BOEING Consolidated Results of Operations and Financial Condition
Overview
We are a global market leader in the design, development, manufacture, sale, service and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services. We are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and one of the largest defense contractors in theU.S. While our principal operations are in theU.S. , we conduct operations in an expanding number of countries and rely on an extensive network of non-U.S. partners, key suppliers and subcontractors. Our strategy is centered on successful execution in healthy core businesses - Commercial Airplanes (BCA), Defense, Space & Security (BDS) andGlobal Services (BGS) - supplemented and supported byBoeing Capital (BCC). Taken together, these core businesses have historically generated substantial earnings and cash flow that enable our investments in new products and services. We focus on producing the products and providing the services that the market demands, and continue to find new ways to improve efficiency and quality to provide a fair return for our shareholders. BCA is committed to being the leader in commercial aviation by offering airplanes and services that deliver superior design, safety, efficiency and value to customers around the world. BDS integrates its resources in defense, intelligence, communications, security, space and services to deliver capability-driven solutions to customers at reduced costs. Our BDS strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets, underscored by an intense focus on growth and productivity. BGS provides support for commercial and defense through innovative, comprehensive and cost-competitive product and service solutions. BCC facilitates, arranges, structures and provides selective financing solutions for ourBoeing customers.
Business Environment and Trends
Domestic travel continues to recover from the lingering effects of the COVID-19 pandemic before international travel and the narrow-body market continues to follow domestic travel recovery, while the wide-body market continues to be paced by international travel recovery. The pace of the commercial market recovery remains impacted by government restrictions related to COVID-19, especiallyChina . We are seeing a strong recovery in travel demand for our airline customers inNorth and South America , theMiddle East , andEurope , and demand for dedicated freighters continues to be underpinned by a strong recovery in global trade. We and our suppliers are experiencing supply chain disruptions as a result of the lingering impacts of COVID-19, global supply chain constraints, and labor instability. 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 factors 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 theInternational Air Transport Association (IATA) , net losses for the airline industry were$138 billion in 2020 and$42 billion in 2021. IATA also forecasts$6.9 billion of losses for the industry globally in 2022, with approximately$9.9 billion of profits inNorth America driven by the robust domestic market being more than offset by losses in other regions. For 2023, IATA is forecasting$4.6 billion in profits for the industry globally. 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. 20
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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% in average annual gross domestic product, 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. During 2022, commercial services volume at BGS recovered to pre-pandemic levels. We expect BGS commercial revenues to remain strong in future quarters as the commercial airline industry continues to recover. The demand outlook for our government services business remains stable. At BDS, we continue to see stable demand reflecting the important role our products and services have in ensuring our national security. Outside of theU.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 supplier disruption, labor instability and factory performance. These factors have contributed to significant earnings charges on a number of fixed-price development programs which are expected to adversely affect cash flows in future periods. As a result of the war inUkraine , we recorded earnings charges totaling$212 million during the first quarter of 2022, primarily related to asset impairments. We have closed our facilities inRussia . 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 inRussia , including parts, maintenance and technical support for Russian airlines, and purchases from Russian suppliers. We are complying withU.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 inUkraine continues to impact our airline and lessor customers. We continue to monitor developments and potentialBoeing impacts, and take mitigating actions as appropriate. 21
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Consolidated Results of Operations
The following table summarizes key indicators of consolidated results of operations:
(Dollars in millions, except per share data) Years ended December 31, 2022 2021 2020 Revenues$66,608 $62,286 $58,158 GAAP Loss from operations ($3,547 ) ($2,902 ) ($12,767 ) Operating margins (5.3) % (4.7) % (22.0) % Effective income tax rate (0.6) % 14.8 % 17.5 % Net loss attributable to Boeing Shareholders ($4,935 ) ($4,202 ) ($11,873 ) Diluted loss per share ($8.30 ) ($7.15 ) ($20.88 ) Non-GAAP (1) Core operating loss ($4,690 ) ($4,075 ) ($14,150 ) Core operating margins (7.0 %) (6.5 %) (24.3 %) Core loss per share ($11.06 ) ($9.44 ) ($23.25 )
(1)These measures exclude certain components of pension and other postretirement benefit expense. See pages 45 - 47 for important information about these non-GAAP measures and reconciliations to the most directly comparable GAAP measures.
Revenues
The following table summarizes Revenues:
(Dollars in millions) Years ended December 31, 2022 2021 2020 Commercial Airplanes$25,867 $19,493 $16,162 Defense, Space & Security 23,162 26,540 26,257 Global Services 17,611 16,328 15,543Boeing Capital 199 272 261
Unallocated items, eliminations and other (231) (347)
(65) Total$66,608 $62,286 $58,158 Revenues increased by$4,322 million in 2022 compared with 2021 driven by higher revenues at BCA and BGS, partially offset by lower revenues at BDS. BCA revenues increased by$6,374 million primarily driven by higher 737 and 787 deliveries. BGS revenues increased by$1,283 million primarily due to higher commercial services volume, partially offset by lower government services volume and performance. BDS revenues decreased by$3,378 million primarily due to charges on development programs, unfavorable performance across other defense programs, and lower P-8 and weapons volume. Revenues increased by$4,128 million in 2021 compared with 2020 driven by higher revenues at BCA, BDS and BGS. BCA revenues increased by$3,331 million primarily driven by higher 737 MAX deliveries due to recertification and return to service in most jurisdictions and the absence of$498 million of 737 MAX customer considerations which reduced revenues in 2020, partially offset by lower 787 deliveries in 2021. BDS revenues increased by$283 million primarily from higher revenue on the 22
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KC-46A Tanker program and lower charges in 2021. BGS revenues increased by
Revenues will continue to be significantly impacted until the global supply chain stabilizes, labor instability diminishes, and deliveries ramp up.
Loss From Operations
The following table summarizes Loss from operations:
(Dollars in millions) Years ended December 31, 2022 2021 2020 Commercial Airplanes ($2,370 ) ($6,475 ) ($13,847 ) Defense, Space & Security (3,544) 1,544 1,539 Global Services 2,727 2,017 450Boeing Capital 29 106 63 Segment operating loss (3,158) (2,808) (11,795) Pension FAS/CAS service cost adjustment 849 882
1,024
Postretirement FAS/CAS service cost adjustment 294 291
359
Unallocated items, eliminations and other (1,532) (1,267)
(2,355)
Loss from operations (GAAP) ($3,547 ) ($2,902 )
(
FAS/CAS service cost adjustment * (1,143) (1,173)
(1,383)
Core operating loss (Non-GAAP) ** ($4,690 ) ($4,075 )
(
* 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 loss is a non-GAAP measure that excludes the FAS/CAS service cost adjustment. See pages 45 - 47.
Loss from operations increased by$645 million in 2022 compared with 2021. BDS had a loss from operations of$3,544 million compared with earnings of$1,544 million during 2021, primarily due to charges on development programs. BCA loss from operations decreased by$4,105 million primarily due to the absence in 2022 of the$3,460 million reach-forward loss taken on the 787 program in 2021, higher 737 deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war inUkraine and other period expenses. BGS earnings from operations increased by$710 million in 2022 compared with 2021 primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance. Loss from operations decreased by$9,865 million in 2021 compared with 2020 primarily due to lower losses at BCA and higher earnings at BGS. BCA loss from operations decreased by$7,372 million primarily due to the absence of a$6,493 million reach-forward loss on the 777X program recorded in 2020, lower period expenses, lower 737 MAX customer considerations and higher 737 MAX deliveries, partially offset by a$3,460 million reach-forward loss on the 787 program in 2021. BGS earnings from operations increased by$1,567 million in 2021 compared with 2020 primarily due to charges incurred in 2020 as a result of the COVID-19 pandemic, as well as higher commercial services volume. Core operating loss increased by$615 million in 2022 compared with 2021 and decreased by$10,075 million in 2021 compared with 2020 primarily due to changes in Segment operating loss as described above. 23
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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) Years ended December 31, 2022 2021 2020 Share-based plans ($114 ) ($174 ) ($120 ) Deferred compensation 117 (126) (93)
Amortization of previously capitalized interest (95) (107)
(95)
Research and development expense, net (278) (184)
(240)
Eliminations and other unallocated items (1,162) (676)
(1,807)
Unallocated items, eliminations and other ($1,532 ) ($1,267 )
(
Share-based plans expense decreased by$60 million in 2022 and increased by$54 million in 2021. The lower expense in 2022 compared to 2021 was due to decreased grants of restricted stock units (RSUs) and other share-based compensation. The higher expense in 2021 compared to 2020 was primarily related to a one-time grant of RSUs to most employees inDecember 2020 . Deferred compensation expense decreased by$243 million in 2022, primarily driven by changes in broad stock market conditions, and increased by$33 million in 2021, primarily driven by changes in broad stock market conditions and our stock price.
Research and development expense increased by
Eliminations and other unallocated expense increased by$486 million in 2022 primarily due to a$200 million settlement with theSecurities and Exchange Commission related to the 737 MAX accidents, lower income from operating investments, and an increase in environmental remediation expense. Eliminations and other unallocated expense decreased by$1,131 million in 2021 primarily due to earnings charges of$744 million in the fourth quarter of 2020 in anticipation of the agreement betweenBoeing and theU.S. Department of Justice that was finalized inJanuary 2021 and higher income from operating investments in 2021. Net periodic pension benefit costs included in Loss from operations were as follows: (Dollars in millions) Pension Years ended December 31, 2022 2021 2020 Allocated to business segments ($852 ) ($885 ) ($1,027 ) Pension FAS/CAS service cost adjustment 849 882 1,024
Net periodic pension benefit cost included in Loss from operations
($3 ) ($3 ) ($3 )
The pension FAS/CAS service cost adjustment recognized in Loss from operations
in 2022 decreased by $33 million compared with 2021 and decreased by $142
million in 2021 compared with 2020 due to reductions in allocated pension cost
year over year. Net periodic benefit cost included in Loss from operations in
2022 was largely consistent with 2021 and 2020.
For additional discussion related to Postretirement Plans, see Note 16 to our Consolidated Financial Statements.
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Table of Contents Other Earnings Items (Dollars in millions) Years ended December 31, 2022 2021 2020 Loss from operations ($3,547 ) ($2,902 ) ($12,767 ) Other income, net 1,058 551 447 Interest and debt expense (2,533) (2,682) (2,156) Loss before income taxes (5,022) (5,033) (14,476) Income tax (expense)/benefit (31) 743 2,535 Net loss from continuing operations (5,053) (4,290) (11,941) Less: net loss attributable to noncontrolling interest (118) (88) ($68 ) Net loss attributable to Boeing Shareholders ($4,935 ) ($4,202 ) ($11,873 ) Non-operating pension income included in Other income, net was$881 million in 2022,$528 million in 2021, and$340 million in 2020. The increased income in 2022 compared to 2021 was primarily due to lower amortization of net actuarial losses in 2022 and a settlement loss recorded in 2021. The increased income in 2021 compared to 2020 was primarily due to lower interest cost and higher expected return on plan assets, partially offset by higher amortization of net actuarial losses and higher settlement charges.
Non-operating postretirement income included in Other income, net was
Interest and debt expense decreased by$149 million in 2022 primarily due to lower average debt balances and increased by$526 million in 2021 as a result of higher average debt balances. InAugust 2022 , the President signed into law the Inflation Reduction Act of 2022, which contained provisions effectiveJanuary 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. For additional discussion related to Income Taxes, see Note 4 to our 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 aircraft 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 theU.S. government and other customers that generally extend over several years. Cost of sales for commercial spare parts is recorded at average cost. 25
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The following table summarizes cost of sales:
(Dollars in millions) Years ended December 31 2022 2021 Change 2021 2020 Change Cost of sales$63,106 $59,269 $3,837 $59,269 $63,843 ($4,574 ) Cost of sales as a % of Revenues 94.7 % 95.2 % (0.5) % 95.2 % 109.8 % (14.6) % Cost of sales increased by$3,837 million in 2022 compared with 2021, primarily due to charges recorded at BDS and higher revenues at BCA. Cost of sales as a percentage of Revenues remained largely consistent in 2022 compared to 2021. Cost of sales decreased by$4,574 million in 2021 compared with 2020, primarily due to higher earnings charges at BCA, BDS and BGS in 2020, partially offset by higher costs as a result of higher revenues in 2021 and the reach-forward loss on the 787 program. Cost of sales as a percentage of Revenues decreased in 2021 compared to 2020 primarily due to higher earnings charges at BCA and BGS in 2020 and higher revenues in 2021. Research and Development The following table summarizes our Research and development expense: (Dollars in millions) Years ended December 31, 2022 2021 2020 Commercial Airplanes$1,510 $1,140 $1,385 Defense, Space & Security 945 818 713 Global Services 119 107 138 Other 278 184 240 Total$2,852 $2,249 $2,476 Research and development expense increased by$603 million in 2022 compared with 2021 primarily due to higher research and development expenditures on 777X, 737 MAX, as well as BCA and enterprise investments in product development.
Research and development expense decreased by
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Backlog
Our backlog at
(Dollars in millions) Years ended December 31, 2022 2021 Commercial Airplanes$329,824 $296,882 Defense, Space & Security 54,373 59,828 Global Services 19,338 20,496 Unallocated items, eliminations and other 846 293 Total Backlog$404,381 $377,499 Contractual backlog$381,977 $356,362 Unobligated backlog 22,404 21,137 Total Backlog$404,381 $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 unobligatedU.S. and non-U.S. government contract funding. The increase in contractual backlog during 2022 was primarily due to an increase in BCA backlog that was partially offset by a decrease in BDS backlog. If we remain unable to deliver 737 MAX aircraft inChina 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. Unobligated backlog includesU.S. and non-U.S. government definitive contracts for which funding has not been authorized. The increase in unobligated backlog in 2022 was primarily due to contract awards, partially offset by reclassifications to contractual backlog related to BDS and BGS contracts.
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 ofU.S. -China relations remains an ongoing watch item. Since 2018, theU.S. andChina have imposed tariffs on each other's imports. Certain aircraft parts and components thatBoeing procures are subject to these tariffs. We are mitigating import costs through Duty Drawback Customs procedures.China is a significant market for commercial aircraft.Boeing has long-standing relationships with our Chinese customers, who represent a key component of our commercial aircraft backlog. Overall, theU.S. -China trade relationship remains stalled as economic and national security concerns continue to be a challenge. Beginning inJune 2018 , theU.S. Government imposed tariffs on steel and aluminum imports. In response to these tariffs, several majorU.S. trading partners have imposed, or announced their intention to impose, tariffs onU.S. goods. TheU.S. has subsequently reached agreements withMexico ,Canada , theUnited Kingdom , theEuropean Union , andJapan 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. We are complying with allU.S. and other government export control restrictions and sanctions imposed on certain businesses and individuals inRussia . We continue to monitor and evaluate additional sanctions and export restrictions that may be imposed by theU.S. Government or other governments, 27
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as well as any responses from
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment See Overview to Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the airline industry environment.
Industry Competitiveness The industry continues to recover from the lingering effects of the COVID-19 pandemic. The commercial aircraft market and the airline industry both remain extremely competitive. While the impacts and responses have varied globally, the reduction of demand and disruption in production has adversely impacted most manufacturers in the commercial aircraft industry. Continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns. Approximately 70% of Commercial Airplanes' total backlog, in dollar terms, is with non-U.S. airlines. We face aggressive international competitors who are intent on increasing their market share. They offer competitive products and have access to most of the same customers and suppliers. The grounding of the 737 MAX in 2019 and the associated suspension of 737 MAX deliveries in multiple jurisdictions significantly reduced our market share with respect to deliveries of single aisle aircraft and may provide competitors with an opportunity to obtain more orders and increase market share. With government support, Airbus has historically invested heavily to create a family of products to compete with ours. After the acquisition of a majority share of Bombardier's C Series (now A220) in 2018, Airbus continues to expand in the 100-150 seat transcontinental market. Other competitors are also in different phases of developing commercial jet aircraft, includingCommercial Aircraft Corporation of China, Ltd. (COMAC), which delivered its first C919 aircraft in 2022. Some of these competitors have historically enjoyed access to government-provided financial support, including "launch aid," which greatly reduces the cost and commercial risks associated with airplane development activities. This has enabled the development of airplanes without broad commercial viability; others to be brought to market more quickly than otherwise possible; and many offered for sale below market-based prices. Competitors continue to make improvements in efficiency, which may result in funding product development, gaining market share and improving earnings. This market environment has resulted in intense pressures on pricing and other competitive factors, and we expect these pressures to continue or intensify in the coming years.
We are focused on improving our products and services and continuing our
business transformation efforts, which enhances our ability to compete and
positions us for market recovery. We are also focused on taking actions to
ensure that
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Table of Contents Results of Operations (Dollars in millions) Years ended December 31, 2022 2021 2020 Revenues$25,867 $19,493 $16,162 % of total company revenues 39 % 31 % 28 % Loss from operations ($2,370 ) ($6,475 ) ($13,847 ) Operating margins (9.2) % (33.2) % (85.7) % Research and development$1,510 $1,140 $1,385 Revenues
BCA revenues increased by
BCA revenues increased by$3,331 million in 2021 compared with 2020 primarily due to higher 737 MAX deliveries driven by recertification and return to service in most jurisdictions and the absence of charges for 737 MAX customer considerations which reduced revenues in 2020, partially offset by lower 787 deliveries in 2021. BCA deliveries, including intercompany deliveries, as ofDecember 31 were as follows: 737 * 747 767 * 777 787 Total 2022 Cumulative deliveries 8,132 1,572 1,271 1,701 1,037 Deliveries 387 (13) 5 33 (15) 24 31 480 2021 Cumulative deliveries 7,745 1,567 1,238 1,677 1,006 Deliveries 263 (16) 7 32 (13) 24 14 340 2020 Cumulative deliveries 7,482 1,560 1,206 1,653 992 Deliveries 43 (14) 5 30 (11) 26 53 157
* Intercompany deliveries identified by parentheses
Loss From Operations
BCA loss from operations was$2,370 million in 2022 compared with$6,475 million in 2021 reflecting higher 737 deliveries and lower abnormal production costs, partially offset by higher research and development spending, charges related to the war inUkraine and other period expenses. The 2021 loss also reflects a reach-forward loss on the 787 program of$3,460 million . Abnormal production costs in 2022 were$1,753 million , including$1,240 million related to the 787 program,$325 million related to the 777X program, and$188 million related to the 737 program. BCA loss from operations was$6,475 million in 2021 compared with$13,847 million in 2020. The 2021 loss reflects the reach-forward loss on the 787 program of$3,460 million , abnormal production costs related to the 737 program of$1,887 million , and abnormal production costs related to the 787 program of$468 million resulting from continued production issues, inspections and rework, partially offset by higher 737 MAX deliveries. The 2020 loss reflects the reach-forward loss on the 777X program of$6,493 million , lower deliveries and lower program margins resulting from the COVID-19 pandemic, 29
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$2,567 million of abnormal production costs related to the 737 program,$623 million of severance cost,$498 million of 737 MAX customer considerations,$336 million related to 737NG frame fitting component repair costs and$270 million of abnormal production costs in the first half of 2020 from the temporary suspension of operations in response to COVID-19, partially offset by lower research and development spending. Lower 787 margins reflecting a reduction in the accounting quantity in the first quarter of 2020 also contributed to lower earnings. 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 probable. Backlog excludes options and 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 ASC 606. BCA total backlog of$329,824 million atDecember 31, 2022 increased from$296,882 million atDecember 31, 2021 , 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 year endedDecember 31, 2022 totaled$11,251 million and relate to 737 and 787 aircraft. The net ASC 606 adjustments for the year endedDecember 31, 2022 resulted in a decrease to backlog of$4,675 million primarily due to a net increase of 777X aircraft in the ASC 606 reserve, partially offset by net decreases in 737 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 due. If we remain unable to deliver 737 MAX aircraft inChina 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. Accounting Quantity The accounting quantity is our estimate of the quantity of airplanes that will be produced for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates of the revenue and cost of existing and anticipated contracts. It is a key determinant of the gross margins we recognize on sales of individual airplanes throughout a program's life. Estimation of each program's accounting quantity takes into account several factors that are indicative of the demand for that program, including firm orders, letters of intent from prospective customers and market studies. We review our program accounting quantities quarterly. The accounting quantity for each program may include units that have been delivered, undelivered units under contract and units anticipated to be under contract in the reasonable future (anticipated orders). In developing total program estimates, all of these items within the accounting quantity must be considered. 30
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The following table provides details of the accounting quantities and firm orders by program as ofDecember 31 . 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 737 747 767 777 777X 787 † 2022 Program accounting quantities 10,800 1,574 1,267 1,790 400 1,600 Undelivered units under firm orders 3,653 1 106 69 244 505 (8) Cumulative firm orders 11,785 1,573 1,377 1,770 244 1,542 2021 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 2020 Program accounting quantities 10,000 1,574 1,207 1,700 350 1,500 Undelivered units under firm orders 3,282 8 75 41 191 458 (22) Cumulative firm orders 10,764 1,568 1,281
1,694 191 1,450
† Aircraft ordered by BCC are identified in parentheses.
Program Highlights
737 Program The accounting quantity for the 737 program increased by 400 units during 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes. We increased the production rate to 31 per month in 2022, and expect to implement further gradual production rate increases based on market demand and supply chain capacity. We expensed abnormal production costs of$188 million and$1,887 million during the years endedDecember 31, 2022 and 2021. Over 190 countries have approved the resumption of 737 MAX operations. The first 737 MAX passenger flight inChina since 2019 occurred onJanuary 13, 2023 . There is uncertainty regarding timing of resumption of deliveries inChina , which are still subject to final regulatory approvals. We continue to work with a small number of customers who have requested to defer deliveries or to cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory. We have approximately 250 aircraft in inventory as ofDecember 31, 2022 , including approximately 140 aircraft in inventory that are designated for customers inChina . We are remarketing some of these aircraft to other customers. We anticipate delivering most of the aircraft in inventory by the end of 2024. In the event that we are unable to resume aircraft deliveries inChina or remarket those aircraft and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing could be impacted. 31
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The 737-7 and 737-10 models are currently going throughFAA certification. The Consolidated Appropriations Act, 2023 amended Section 116 of the ACSAA, such that applications for original or amended type certifications that were submitted to theFAA prior toDecember 27, 2020 , including those of the 737-7 and 737-10, are no longer subject to the crew alerting specifications of Section 116. Additionally, beginning one year after theFAA issues the type certificate for the 737-10, any new 737 MAX aircraft must include certain safety enhancements to be issued an original airworthiness certification by theFAA . These enhancements are included inBoeing 's application for the certification for the 737-10, and the sufficiency of these enhancements will be determined by theFAA . Beginning three years after the issuance of a type certificate for the 737-10, all previously delivered 737 MAX aircraft must be retrofitted with these safety enhancements. As the holder of the type certificate,Boeing is required to bear any costs of these safety enhancement retrofits. We have provisioned for the estimated costs associated with the safety enhancements and do not expect those costs to be material. We are following the lead of theFAA as we work through the certification process, and currently expect the 737-7 to be certified and delivered in 2023, and the 737-10 to beginFAA certification flight testing in 2023 with first delivery in in 2024. AtDecember 31, 2022 , we had 27 737-7 and 3 737-10 aircraft in inventory and 236 737-7 and 720 737-10 aircraft in backlog and have delivered a total of 1,033 737 MAX aircraft. If we experience delays in achieving certification and/or incorporating safety enhancements, future revenues, cash flows and results of operations could be adversely impacted.
See further discussion of the 737 MAX in Note 7 and Note 13 to our Consolidated Financial Statements.
747 Program We completed production of the 747 in the fourth quarter of 2022 and delivery of the last aircraft is expected to occur in early 2023. Ending production of the 747 did 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 24 units during 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 KC-46A Tanker program. The commercial program has near break-even gross margins. We are currently producing at a combined rate of 3 aircraft per month. 777 and 777X Programs The accounting quantity for the 777 program increased by 40 units during 2022 due to the program's normal progress of obtaining additional orders and delivering airplanes. We are currently producing at a combined production rate of 3 per month for the 777/777X programs. The accounting quantity for the 777X program increased by 50 units during 2022 reflecting the launch of the 777X-8 freighter during the first quarter of 2022. First delivery of the 777X-8 freighter is expected in 2027. 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 beginFAA certification flight testing. The timing of TIA and certification will ultimately be determined by the regulators, and further determinations with respect to anticipated certification requirements could result in additional delays in entry into service and/or additional cost increases. InApril 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. During the year endedDecember 31, 2022 ,$0.3 billion of abnormal costs were period expensed. 32
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The 777X program had near break-even gross margins atDecember 31, 2022 . The level of profitability on the 777X program will be subject to a number of factors. These factors include continued production disruption due to labor instability and supply chain disruption, 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.
787 Program During the fourth quarter of 2022, we increased the accounting quantity for the 787 program by 100 units due to the program's normal progress of obtaining additional orders and delivering aircraft. The increase in the accounting quantity improved the program's profit margin.
We receivedFAA authorization to resume delivery onJuly 28, 2022 and deliveries resumed in August. During 2022, we delivered 31 aircraft to customers. We continue to conduct inspections and rework on undelivered aircraft. During 2021, we delivered 14 aircraft between March andMay 2021 prior to deliveries being paused inMay 2021 due to production quality issues including in our supply chain. We have implemented changes in the production process designed to ensure that newly-built airplanes meet our specifications and do not require further inspections and rework. AtDecember 31, 2022 , and 2021, we had approximately 100 and 110 aircraft in inventory. Most of the aircraft in inventory atDecember 31, 2022 are expected to deliver by the end of 2024. We are currently producing at low rates and expect to gradually return to 5 per month in 2023. 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. We also determined that the 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. Cumulative abnormal costs recorded throughDecember 31, 2022 totaled$1.7 billion . During the fourth quarter of 2022 we adjusted the total estimate of abnormal production costs up to$2.8 billion with most being incurred by the end of 2023. AtDecember 31, 2021 , we were expecting to incur approximately$2 billion of abnormal production costs on a cumulative basis. The increase was primarily driven by a decision in the fourth quarter of 2022 to slow down near-term production due to supply chain constraints and increased inspection and rework costs. We continue to work with customers and suppliers regarding timing of future deliveries and production rate changes. 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. Fleet Support We provide the operators of our commercial aircraft with assistance and services to facilitate efficient and safe airplane operation. Collectively known as fleet support services, these activities and services begin prior to airplane delivery and continue throughout the operational life of the airplane. They include flight and maintenance training, field service support, engineering services, information services and systems and technical data and documents. The costs for fleet support are expensed as incurred and have historically been approximately 1% of total consolidated costs of products and services. 33
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Program Development The following chart summarizes the time horizon between go-ahead and planned initial delivery for major Commercial Airplanes derivatives and programs.
Go-ahead and Initial Delivery
737-7 2011 2023 737-10 2017 2024 777X-9 2013 2025 777X-8F 2022 2027
Reflects models in development during 2022
The development schedules shown above are subject to a number of uncertainties, including changes in certification requirements. The timing of certifications will ultimately be determined by the regulators.
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, 737-7 and 737-10, involves increased
risks associated with meeting development, production and certification
schedules. These challenges include increased global regulatory scrutiny of all
development 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.
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Defense, Space & Security
Business Environment and Trends
United States Government Defense Environment Overview
The Consolidated Appropriations Act, 2023, enacted inDecember 2022 , provided fiscal year 2023 (FY23) appropriations for government departments and agencies, including$817 billion for theU.S. DoD and$25.4 billion for NASA. The enacted FY23 appropriations included funding forBoeing 's major programs, including the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, MQ-25, and the Space Launch System. The FY23 appropriations support F/A-18 production further into calendar year 2025. The FY23 appropriations did not include funding for additional P-8 aircraft. The P-8 program continues to pursue additional sales opportunities to extend production beyond 2024. There is ongoing uncertainty with respect to program-level appropriations for theU.S. DoD , NASA and other government agencies for fiscal year 2024 and beyond.U.S. government discretionary spending, including defense spending, is likely to continue to be subject to pressure. 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. Non-U.S. Defense Environment Overview The non-U.S. market continues to be driven by complex and evolving security challenges and the need to modernize aging equipment and inventories. BDS expects that it will continue to have a wide range of opportunities acrossAsia ,Europe and theMiddle East given the diverse regional threats. At the end of 2022, 28% of BDS backlog was attributable to non-U.S. customers. Results of Operations (Dollars in millions) Years ended December 31, 2022 2021 2020 Revenues$23,162 $26,540 $26,257 % of total company revenues 35 % 43 % 45 %
(Loss)/earnings from operations (
(15.3) % 5.8 % 5.9 %
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.
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Deliveries of new-build production units, including remanufactures and modifications, were as follows:
Years ended December 31, 2022 2021 2020
F/A-18 Models 14 21 20
F-15 Models 12 16 4
CH-47 Chinook (New) 19 15 27
CH-47 Chinook (Renewed) 9 5 3
AH-64 Apache (New) 25 27 19
AH-64 Apache (Remanufactured) 50 56 52
MH-139 Grey Wolf 4
KC-46 Tanker 15 13 14
P-8 Models 12 16 15
Commercial Satellites 4
Military Satellites 1
Total 165 169 154
Revenues
BDS revenues in 2022 decreased by $3,378 million compared with 2021 primarily
due to charges on development programs. Unfavorable performance across other
defense programs and lower P-8 and weapons volume also contributed to the
decrease in revenue. Cumulative contract catch-up adjustments in 2022 were
$1,858 million more unfavorable than the prior year largely due to charges on
development programs.
BDS revenues in 2021 increased by $283 million compared with 2020 primarily due
to higher revenue on the KC-46A Tanker program due to new orders for 27 aircraft
received during the first quarter of 2021 and lower charges in 2021. This was
partially offset by lower revenues on rotorcraft programs, Commercial Crew and
VC-25B. Cumulative contract catch-up adjustments in 2021 were $56 million less
unfavorable than the prior year, largely due to the lower charges described
below.
(Loss)/earnings From Operations
BDS loss from operations in 2022 of$3,544 million decreased by$5,088 million compared with earnings from operations of$1,544 million in 2021 primarily due to unfavorable impacts of cumulative contract catch-up adjustments ($4,284 million more unfavorable in 2022 than 2021). Volume and mix and higher research and development also contributed to the year over year earnings decline. Charges of fixed price development programs in 2022 included VC-25B ($1,452 million ), KC-46A Tanker ($1,374 million ), MQ-25 ($579 million ), T-7A Red Hawk Production Options ($552 million ), T-7A Red Hawk Engineering, Manufacturing and Development (EMD) ($203 million ), and Commercial Crew ($288 million ). These were partially offset by charges on the KC-46A Tanker ($402 million ), VC-25B ($318 million ), and Commercial Crew ($214 million ) recognized in 2021. The net unfavorable cumulative contract catch-up adjustments represent losses incurred on these development and other programs. See further discussion of fixed-price contracts in Note 13 to our Consolidated Financial Statements. BDS earnings from operations in 2021 of$1,544 million increased by$5 million compared with earnings from operations of$1,539 million in 2020 primarily due to less unfavorable impacts from cumulative contract catch-up adjustments, which improved$219 million from the prior year, largely due to lower KC-46A Tanker charges in 2021 compared to 2020 and other charges on development programs. The$219 million change in cumulative contract catch-up adjustments was offset primarily by lower volume and mix on rotorcraft programs and lower equity earnings forUnited Launch Alliance (ULA). During 2020, BDS recorded charges on KC-46A Tanker ($1,320 million ) and VC-25B ($168 million ). 36
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BDS (loss)/earnings from operations includes our share of income from equity method investments of$13 million ,$53 million and$141 million primarily from our ULA and non-U.S. joint ventures in 2022, 2021 and 2020, respectively. Earnings from our ULA joint venture increased in 2022, partially offset by losses on other operating investments.
Backlog
Total backlog of$54,373 million atDecember 31, 2022 was$5,455 million lower thanDecember 31, 2021 due to the timing of awards and revenue recognized on contracts awarded in prior years.
Additional Considerations
Our BDS business includes a variety of development programs which have complex design and technical challenges. 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. 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. 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. A number of our ongoing fixed-price development programs have reach-forward losses. 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 or quality issues 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 or other financially significant exposure. Risk remains that we may be required to record additional reach-forward losses in future periods.
Business Environment and Trends
The aerospace markets we serve include parts distribution, logistics and other inventory services; maintenance, engineering and upgrades; training and professional services; and data analytics and digital services. During 2022, commercial services volume at BGS recovered to pre-pandemic levels. We expect BGS commercial revenues to remain strong in future quarters as the commercial airline industry continues to recover. Over the long-term, as the size of the worldwide commercial airline fleet continues to grow, so does demand for aftermarket services designed to increase efficiency and extend the economic lives of aircraft. Airlines are using data analytics to plan flight operations and predictive maintenance to improve their productivity and efficiency. Airlines continue to look for opportunities to reduce the size and cost of their spare parts inventory, frequently outsourcing spares management to third parties. The demand outlook for our government services business has remained stable in 2022. Government services market segments are growing on pace with related fleets, but vary based on the utilization and age of the aircraft. TheU.S. government services market is the single largest individual market, comprising over 50 percent of the government services markets served. Over the next decade, we 37
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expectU.S. growth to remain flat and non-U.S. fleets, led byMiddle East andAsia Pacific customers, to add rotorcraft and commercial derivative aircraft at faster rates. We expect less than 20 percent of the worldwide fleet of military aircraft to be retired and replaced over the next ten years, driving increased demand for services to maintain aging aircraft and enhance aircraft capability.
BGS' major customer, the
Industry Competitiveness Aviation services is a competitive market with many domestic and international competitors. This market environment has resulted in intense pressures on pricing, and we expect these pressures to continue or intensify in the coming years. Continued access to global markets remains vital to our ability to fully realize our sales growth potential and long-term investment returns. Results of Operations (Dollars in millions) Years ended December 31, 2022 2021 2020 Revenues$17,611 $16,328 $15,543 % of total company revenues 26 % 26 % 27 % Earnings from operations$2,727 $2,017 $450 Operating margins 15.5 % 12.4 % 2.9 % Revenues BGS revenues in 2022 increased by$1,283 million compared with 2021 primarily due to higher commercial services volume, partially offset by lower government services volume and performance. 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 in 2022 was$137 million lower than the prior year. BGS revenues in 2021 increased by$785 million compared with 2020 due to higher commercial and government services volume. The net favorable impact of cumulative contract catch-up adjustments in 2021 was$37 million lower than the prior year. Earnings From Operations BGS earnings from operations in 2022 increased by$710 million compared with 2021, primarily due to higher commercial services volume and favorable mix, partially offset by lower government services performance. The net unfavorable impact of cumulative contract catch-up adjustments in 2022 was$148 million worse than the net favorable impact in the prior year. BGS earnings from operations in 2021 increased by$1,567 million compared with 2020, primarily due to charges incurred in 2020 driven by impacts of the COVID-19 pandemic as well as higher commercial services volume in 2021, partially offset by an inventory write-down of$220 million recognized in the fourth quarter of 2021 driven by revised cost estimates on certain customer contracts. Charges in 2020 included$531 million of inventory write-downs,$178 million of related impairments of distribution rights primarily driven by airlines' decisions to retire certain aircraft,$398 million for higher expected credit losses primarily driven by customer liquidity issues,$115 million of contract termination and facility impairment charges, and$72 million of severance costs. The net favorable impact of cumulative contract catch-up adjustments in 2021 was$98 million lower than the prior year. 38
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Backlog
BGS total backlog of$19,338 million atDecember 31, 2022 decreased by 6% from$20,496 million atDecember 31, 2021 , primarily due to revenue recognized on contracts awarded in prior years.
Business Environment and Trends
BCC's gross customer financing and investment portfolio atDecember 31, 2022 totaled$1,549 million . A substantial portion of BCC's portfolio is composed of customers that have less than investment-grade credit. BCC's portfolio is also concentrated by varying degrees acrossBoeing aircraft product types, most notably 717 and 747-8 aircraft. BCC provided customer financing of$96 million during 2022 and none during 2021. While we may be required to fund a number of new aircraft deliveries in 2023 and/or provide refinancing for existing bridge debt, we expect alternative financing will be available at reasonable prices from broad and globally diverse sources. Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of service. Approximately 4,950 western-built commercial jet aircraft (18.3% of current world fleet) were parked at the end of 2022, including both in-production and out-of-production aircraft types. Of these parked aircraft, a larger portion are expected to be retired compared to the pre-COVID-19 period, which directly impacts the Company in terms of number of new aircraft deliveries and financing opportunities, the ability of existing customers to meet current payment obligations and the value of aircraft in its portfolio. We continue to work closely with our customers to mitigate the risk. At the end of 2021 and 2020, 20.5% and 29.4% of the western-built commercial jet aircraft were parked. Aircraft valuations could decline if significant numbers of additional aircraft, particularly types with relatively few operators, are placed out of service. See Overview to Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the airline industry environment. Results of Operations (Dollars in millions) Years ended December 31, 2022 2021 2020 Revenues$199 $272 $261 Earnings from operations$29 $106 $63 Operating margins 15 % 39 % 24 % 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 in 2022 decreased by$73 million compared with 2021 primarily due to lower gains on re-lease of assets.
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. In 2022, earnings from operations decreased by$77 million compared with 2021, primarily due to an increase in the allowance for losses on receivables as a result of the war inUkraine and lower revenues. Earnings from operations in 2021 increased by$43 million compared with 2020 primarily due to higher revenues, lower provision for losses, and lower interest and asset impairment expenses. 39
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Financial Position
The following table presents selected financial data for BCC as of
(Dollars in millions) 2022
2021
Customer financing and investment portfolio, net$1,494
Other assets, primarily cash and short-term investments 460
462
Total assets$1,954
Other liabilities, primarily income taxes$239
Debt, including intercompany loans 1,425 1,525 Equity 290 310 Total liabilities and equity$1,954 $2,182 Debt-to-equity ratio 4.9-to-1 4.9-to-1
BCC's customer financing and investment portfolio at
BCC enters into certain intercompany transactions, 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.
Liquidity and Capital Resources
Cash Flow Summary (Dollars in millions) Years ended December 31, 2022 2021 2020 Net loss ($5,053 ) ($4,290 ) ($11,941 ) Non-cash items 4,426 7,851 10,866 Changes in assets and liabilities 4,139 (6,977) (17,335) Net cash provided/(used) by operating activities 3,512 (3,416) (18,410) Net cash provided/(used) by investing activities 4,370 9,324 (18,366) Net cash (used)/provided by financing activities (1,266) (5,600) 34,955
Effect of exchange rate changes on cash and cash equivalents (73)
(39) 85
Net increase/(decrease) in cash & cash equivalents, including restricted
6,543 269 (1,736)
Cash & cash equivalents, including restricted, at beginning of year
8,104 7,835 9,571
Cash & cash equivalents, including restricted, at end of year
$8,104 $7,835 Operating Activities Net cash provided by operating activities was$3.5 billion during 2022, compared with net cash used by operating activities of$3.4 billion during 2021. The$6.9 billion improvement in cash provided by operating activities in 2022 is primarily driven by improved changes in assets and liabilities of$11.1 billion , partially offset by lower non-cash items of$3.4 billion and higher net loss of$0.8 billion . Changes in assets and liabilities for 2022 improved by$11.1 billion compared with 2021 primarily driven by favorable changes in Accrued liabilities ($6.6 billion ), Accounts payable ($4.6 billion ) and Inventories ($1.5 billion ), partially offset by a decrease in Advances and progress billings ($2.4 billion ) in 2022. The increase in Accrued liabilities is primarily driven by the accrued losses on BDS fixed-price development programs, lower payments to 737 MAX customers in 2022, and a$0.7 billion 40
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payment in 2021 consistent with the terms of the Deferred Prosecution Agreement betweenBoeing and theU.S. Department of Justice . Concessions paid to 737 MAX customers totaled$1.0 billion and$2.5 billion during 2022 and 2021. Growth in Accounts Payable in 2022 is a source of cash while reductions in Accounts Payable in 2021 were a use of cash generally reflecting increases in production rates. Inventory improvements were driven by higher 737 MAX deliveries and resumption of 787 deliveries in 2022. Additionally, in 2022 and 2021 we received income tax refunds of$1.5 billion and$1.7 billion . Cash provided by Advances and progress billings was$0.1 billion in 2022, as compared with$2.5 billion of cash provided in 2021. The$3.4 billion reduction in non-cash items in 2022 is primarily driven by the$3.5 billion reach-forward loss on the 787 program that was recorded in 2021. Net loss for 2022 was$5.1 billion compared with net loss of$4.3 billion in 2021. The$0.8 billion year-over-year increase in the net loss is primarily driven by the absence of an income tax benefit in 2022. The reduction in cash used by operating activities in 2021 compared with 2020 is primarily driven by lower net loss and improved changes in assets and liabilities. Non-cash items in 2021 include the$3.5 billion reach-forward loss on the 787 program which was recorded as a reduction to inventory, as well as$1.2 billion of treasury shares issued to fund Company contributions to the 401(k) plan and$0.8 billion of share-based plans expense reflecting a one-time stock grant to most employees in lieu of 2021 salary increases. The changes in assets and liabilities reflect the significant increase in commercial aircraft inventory in 2020 driven by lower deliveries due to the COVID-19 pandemic and the 737 MAX grounding. In 2021, inventory growth slowed as the continued buildup of 787 aircraft caused by production issues and 777X inventory growth was partially offset by a decrease in 737 MAX inventory following the resumption of deliveries. Compensation payments to 737 MAX customers totaled$2.5 billion in 2021 and$2.2 billion in 2020. In the first quarter of 2021, we paid$0.7 billion consistent with the terms of the Deferred Prosecution Agreement betweenBoeing and theU.S. Department of Justice . Additionally, in 2021, we received income tax refunds of$1.7 billion . Cash provided by Advances and progress billings was$2.5 billion in 2021, as compared with Cash used by Advances and progress billings of$1.1 billion in 2020. AtDecember 31, 2022 and 2021, Accounts payable included$2.5 billion and$2.3 billion payable to suppliers who have elected to participate in supply chain financing programs. Payables to suppliers who elected to participate in supply chain financing programs increased by$0.2 billion in 2022 and declined by$1.5 billion and$1.9 billion in 2021 and 2020. Supply chain financing is not material to our overall liquidity. The declines in 2021 and 2020 were primarily due to reductions in commercial purchases from suppliers. Investing Activities Cash provided by investing activities during 2022 was$4.4 billion , compared with cash provided by investing activities of$9.3 billion during 2021 and cash used by investing activities of$18.4 billion during 2020. The decrease in cash inflows in 2022 compared to 2021 is primarily due to$5.6 billion of net proceeds from investments compared to$9.8 billion in 2021. The increase in cash inflows in 2021 compared to 2020 is primarily due to$27.1 billion of higher net proceeds from investments. Capital expenditures totaled$1.2 billion in 2022, compared with$1.0 billion in 2021 and$1.3 billion in 2020. We expect capital expenditures in 2023 to be higher than in 2022. Financing Activities Cash used by financing activities was$1.3 billion during 2022, compared with$5.6 billion during 2021 and cash provided of$35.0 billion in 2020. The decrease of$4.3 billion compared with 2021 primarily reflects higher net debt repayments in 2021. During 2021, debt repayments net of new borrowings were$5.6 billion , primarily due to$13.8 billion of repayments of our two-year delayed draw term loan credit agreement, partially offset by$9.8 billion of fixed rate senior notes issued in the first quarter of 2021. During the year endedDecember 31, 2020 , new borrowings net of repayments were$36.3 billion , primarily due to$29.9 billion of fixed rate senior notes issued in 2020 and$13.8 billion of new borrowings under a two-year delayed draw term loan agreement entered into in the first quarter of 2020. 41
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At
During the years endedDecember 31, 2022 , 2021 and 2020, we did not repurchase any shares through our open market share repurchase program. Share repurchases under this program have been suspended sinceApril 2019 . InMarch 2020 , the Board of Directors terminated its prior authorization to repurchase shares of the Company's outstanding common stock in the open market. We had 0.2 million, 0.3 million and 0.6 million shares transferred to us from employee tax withholdings in 2022, 2021 and 2020, respectively. InMarch 2020 , we announced the suspension of our dividend until further notice. As a result, we did not pay any dividends in 2022 and 2021 compared with$1.2 billion paid in 2020. 42
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Capital Resources
The following table summarizes certain cash requirements for known contractual and other obligations as ofDecember 31, 2022 , and the estimated timing thereof. See Note 12 for future operating lease payments. (Dollars in millions) Current Long-term Total Long-term debt (including current portion)$5,197 $52,338 $57,535 Interest on debt 2,266 31,397 33,663 Pension and other postretirement 519 8,133 8,652 Purchase obligations 62,025 59,515 121,540 737 MAX customer concessions and consideration(1) 100 600 700
(1) For further discussion, see Note 13 to our Consolidated Financial Statements.
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. AtDecember 31, 2022 , we had$14.6 billion of cash,$2.6 billion of short-term investments, and$12.0 billion of unused borrowing capacity on revolving credit line agreements. In the third quarter of 2022, we entered into a$5.8 billion 364-day revolving credit agreement expiring inAugust 2023 , a$3 billion three-year revolving credit agreement expiring inAugust 2025 , and amended our$3.2 billion five-year revolving credit agreement, which expires inOctober 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. We anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs. Our increased debt balance resulted in downgrades to our credit ratings in 2020, and our ratings remained unchanged in 2022 and 2021. We expect to be able to access capital markets when 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. A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings, and/or associated changes in demand for our products and services. These risks will be particularly acute if we are subject to further credit rating downgrades. The occurrence of any or all of these events may adversely affect our ability to fund our operations and financing or contractual commitments. Any future borrowings may affect our credit ratings and are subject to various debt covenants. AtDecember 31, 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 in the credit agreements). When considering debt covenants, we continue to have substantial borrowing capacity. 43
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Pension and Other Postretirement Benefits Pension cash requirements are based on an estimate of our minimum funding requirements, pursuant to Employee Retirement Income Security Act (ERISA) regulations, although we may make additional discretionary contributions. Estimates of other postretirement benefits are based on both our estimated future benefit payments and the estimated contributions to plans that are funded through trusts. AtDecember 31, 2022 and 2021, our pension plans were$5.3 billion and$7.8 billion underfunded as measured under Generally Accepted Accounting Principles inthe United States of America (GAAP). On an ERISA basis our plans are more than 100% funded atDecember 31, 2022 . We do not expect to make significant contributions to our pension plans in 2023. We may be required to make higher contributions to our pension plans in future years. In the fourth quarter of 2020, we contributed$3 billion of our common stock to our pension fund. In the fourth quarter of 2020, we also began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans for the foreseeable future. Under this approach, common stock is contributed to our 401(k) plans following each pay period. This further enables the Company to conserve cash. We have retained an independent fiduciary to manage and liquidate stock contributed to these plans at its discretion. Purchase Obligations Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable or indexed price provision; and specify approximate timing of the transaction. Purchase obligations include amounts recorded as well as amounts that are not recorded on the Consolidated Statements of Financial Position. Purchase obligations not recorded on the Consolidated Statements of Financial Position include agreements for inventory procurement, tooling costs, electricity and natural gas contracts, property, plant and equipment, customer financing equipment and other miscellaneous production related obligations. The most significant obligation relates to inventory procurement contracts. We have entered into certain significant inventory procurement contracts that specify determinable prices and quantities, and long-term delivery timeframes. In addition, we purchase raw materials on behalf of our suppliers. These agreements require suppliers and vendors to be prepared to build and deliver items in sufficient time to meet our production schedules. The need for such arrangements with suppliers and vendors arises from the extended production planning horizon for many of our products. A significant portion of these inventory commitments is supported by firm contracts with customers and/or has historically resulted in settlement through reimbursement from customers for penalty payments to the supplier should the customer not take delivery. These amounts are also included in our forecasts of costs for program and contract accounting. Some inventory procurement contracts may include escalation adjustments. In these limited cases, we have included our best estimate of the effect of the escalation adjustment in the amounts disclosed in the table above.
Purchase obligations recorded on the Consolidated Statements of Financial Position primarily include accounts payable and certain other current and long-term liabilities including accrued compensation.
We have entered into various industrial participation agreements with certain customers outside of theU.S. to facilitate economic flow back and/or technology or skills transfer to their businesses or government agencies as the result of their procurement of goods and/or services from us. These commitments may be satisfied by our local operations there, placement of direct work or vendor orders for supplies, opportunities to bid on supply contracts, transfer of technology or other forms of assistance. However, in certain cases, our commitments may be satisfied through other parties (such as our vendors) who purchase supplies from our non-U.S. customers. In certain cases, penalties could be imposed if we do not meet our industrial participation commitments. During 2022, we incurred no such penalties. As ofDecember 31, 2022 , we had outstanding industrial participation agreements 44
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totaling$24.8 billion that extend through 2034. Purchase order commitments associated with industrial participation agreements are included in purchase obligations. To be eligible for such a purchase order commitment from us, a non-U.S. supplier must have sufficient capability to meet our requirements and must be competitive in cost, quality and schedule.
Off-Balance Sheet Arrangements We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 14 to our Consolidated Financial Statements.
Commercial Commitments
The following table summarizes our commercial commitments outstanding as ofDecember 31, 2022 . Total Amounts Committed/Maximum Less than 1-3 4-5 After 5 (Dollars in millions) Amount of Loss 1 year years years years Standby letters of credit and surety bonds$5,070 $3,859 $1,036 $10 $165 Commercial aircraft financing commitments 16,105 3,084 5,989 4,075 2,957 Total commercial commitments$21,175 $6,943 $7,025 $4,085 $3,122 Commercial aircraft financing commitments include commitments to provide financing related to aircraft on order, under option for deliveries or proposed as part of sales campaigns or refinancing with respect to delivered aircraft, based on estimated earliest potential funding dates. Customer financing commitments totaled$16.1 billion and$12.9 billion atDecember 31, 2022 and 2021. The increase relates to new financing commitments. 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. See Note 13 to our 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 21 to our Consolidated Financial Statements. Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of$752 million atDecember 31, 2022 . For additional information, see Note 13 to our Consolidated Financial Statements.
Non-GAAP Measures
Core Operating Loss, Core Operating Margin and Core Loss Per Share
Our Consolidated Financial Statements are prepared in accordance with 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/
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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-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 withU.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 from operations were benefits of$849 million in 2022,$882 million in 2021 and$1,024 million in 2020. The lower benefits in 2022 and 2021 were primarily due to reductions in allocated pension cost year over year. The non-operating pension expense included in Other income, net was a benefit of$881 million in 2022,$528 million in 2021 and$340 million in 2020. The higher benefits in 2022 were primarily due to lower amortization of net actuarial losses and a settlement loss that was recorded in 2021. For further discussion of pension and other postretirement costs, see the Management's Discussion and Analysis on page 24 of this Form 10-K and see Note 22 to our Consolidated Financial Statements. 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 cost primarily represent costs driven by market factors and costs not allocable toU.S. government contracts. 46
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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, core operating margins 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) Years ended December 31, 2022 2021 2020 Revenues$66,608 $62,286 $58,158 Loss from operations, as reported ($3,547 ) ($2,902 ) ($12,767 ) Operating margins (5.3) % (4.7) % (22.0) % Pension FAS/CAS service cost adjustment(1) ($849 ) ($882 ) ($1,024 ) Postretirement FAS/CAS service cost adjustment(1) (294) (291) (359) FAS/CAS service cost adjustment(1) ($1,143 ) ($1,173 ) ($1,383 ) Core operating loss (non-GAAP) ($4,690 ) ($4,075 ) ($14,150 ) Core operating margins (non-GAAP) (7.0) % (6.5) % (24.3) % Diluted loss per share, as reported ($8.30 ) ($7.15 ) ($20.88 ) Pension FAS/CAS service cost adjustment(1) (1.43) (1.50) (1.80) Postretirement FAS/CAS service cost adjustment(1) (0.49) (0.49) (0.63) Non-operating pension expense(2) (1.47) (0.91) (0.60) Non-operating postretirement expense(2) (0.10) 0.03 Provision for deferred income taxes on adjustments (3) 0.73 0.61 0.63 Core loss per share (non-GAAP) ($11.06 ) ($9.44 ) ($23.25 ) Weighted average diluted shares (in millions) 595.2 588.0 569.0
(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 (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 loss per share (non-GAAP).
(3)The income tax impact is calculated using the
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Critical Accounting Policies & Estimates
Accounting for Long-term Contracts
Substantially all contracts at BDS and certain contracts at BGS are long-term contracts. Our long-term contracts typically represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods and/or services and the significant service of integration that we provide. Accounting for long-term contracts involves a judgmental process of estimating the total sales, costs, and profit for each performance obligation. Cost of sales is recognized as incurred, and revenue is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales. Due to the size, duration and nature of many of our long-term contracts, the estimation of total sales and costs through completion is complicated and subject to many variables. Total sales estimates are based on negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, incentive and award provisions associated with technical performance, and price adjustment clauses (such as inflation or index-based clauses). The majority of these long-term contracts are with theU.S. government where the price is generally based on estimated cost to produce the product or service plus profit. Federal Acquisition Regulations provide guidance on the types of cost that will be reimbursed in establishing contract price. Total cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, anticipated labor agreements, and lingering impacts of COVID-19. Revenue and cost estimates for all significant long-term contract performance obligations are reviewed and reassessed quarterly. Changes in these estimates could result in recognition of cumulative catch-up adjustments to the performance obligation's inception to date revenues, cost of sales and profit in the period in which such changes are made. Changes in revenue and cost estimates could also result in a reach-forward loss or an adjustment to a reach-forward loss which would be recorded immediately in earnings. Net cumulative catch-up adjustments for changes in estimated revenues and costs at completion across all long-term contracts, including the impact of increases in estimated losses on unexercised options, increased Loss from operations by$5,253 million ,$880 million and$942 million in 2022, 2021 and 2020, respectively. The cumulative catch-up adjustments in 2022 were primarily due to losses recognized on the VC-25B, KC-46A Tanker, MQ-25, Commercial Crew and T-7A Red Hawk programs. These are all fixed-price development programs, and there is ongoing risk that similar losses may have to be recognized in future periods on these and/or other programs. Due to the significance of judgment in the estimation process described above, it is likely that materially different earnings could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, internal and supplier performance, inflationary trends, or other circumstances may adversely or positively affect financial performance in future periods. If the combined gross margins for our profitable long-term contracts had been estimated to be higher or lower by 1% during 2022, it would have increased or decreased pre-tax income for the year by approximately$300 million . Program Accounting
Program accounting requires the demonstrated ability to reliably estimate revenues, costs and gross profit margin for the defined program accounting quantity. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for
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delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates.
Factors that must be estimated include program accounting quantity, sales price, labor and employee benefit costs, material costs, procured part costs, major component costs, overhead costs, program tooling and other non-recurring costs, and warranty costs. Estimation of the accounting quantity for each program takes into account several factors that are indicative of the demand for the particular program, such as firm orders, letters of intent from prospective customers and market studies. Total estimated program sales are determined by estimating the model mix and sales price for all unsold units within the accounting quantity, added together with the sales prices for all undelivered units under contract. The sales prices for all undelivered units within the accounting quantity include an escalation adjustment for inflation that is updated quarterly. Cost estimates are based largely on negotiated and anticipated contracts with suppliers, historical performance trends, and business base and other economic projections. Factors that influence these estimates include production rates, internal and subcontractor performance trends, learning curve, change incorporation, regulatory requirements in connection with certification, flight test and certification schedules, performance or reliability issues involving completed aircraft, customer and/or supplier claims or assertions, asset utilization, anticipated labor agreements, inflationary or deflationary trends, and lingering impacts of COVID-19. To ensure reliability in our estimates, we employ a rigorous estimating process that is reviewed and updated on a quarterly basis. This includes reassessing the accounting quantity. Changes in estimates of program gross profit margins are normally recognized on a prospective basis; however, when estimated costs to complete a program plus costs already included in inventory exceed estimated revenues from the program, a loss is recorded in the current period. Reductions to the estimated loss are included in the gross profit margin for undelivered units in the accounting quantity whereas increases to the estimated loss are recorded as an earnings charge in the period in which the loss is determined.
The 767, 777X, and 787 programs had near break-even or single digit margins at
777X Program The 777X program had near break-even gross margins atDecember 31, 2022 . The level of profitability on the 777X program will be subject to a number of factors. These factors include continued production disruption due to labor instability and supply chain disruption, 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, which may be material.
787 Program During the fourth quarter of 2021, we recorded a loss of
Our program revenue and cost assumptions reflect our current best estimate.
However, if we are required to reduce the accounting quantity and/or production
rates, experience further delivery delays, incur additional customer
considerations, or experience other factors that result in lower margins, the
787 program could record additional losses in future periods, which may be
material.
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Pension Plans
Many of our employees have earned benefits under defined benefit pension plans. The majority of employees that had participated in defined benefit pension plans have transitioned to a company-funded defined contribution retirement savings plan. Accounting rules require an annual measurement of our projected obligation and plan assets. These measurements are based upon several assumptions, including the discount rate and the expected long-term rate of asset return. Future changes in assumptions or differences between actual and expected outcomes can significantly affect our future annual expense, projected benefit obligation and Shareholders' equity. The projected benefit obligation is sensitive to discount rates. The projected benefit obligation would decrease by$1,270 million or increase by$1,415 million if the discount rate increased or decreased by 25 basis points. A 25 basis point change in the discount rate would not have a significant impact on pension cost. However, net periodic pension cost is sensitive to changes in the expected long-term rate of asset return. A decrease or increase of 25 basis points in the expected long-term rate of asset return would have increased or decreased 2022 net periodic pension cost by$158 million . See Note 16 of the Notes to our Consolidated Financial Statements, which includes the discount rate and expected long-term rate of asset return assumptions for the last three years.
Deferred Income Taxes - Valuation Allowance
The Company had deferred income tax assets of$12,301 million atDecember 31, 2022 that can be used in future years to offset taxable income and reduce income taxes payable. The Company had deferred income tax liabilities of$9,306 million atDecember 31, 2022 that will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable. Tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years. The particular years in which temporary differences result in taxable or deductible amounts generally are determined by the timing of the recovery of the related asset or settlement of the related liability. On a quarterly basis, we assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized. This assessment takes into account both positive and negative evidence. A recent history of financial reporting losses is heavily weighted as a source of objectively verifiable negative evidence. Due to our recent history of losses, we determined we could not include future projected earnings in our analysis. Rather, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. The selection of methodologies and assessment of when temporary differences will result in taxable or deductible amounts involves significant management judgment and is inherently complex and subjective. We believe that the methodologies we use are reasonable and can be replicated on a consistent basis in future periods. Deferred tax liabilities represent the assumed source of future taxable income and the majority are assumed to generate taxable amounts during the next five years. Deferred tax assets include amounts related to pension and other postretirement benefits that are assumed to generate significant deductible amounts beyond five years. The Company's valuation allowance of$3,162 million atDecember 31, 2022 primarily relates to pension and other postretirement benefit obligation deferred tax assets, tax credits and other carryforwards that are assumed to reverse beyond the period in which reversals of deferred tax liabilities are assumed to occur. During 2022, the Company increased the valuation allowance by$739 million primarily due to tax credits and other carryforwards generated in 2022 that 50
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cannot be realized in 2022, partially offset by favorable pension remeasurement. Until the Company generates sustained levels of profitability, additional valuation allowances may have to be recorded with corresponding adverse impacts on earnings and/or other comprehensive income.
For additional information regarding income taxes, see Note 4 of the Notes to the Consolidated Financial Statements.
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