Boeing 2009 Annual Report Download - page 36

revenues and margins reduced earnings by $245 million. Higher infrastructure cost allocations related
to the 787 and 747-8 schedule delays announced in 2008 and 2009 and infrastructure costs incurred
during the 2008 IAM strike reduced earnings by $199 million. Increased period and other costs
reduced earnings by $47 million. These decreases were partially offset by increased earnings of
$1,934 million related to new airplane deliveries.
Earnings from operations decreased by $2,398 million in 2008 when compared to 2007, with operating
margins decreasing 6.5 percentage points to 4.2%. Lower new airplane deliveries, partially offset by
higher intercompany revenues, reduced earnings by $1,400 million. A charge for a reach-forward loss
on the 747 program resulting from increases to estimated costs for development and production of
747-8 derivatives reduced 2008 earnings by $685 million. Infrastructure cost allocations related to the
787 and 747-8 schedule delays and infrastructure costs incurred during the IAM strike reduced
earnings by $287 million. The 787 and 747-8 schedule delays resulted in production programs
receiving larger allocations of current and future infrastructure costs and reduced margins on 2008
deliveries, while the program infrastructure costs incurred during the IAM strike decreased margins on
airplanes delivered during the second half of the year. Increased period and other costs reduced
earnings by $108 million. A reduction in commercial aviation services volume and mix-related earnings
of $42 million was primarily due to a decrease in volume on passenger to freighter conversion
programs. Lower research and development costs improved earnings by $124 million.
Backlog Firm backlog represents orders for products and services where no contingencies remain
before Boeing and the customer are required to perform. Backlog does not include prospective orders
where customer controlled contingencies remain, such as the customers receiving approval from their
Board of Directors, shareholders or government and completing financing arrangements. All such
contingencies must be satisfied or have expired prior to recording a new firm order even if satisfying
such conditions is highly certain. Firm orders exclude options. A number of our customers may have
contractual remedies that may be implicated by program delays. We continue to address customer
claims and requests for other contractual relief as they arise. However, once orders are included in firm
backlog, orders remain in backlog until canceled or fulfilled, although the value of orders is adjusted as
changes to price and schedule are agreed to with customers.
The decrease in contractual backlog during 2009 was due to deliveries in excess of orders, changes in
projected revenue escalation and cancellations of orders. The increase in backlog during 2008 was
due to orders in excess of deliveries for our 737, 767, 777 and 787 programs.
Accounting Quantity The accounting quantity is our estimate of the quantity of airplanes that will be
produced for delivery under existing and anticipated contracts and is limited by the ability to make
reasonably dependable estimates of the revenue and costs of these 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.
Commercial aircraft production costs include a significant amount of infrastructure costs, a portion of
which does not vary with production rates. As the amount of time needed to produce the accounting
quantity increases, the average cost of the accounting quantity also increases as these infrastructure
costs are included in the total cost estimates. This has the effect of decreasing the gross margin and
related earnings provided other factors do not change.
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