Boeing 2010 Annual Report Download - page 68

The Boeing Company and Subsidiaries
Notes to the Consolidated Financial Statements
Years ended December 31, 2010, 2009 and 2008
(Dollars in millions, except per share data)
Note 1 – Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Consolidated 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”). These
statements include the accounts of all majority-owned subsidiaries and variable interest entities that
are required to be consolidated. All significant intercompany accounts and transactions have been
eliminated. Certain amounts have been reclassified to conform to the current year presentation.
Use of Estimates
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 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 Consolidated Financial
Statements.
Operating Cycle
For classification of certain current assets and liabilities, we use the duration of the related contract or
program as our operating cycle, which is generally longer than one year and could exceed three years.
Revenue and Related Cost Recognition
Contract Accounting Contract accounting is used for development and production activities
predominantly by Boeing Defense, Space & Security (BDS). The majority of business conducted by
BDS is performed under contracts with the U.S. government and other customers that extend over
several years. Contract accounting involves a judgmental process of estimating the total sales and
costs for each contract resulting 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.
We combine contracts for accounting purposes when they are negotiated as a package with an overall
profit margin objective, essentially represent an agreement to do a single project for a single customer,
involve interrelated construction activities with substantial common costs, and are performed
concurrently or sequentially. When a group of contracts is combined, revenue and profit are earned
uniformly over the performance of the combined contracts.
Sales related to fixed-price contracts are recognized as deliveries are made, except for certain fixed-
price contracts that require substantial performance over an extended period before deliveries begin,
for which sales are recorded based on the attainment of performance milestones. Sales related to
contracts in which we are reimbursed for costs incurred plus an agreed upon profit are recorded as
costs are incurred. The Federal Acquisition Regulations provide guidance on the types of cost that will
be reimbursed in establishing contract price. Contracts may contain provisions to earn incentive and
award fees if specified targets are achieved. Incentive and award fees that can be reasonably
estimated and are probable are recorded over the performance period of the contract. Incentive and
award fees that cannot be reasonably estimated are recorded when awarded.
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