scheduled for July 2023, the cost of rework on the KC-46A Tanker program that was identified as a result of supplier quality issues, and higher estimated production costs on the T-7A program.

Operations were also impacted by continued labor instability, development technical challenges and supply chain disruption across other programs including F-15 and satellites.

Higher period expenses also contributed to lower earnings in 2023.

BDS loss from operations was $527 million for the three months ended June 30, 2023 compared with earnings from operations of $71 million in the same period in 2022.

The year over year decrease in earnings reflects an increase in unfavorable cumulative contract catch-up adjustments which were $428 million higher than the comparable period in the prior year.

During the second quarter of 2023, losses incurred on development programs totaled $514 million compared with $397 million in the same period in 2022.

Earnings in 2023 were adversely impacted by lower margins on several programs including F-15 and satellite programs reflecting continued labor instability, development technical challenges and supply chain disruption.

Higher period expenses also contributed to lower earnings in 2023.

BDS revenues for the nine months ended September 30, 2023 increased by $1,206 million compared with the same period in 2022 primarily due to lower charges on development programs and higher revenues on space and proprietary programs.

Net unfavorable cumulative contract catch-up adjustments for the nine months ended September 30, 2023 were $676 million better than the comparable period in the prior year largely due to lower charges on development programs in 2023, partially offset by unfavorable performance on other programs.

BDS revenues for the three months ended September 30, 2023 increased by $174 million compared with the same period in 2022.

Net unfavorable cumulative contract catch-up adjustments for the three months ended September 30, 2023 were $540 million better than the comparable period in the prior year primarily due lower charges on development programs, partially offset by the KC-46A Tanker Lot 8 award in the third quarter of 2022.

Loss From Operations

BDS loss from operations was $1,663 million for the nine months ended September 30, 2023 compared with $3,656 million in the same period in 2022 primarily due to a reduction in net unfavorable cumulative contract catch-up adjustments, which were $2,483 million better than the net unfavorable impact in the prior year comparable period.

The reduction in unfavorable cumulative contract catch-up adjustments included $2,983 million related to the five large fixed-price development programs, partially offset by a $500 million increase in net unfavorable cumulative catch-up adjustments on the remaining portfolio and lower margins on several programs in 2023 than the comparable period in the prior year.

During the nine months ended September 30, 2023, losses incurred on the five development programs totaled $1,446 million compared with $4,429 million in the same period in 2022.

Additionally, operations were impacted by continued labor instability, development technical challenges and supply chain disruption across other programs including F-15 and satellites.

Results in 2023 were also affected by the $315 million impact of satellite contract discussed below.

Higher period expenses also contributed to the loss from operations in 2023.

BDS loss from operations was $924 million for the three months ended September 30, 2023 compared with $2,798 million in the same period in 2022.

During the third quarter of 2023, losses incurred on development programs totaled $618 million compared with $2,762 million in the same period in 2022.

These reductions were partially offset by lower margins on several programs including F-15 and satellites

reflecting continued labor instability, development technical challenges and supply chain disruption.

During the three months ended September 30, 2023 , we recorded earnings charges of $315 million resulting from a customer agreement.

The charge includes estimated customer considerations as well as increased costs to enhance the constellation and meet lifecycle commitments.

See further discussion of fixed-price contracts in Note 9 to our Condensed Consolidated Financial Statements.

BDS (loss)/earnings from operations includes our share of earnings from equity method investments of $10 million and $24 million for the six and three months ended June 30, 2023 compared with equity earnings of $40 million and $13 million for the same periods in 2022.

BDS backlog increased from $54,373 million as of December 31, 2022 to $57,505 million at June 30, 2023, primarily due to the timing of awards, partially offset by revenue recognized on contracts awarded in prior periods.

BDS loss from operations includes our share of earnings from equity method investments of $34 million and $24 million for the nine and three months ended September 30, 2023 compared with equity earnings of $2 million for the nine months ended September 30, 2022 and equity loss of $38 million for the three months ended September 30, 2022.

BDS backlog increased from $54,373 million as of December 31, 2022 to $57,802 million at September 30, 2023, primarily due to the timing of awards, partially offset by revenue recognized on contracts awarded in prior periods.

Additional Considerations

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Some 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.

In these cases, the associated financial risks are primarily reduced award or incentive 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.

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Results of Operations

(Dollars in millions) Six months ended June 30 Three months ended June 30

(Dollars in millions) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

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Operating margins 17.4 % 16.0 % 16.3 % 16.5 %

BGS revenues for the six months ended June 30, 2023 increased by $854 million compared with the same period in 2022 primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio and higher government services revenue.

The net unfavorable impact of cumulative contract catch-up adjustments for the six months ended June 30, 2023 was $33 million worse than the net favorable impact in the prior year comparable period.

BGS revenues for the three months ended June 30, 2023 increased by $448 million compared with the same period in 2022 primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio and higher government services revenue.

The net favorable impact of cumulative contract catch-up adjustments for the three months ended June 30, 2023 was $20 million better than the net unfavorable impact in the prior year comparable period.

BGS revenues for the nine months ended September 30, 2023 increased by $1,234 million compared with the same period in 2022 primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio.

The net unfavorable impact of cumulative contract catch-up adjustments for the nine months ended September 30, 2023 was $54 million worse than the net favorable impact in the prior year comparable period.

BGS revenues for the three months ended September 30, 2023 increased by $380 million compared with the same period in 2022 primarily due to higher commercial services revenue driven by market recovery across the commercial portfolio.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended September 30, 2023 was $21 million worse than the net favorable impact in the prior year comparable period.

Earnings From Operations

BGS earnings from operations for the six months ended June 30, 2023 increased by $343 million compared with the same period in 2022, primarily due to higher commercial services revenue, partially offset by lower government services performance.

The net unfavorable impact of cumulative contract catch-up adjustments for the six months ended June 30, 2023 was $49 million worse than the net favorable impact in the prior year comparable period.

BGS earnings from operations for the three months ended June 30, 2023 increased by $128 million compared with the same period in 2022, primarily due to higher commercial services and government services revenue.

The net favorable impact of cumulative contract catch-up adjustments for the three months ended June 30, 2023 was $9 million better than the net favorable impact in the prior year comparable period.

BGS backlog decreased from $19,338 million as of December 31, 2022 to $18,455 million at June 30, 2023, primarily due to revenue recognized on contracts awarded in prior years.

BGS earnings from operations for the nine months ended September 30, 2023 increased by $394 million compared with the same period in 2022, primarily due to higher commercial services revenue, partially offset by lower government services performance and unfavorable mix.

The net unfavorable impact of cumulative contract catch-up adjustments for the nine months ended September 30, 2023 was $60 million worse than the net favorable impact in the prior year comparable period.

BGS earnings from operations for the three months ended September 30, 2023 increased by $51 million compared with the same period in 2022, primarily due to higher commercial services revenue.

The net unfavorable impact of cumulative contract catch-up adjustments for the three months ended September 30, 2023 was $11 million worse than the net unfavorable impact in the prior year comparable period.

BGS backlog decreased from $19,338 million as of December 31, 2022 to $18,441 million at September 30, 2023, primarily due to revenue recognized on contracts awarded in prior years.

Liquidity and Capital Resources

Cash Flow Summary

(Dollars in millions) Six months ended June 30

(Dollars in millions) Nine months ended September 30

Net loss ($2,212) ($4,390)

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Changes in assets and liabilities 1,673 1,009

Net cash provided/(used) by operating activities 2,557 (3,135)

Net cash provided by operating activities 2,579 55

Net cash (used)/provided by investing activities (5,241) 6,521

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Cash & cash equivalents, including restricted, at end of period $6,832 $13,530

Operating Activities Net cash provided by operating activities was $2.6 billion during the six months ended June 30, 2023, compared with cash used of $3.1 billion during the same period in 2022.

The $5.7 billion improvement is primarily driven by improved changes in assets and liabilities of $5.3 billion and lower net loss of $0.5 billion.

Changes in assets and liabilities for the six months ended June 30, 2023 improved by $5.3 billion compared with the same period in 2022 primarily driven by favorable changes in Advances and progress billings ($3.1 billion), Inventories ($1.0 billion), and Accounts payable ($0.5 billion).

Cash provided by Advances and progress billings was $2.2 billion for the six months ended June 30, 2023, as compared with cash used of $0.9 billion during the same period in 2022.

Inventory improvements were driven by higher 737 and 787 deliveries.

Growth in Accounts payable in 2023 is a source of cash generally reflecting increases in production rates.

Concessions paid to 737 MAX customers totaled $0.3 billion and $0.8 billion during the six months ended June 30, 2023 and 2022.

The $0.5 billion decrease in net loss is primarily driven by lower charges on BDS development programs recorded during the first half of 2023 as compared to the same period in 2022 and increased earnings at BGS.

Payables to suppliers who elected to participate in supply chain financing programs increased by $0.1 billion for the six months ended June 30, 2023 and 2022.

Operating Activities Net cash provided by operating activities was $2.6 billion during the nine months ended September 30, 2023, compared with $0.1 billion during the same period in 2022.

The $2.5 billion improvement is primarily driven by increases in Advances and progress billings in 2023, partially offset by an income tax refund received in 2022.

During the nine months ended September 30, 2023, cash provided by Advances and progress billings was $3.0 billion as compared with $0.2 billion during the same period in 2022.

This improvement was partially offset by an unfavorable change in Accrued liabilities of $3.0 billion, primarily driven by higher accrued losses on BDS fixed-price development programs recorded in the prior year and a $1.5 billion income tax refund received during the third quarter of 2022.

Concessions paid to 737 MAX customers totaled $0.3 billion and $1.0 billion during the nine months ended September 30, 2023 and 2022.

Payables to suppliers who elected to participate in supply chain financing programs increased by $0.4 billion during the nine months ended September 30, 2023 and decreased by $0.1 billion during the nine months ended September 30, 2022.

Supply chain financing is not material to our overall liquidity.

Investing Activities Cash used by investing activities was $4.8 billion during the six months ended June 30, 2023, compared with cash provided of $6.2 billion during the same period in 2022.

The increase in use of cash during the six months ended June 30, 2023 compared to the same period in 2022 is primarily due to net contributions to investments of $3.9 billion in 2023 compared to net proceeds from investments of $6.8 billion in 2022.

In the six months ended June 30, 2023 and 2022, capital expenditures were $0.8 billion and $0.6 billion.

Investing Activities Cash used by investing activities was $5.2 billion during the nine months ended September 30, 2023, compared with cash provided of $6.5 billion during the same period in 2022.

The increase in use of cash during the nine months ended September 30, 2023 compared to the same period in 2022 is primarily due to net contributions to investments of $4.0 billion in 2023 compared to net proceeds from investments of $7.4 billion in 2022.

In the nine months ended September 30, 2023 and 2022, capital expenditures were $1.1 billion and $0.9 billion.

We continue to expect capital expenditures in 2023 to be higher than in 2022.

Financing Activities Cash used by financing activities was $5.1 billion during the six months ended June 30, 2023 compared with $1.0 billion during the same period in 2022.

During the six months ended June 30, 2023, net repayments on our debt were $5.1 billion compared with $1.0 billion in the same period in 2022.

As of June 30, 2023 the total debt balance was $52.3 billion, down from $57.0 billion at December 31, 2022.

At June 30, 2023, $4.6 billion of debt was classified as short-term.

Financing Activities Cash used by financing activities was $5.1 billion during the nine months ended September 30, 2023 compared with $1.0 billion during the same period in 2022.

During the nine months ended September 30, 2023, net repayments on our debt were $5.1 billion compared with $1.0 billion in the same period in 2022.

As of September 30, 2023 the total debt balance was $52.3 billion, down from $57.0 billion at December 31, 2022.

At September 30, 2023, $4.9 billion of debt was classified as short-term.

Capital Resources

We expect to be able to fund our cash requirements through cash and short-term investments and cash provided by operations, as well as continued access to capital markets.

At June 30, 2023, we had $7.3 billion of cash, $6.5 billion of short-term investments, and $12.0 billion of unused borrowing capacity on revolving credit line agreements.

During 2022, we entered into a $5.8 billion 364-day revolving credit agreement expiring in August 2023, a $3.0 billion three-year revolving credit agreement expiring in August 2025, and amended our $3.2 billion five-year revolving credit agreement, which expires in October 2024, primarily to incorporate a LIBOR successor rate.

The 364-day credit facility has a one-year term out option which allows us to extend the maturity of any borrowings one year beyond the aforementioned expiration date.

At September 30, 2023, we had $6.8 billion of cash, $6.6 billion of short-term investments, and $10.0 billion of unused borrowing capacity on revolving credit line agreements.

In the third quarter of 2023, we entered into a $3.0 billion five-year

revolving credit agreement expiring in August 2028 and a $0.8 billion 364-day revolving credit agreement expiring in August 2024.

The 364-day credit facility has a one-year term out option which allows us to extend the maturity of any borrowings until August 2025.

The legacy three-year revolving credit agreement expiring in August 2025, which consists of $3.0 billion of total commitments, and the legacy five-year revolving credit agreement expiring in October 2024, as amended, which consists of $3.2 billion of total commitments, each remain in effect.

We anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs.

Our credit ratings remained unchanged as of June 30, 2023.

However, during the first quarter of 2023, Moody's upgraded the outlook on our credit rating from negative to stable primarily driven by an improvement in operating cash flow and a reduction of 737 and 787 aircraft in inventory.

Our credit ratings remained unchanged as of September 30, 2023.

During the third quarter of 2023, S&P upgraded the outlook on our credit rating from negative to stable primarily driven by improving deliveries and expected increases in production.

In October 2023, Fitch upgraded our credit rating outlook from stable to positive driven by declining inventory levels, improving production and delivery profile, growing backlog, and forecasted positive free cash flow.

During the first quarter of 2023, Moody's upgraded the outlook on our credit rating from negative to stable primarily driven by an improvement in operating cash flow and a reduction of 737 and 787 aircraft in inventory.

We expect to be able to access capital markets if we require additional funding in order to pay off existing debt, address further impacts to our business related to market developments, fund outstanding financing commitments or meet other business requirements.

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Any future borrowings may affect our credit ratings and are subject to various debt covenants.

At June 30, 2023, we were in compliance with the covenants for our debt and credit facilities.

At September 30, 2023, 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 in the credit agreements).

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Legal contingencies are discussed in Note 17 to our Condensed Consolidated Financial Statements.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $800 million at June 30, 2023.

Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $855 million at September 30, 2023.

For additional information, see Note 9 to our Condensed Consolidated Financial Statements.

Non-GAAP Measures

Core Operating Loss/Earnings, Core Operating Margin and Core Loss Per Share

Core Operating Loss, Core Operating Margin and Core Loss 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.

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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 (loss)/earnings, core operating margin and core loss per share exclude the FAS/CAS service cost adjustment.

Core operating loss, Core operating margin and Core loss 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.

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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 $445 million and $222 million for the six and three months ended June 30, 2023, compared with benefits of $413 million and $205 million for the same periods in 2022.

The Pension FAS/CAS service cost adjustments recognized in Loss from operations were benefits of $663 million and $218 million for the nine and three months ended September 30, 2023, compared with benefits of $621 million and $208 million for the same periods in 2022.

The higher benefits in 2023 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 $268 million and $134 million for the six and three months ended June 30, 2023, compared with benefits of $441 million and $221 million for the same periods in 2022.

The non-operating pension expenses included in Other income, net were benefits of $402 million and $134 million for the nine and three months ended September 30, 2023, compared with benefits of $666 million and $225 million for the same periods in 2022.

The lower benefits in 2023 were primarily due to higher interest cost and lower expected return on plan assets, offset by lower amortization of net actuarial losses.

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Reconciliation of Non-GAAP Measures to GAAP Measures

The table below reconciles the non-GAAP financial measures of core operating (loss)/earnings, core operating margin and core loss per share with the most directly comparable GAAP financial measures of (loss)/earnings from operations, operating margins and diluted (loss)/earnings per share.

(Dollars in millions, except per share data) Six months ended June 30 Three months ended June 30

The table below reconciles the non-GAAP financial measures of Core operating loss, Core operating margin and Core loss per share with the most directly comparable GAAP financial measures of Loss from operations, operating margins and Diluted loss per share.

(Dollars in millions, except per share data) Nine months ended September 30 Three months ended September 30

2023 2022 2023 2022

Revenues $55,776 $46,628 $18,104 $15,956

(Loss)/earnings from operations, as reported ($248) ($382) ($99) $780

Loss from operations, as reported

($1,056) ($3,174) ($808) ($2,792)

Operating margins (1.9) % (6.8) % (4.5) % (17.5) %

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($863) ($846) ($281) ($279)

Core operating (loss)/earnings (non-GAAP) ($830) ($949) ($390) $496

Core operating loss (non-GAAP)

($1,919) ($4,020) ($1,089) ($3,071)

Core operating margins (non-GAAP) (3.4) % (8.6) % (6.0) % (19.2) %

Diluted (loss)/earnings per share, as reported ($0.93) ($1.73) ($0.25) $0.32

Diluted loss per share, as reported

($3.64) ($7.24) ($2.70) ($5.49)

Pension FAS/CAS service cost adjustment (1)

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(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 (loss)/earnings (non-GAAP).

This adjustment is excluded from Core operating loss (non-GAAP).

(2) Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis