Boeing 2010 Annual Report Download - page 37

Earnings from operations for 2009 decreased by $1,769 million compared with 2008, primarily due to
the reclassification from inventory to research and development expense of the three 787 flight test
aircraft previously recorded as inventory, partially offset by a $148 million decrease in other research
and development expense. The decrease in earnings is also attributable to $1,352 million in reach-
forward losses on the 747 program in 2009, compared with $685 million in 2008. Lower commercial
aviation services 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.
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 increase in contractual backlog during 2010 was due to orders in excess of deliveries and changes
in projected revenue escalation, partially reduced by cancellations of orders. The decrease in backlog
during 2009 was due to deliveries in excess of orders, changes in projected revenue escalation and
cancellations of orders.
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.
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.
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.
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