The condensed consolidated interim financial statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing”, the “Company”, “we”, “us”, or “our”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended March 31,September 30, 2016 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2015 Annual Report on Form 10-K. Certain amounts in prior periods have been reclassified to conform to the current period's presentation.

Management makes assumptions and estimates to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. Those assumptions and estimates directly affect the amounts reported in the Condensed Consolidated Financial Statements. Significant estimates for which changes in the near term are considered reasonably possible and that may have a material impact on the financial statements are disclosed in these Notes to the Condensed Consolidated Financial Statements.

Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.

Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.

Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.

The following table includes the number of shares that may be dilutive potential common shares in the future. These shares were not included in the computation of diluted earnings per share because the effect was either antidilutive or the performance condition was not met.

Our effective income tax rates were 30.0%5.8% and 31.3%(3.4)% for the nine and three months ended March 31,September 30, 2016 and 2015.31.5% for the same periods in the prior year. The 2016 effective tax rate for the three months ended March 31, 2016 wasrates are lower than the comparable prior year period primarily due to $440 of additional tax benefits recorded in the third quarter of 2016 related to the application of a 2012 Federal Court of Claims decision that allowed the tax basis in certain assets to be increased. Also, in the third quarter of 2016 a tax benefit of $177 was recorded as a result of the settlement of the 2011-2012 federal tax audit. Additionally, the 2016 effective tax rates include the favorable impact of the permanent reinstatement of the U.S. research and development tax credit (research credit) at the end of 2015. A

The total amount of unrecognized tax benefit forbenefits decreased from $1,617 as of December 31, 2015 to $1,378 as of September 30, 2016 primarily due to the research credit was recorded duringtax basis adjustment and settlement of the three months ended March 31, 2016, and none in the comparable prior year period.2011-2012 federal tax audit, as discussed above.

Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to United Launch Alliance (ULA) under an inventory supply agreement that terminates on March 31, 2021. At March 31, 2016, theThe inventory balance was $120 (net of advances of $293)$253 and $120 (net of advances of $310) at September 30, 2016 and December 31, 2015. At March 31, 2016, $176 of this inventory relatedSee indemnifications to unsold launches. SeeULA in Note 9.

At March 31,September 30, 2016 and December 31, 2015, commercial aircraft programs inventory included the following amounts related to the 787 program: $35,522$33,423 and $34,656 of work in process (including deferred production costs of $28,651$27,523 and $28,510), $2,500$2,345 and $2,551 of supplier advances, and $3,767$3,691 and $3,890 of unamortized tooling and other non-recurring costs. At March 31,September 30, 2016, $23,661$22,521 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,757$8,693 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.

At March 31,September 30, 2016 and December 31, 2015, commercial aircraft programs inventory included the following amounts related to the 747 program: $876$0 and $942 of deferred production costs, net of reach-forward losses, and $298 and $377 of unamortized tooling costs. At March 31,September 30, 2016, $402$99 of 747 deferred production and unamortized tooling costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $851$199 is expected to be recovered from units included in the program accounting quantity that represent expected future orders. At March 31,September 30, 2016 and December 31, 2015, work in process inventory included a number of completed 747 aircraft that we expect to recover from future orders.

Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $3,198$3,257 and $3,166 at March 31,September 30, 2016 and December 31, 2015.

The adequacy of the allowance for losses is assessed quarterly. Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by the major credit rating agencies.

At March 31,September 30, 2016 and December 31, 2015, Other assets included $356 of receivables related to our former investment in the Sea Launch venture which became payable by certain Sea Launch partners following Sea Launch’s bankruptcy filing in June 2009. The $356 includes $147 related to a payment made by us under a bank guarantee on behalf of Sea Launch and $209 related to loans (partner loans) we made to Sea Launch. The net amounts owed to Boeing by each of the partners are as follows: S.P. Koroley Rocket and Space Corporation Energia of Russia – $223, PO Yuzhnoye Mashinostroitelny Zavod of Ukraine – $89 and KB Yuzhnoye of Ukraine – $44.

Although each partner is contractually obligated to reimburse us for its share of the bank guarantee, the Russian and Ukrainian partners have raised defenses to enforcement and contested our claims. On February 1, 2013, we filed an action in the United States District Court for the Central District of California seeking reimbursement from the other Sea Launch partners of the $147 bank guarantee payment and the $209 partner loan obligations. On September 28, 2015,May 12, 2016, the district court granted summaryissued a judgment in Boeing’s favor on all claims againstof Boeing relating to the other partners. Further proceedings will determinebank guarantee payment and the final damage amount, including potential interest payments. If the partners decide to appeal or seek reconsideration of the district court’s ruling additional proceedings would ensue.partner loan obligations. Prior to these proceedings, we had filed a Notice of Arbitration with the Stockholm Chamber of Commerce seeking reimbursement from the other partners for a portion of these amounts. In 2010,On May 16, 2016, the arbitrator ruled that the Stockholm Chamber of Commerce lacked jurisdiction to hear the matter, which ruling has been on appealappellate court in Sweden dismissed the Swedish appellate courts since mid-2014. During the fourth quarter of 2015, the Supreme Court of Sweden confirmedproceedings at our rightrequest.

We continue to pursue this appealcollection efforts in connection with the Swedish appellate courts.

In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which

can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.

At March 31,September 30, 2016, our backlog included 4028 F/A-18 aircraft under contract with the U.S. Navy. The Consolidated Appropriations Act, 2016, passed in December 2015, funds 12 additional F/A-18 aircraft that, combined with the orders in backlog, would complete production in mid-2018. The President’s Fiscal Year 2017 Budget request submitted in February 2016 includes funding for two additional F/A-18 aircraft. In MarchMay 2016, both congressional appropriations committees included additional F/A-18s in their proposed FY17 defense funding bills. The Senate bill includes funding for 14 F/A-18s and the House bill includes funding for a total of 16 F/A-18s. On September 28, 2016, the Navy included 14White House approved the proposed sale of up to 40 F/A-18 aircraft in its unfunded priorities list submittedto Kuwait subject to the congressional defense committees for funding consideration.Congressional Notification process. We are continuing to work with our U.S. customers as well as international customers to secure additional orders that would extend the program beyond 2018.

The enactment of The Bipartisan Budget Act of 2015 in November 2015 established overall defense spending levels for FY2016 and FY2017. However, uncertainty remains with respect to levels of defense spending for FY2018 and beyond including risk of future sequestration cuts.

Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies, including the National Aeronautics and Space Administration, within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization 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 the results of the Company's operations, financial position and/or cash flows.

In additionOn September 29, 2016 a continuing resolution was enacted to fund the risks described above,U.S. government through December 9, 2016. After this date, if Congress is unable to pass appropriations bills in a timely manner, a government shutdown could result which may have impacts above and beyond those resulting from budget cuts, sequestration impacts or program-level appropriations. For example, requirements to furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.

Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Commercial Crew, Saudi F-15, USAF KC-46A Tanker and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, during the first quarter of 2016, we have recorded additional reach-forward losses of $243$816 on the KC-46A Tanker program.program and a charge of $162 resulting from a reach-forward loss of $38 on the Commercial Crew Program. Moreover, both of these programs remain subject to additional reach-forward losses if we experience further technical or quality issues, schedule delays, or increased costs. 

In 2015,2011, we began work on low rate initial production aircraft forwere awarded a contract from the U.S. Air Force (USAF). The USAF is expected to authorize two low rate initial production lots in 2016 for a total of 19 aircraft, subject to satisfactory progress being made on thedesign, develop, manufacture and deliver four next generation aerial refueling tankers. This Engineering, Manufacturing and Development contract.(EMD) contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. In August 2016, the USAF authorized LRIP lots for 7 and 12 aircraft valued at $2.8 billion. At March 31,September 30, 2016, we had approximately $812$298 of capitalized precontract costs and $1,789$690 of potential termination liabilities to suppliers associated with aircraft we expect USAF to authorize in the USAF KC-46A Tanker.future.

Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S. government to assess the merits of claims and where appropriate reserve for amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.

We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.

During the fourth quarterLower-than-expected demand for large commercial passenger and freighter aircraft and slower-than-expected growth of 2015, we recorded a charge of $885global freight traffic have continued to recognize a reach-forward loss on the 747 program primarily due to slower than expected growth in global cargo markets, resulting indrive market anduncertainties, pricing pressures and fewer orders than anticipated driving reductionsanticipated. As a result, during the second quarter of 2016, we canceled previous plans to return to a production rate of 1.0 aircraft per month beginning in our planned production rates. The charge was primarily related2019, resulting in a reduction in the program accounting quantity from 1,574 to 1,555 aircraft. This reduction in the program accounting quantity, together with lower anticipated revenues reflectingfrom future sales and higher costs associated with producing fewer airplanes, resulted in a reach-forward loss of $1,188 in the second quarter. We previously recognized reach-forward losses of $885 and $70 during the second half of 2015 and the first quarter of 2016, respectively, related to the prior decision to reduce the production rate to 0.5 per month and lower estimated revenue from future sales due to ongoing pricing and market pressures as well as higher estimated costs due topressures. We reduced the reduction in the production rate from 1.0 per month to 0.5 per month in September 2016. The adjusted program accounting quantity includes 27 undelivered aircraft, currently scheduled to be produced through 2019. We currently plancontinue to return to a rate of 1.0 per month in 2019. During the first quarter of 2016, an additional reach-forward loss of $70 was recorded to reflect lower estimated revenue from future sales. We have a number of completed aircraft in inventory as well as unsold production positions and we remain focused on obtaining additional orders and implementing cost-reduction efforts. If we are unable to obtain sufficient orders in 2016 and/or market, production and other risks cannot be mitigated, we could record additional losses that may be material.material, and it is reasonably possible that we could decide to end production of the 747.

We enter into arrangements with off-balance sheet risk in the normal course of business, primarily in the form of guarantees.

We agreed to indemnify ULA against potential losses that ULA may incur in the event ULA is unable to obtain certain additional contract pricing from the USAF for four satellite missions. We believe ULA is entitled to additional contract pricing. In December 2008, ULA submitted a claim to the USAF to re-price the contract value for two satellite missions. In March 2009, the USAF issued a denial of that claim. In June 2009, ULA filed a notice of appeal, and in October 2009, ULA filed a complaint before the Armed Services Board of Contract Appeals (ASBCA) for a contract adjustment for the price of the two satellite missions. In September 2009, the USAF exercised its option forof these missions, followed in 2011 by a third satellite mission. During the third quartersubsequent notice of 2010, ULA submittedappeal with respect to a claim to the USAF to re-price the contract value of the third mission. The USAF did not exercise an option for a fourth mission prior to the expiration of the contract. In March 2011, ULA filed a noticeDuring the second quarter of appeal before2016, the ASBCA seekingruled that ULA is entitled to re-priceadditional contract pricing for each of the third mission. On November 20, 2013,three missions and remanded to the ASBCA denied USAF motions for summary judgment against ULA in large part, leaving ULA's claims againstparties to negotiate appropriate pricing. However, if the USAF substantially intact. The hearing beforeappeals the ASBCA concluded on December 20, 2013. The parties filed their final post-hearing briefs in May 2014. The ASBCA may now issue a decision at any time. IfASBCA's ruling, and ULA is ultimately unsuccessful in obtaining additional pricing, we may be responsible for an indemnification payment up to $261 and may record up to $277 in pre-tax losses associated with the three missions.

Potential payments for Other Delta contracts include $85 related to deferred support costs and $91 related to deferred production costs. In June 2011, the Defense Contract Management Agency (DCMA) notified ULA that it had determined that $271 of deferred support costs are not recoverable under government contracts. In December 2011, the DCMA notified ULA of the potential non-recoverability of an additional $114 of deferred production costs. ULA and Boeing believe that all costs are recoverable and in November 2011, ULA filed a certified claim with the USAF for collection of deferred support and production costs. The USAF issued a final decision denying ULA’s certified claim in May 2012. On June 14, 2012, Boeing and ULA filed a suit in the Court of Federal Claims seeking recovery of the deferred support and production costs from the U.S. government. On November 9, 2012, the U.S. government filed an answer to our claim and asserted a counterclaim for credits that it alleges were offset by deferred support cost invoices. We believe that the U.S. government’s counterclaim is without merit, and have filed an answer challenging it on multiple grounds. The litigation is in the discovery phase, and the Court has not yet set a trial date. If, contrary to our belief, it is determined that some or all of the deferred support or production costs are not recoverable, we could be required to record pre-tax losses and make indemnification payments to ULA for up to $317 of the costs questioned by the DCMA.

On February 22, 2016, we granted to our executives 777,837 restricted stock units (RSUs) as part of our long-term incentive program with a grant date fair value of $117.50 per unit. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date.

On February 22, 2016, we granted to our executives 721,176 performance-based restricted stock units (PBRSUs) as part of our long-term incentive program with a grant date fair value of $126.74 per unit. Compensation expense for the award is recognized over the three-year performance period based upon the grant date fair value estimated using a Monte-Carlo simulation model. The model used the following assumptions: expected volatility of 22.44% based upon historical stock volatility, a risk-free interest rate of 0.92%, and no expected dividend yield because the units earn dividend equivalents.