Boeing 2009 Annual Report Download - page 55

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 based on estimated
earliest potential funding dates. Based on historical experience, we currently do not anticipate that all
of these commitments will be exercised by our customers; however there can be no assurances that
we will not be required to fund greater amounts than historically required. See Note 11.
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 20, including our contesting the default termination of the A-12
aircraft, litigation/arbitration involving BSSI programs and employment and benefits litigation brought by
several of our employees.
Environmental Remediation We are involved with various environmental remediation activities and
have recorded a liability of $706 million at December 31, 2009. For additional information, see Note 11.
Income Taxes We have recorded a net liability of $1,787 million at December 31, 2009 for uncertain
tax positions. For further discussion of these contingencies, see Note 5.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion
of these arrangements, see Note 12.
Critical Accounting Policies
Contract Accounting
Contract accounting involves a judgmental process of estimating the total sales and costs for each
contract, which results in the development of estimated cost of sales percentages. For each contract,
the amount reported as cost of sales is determined by applying the estimated cost of sales percentage
to the amount of revenue recognized.
Due to the size, length of time and nature of many of our contracts, the estimation of total sales and
costs through completion is complicated and subject to many variables. Total contract 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 contracts are with the U.S. government. Generally the price is 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 contract 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, and anticipated labor agreements.
The development of cost of sales percentages involves procedures and personnel in all areas that
provide financial or production information on the status of contracts. Estimates of each significant
contract’s sales and costs are reviewed and reassessed quarterly. Any changes in these estimates
result in recognition of cumulative adjustments to the contract profit in the period in which changes are
made.
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