Boeing 2007 Annual Report Download - page 56

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Notes to Consolidated Financial Statements
Basic earnings per share is calculated by the sum of (1) net
income less declared dividends divided by the basic weighted
average shares outstanding and (2) declared dividends divided
by the weighted average shares outstanding.
The weighted-average number of shares outstanding for the
year ended December 31 (in millions), included in the table
below, is excluded from the computation of diluted earnings
per share because the average market price did not exceed
the exercise/threshold price. However, these shares may be
dilutive potential common shares in the future.
2007 2006 2005
Stock options 0.2
Stock units 0.1
Performance Shares 0.7 4.0 24.9
Performance Awards 3.0 1.4
ShareValue Trust 25.8 24.6 33.9
Note 4 – Income Taxes
The components of earnings before income taxes were:
Years ended December 31, 2007 2006 2005
U.S. $5,901 $3,067 $2,605
Non-U.S. 217 127 214
$6,118 $3,194 $2,819
Income tax expense/(benefit) consisted of the following:
Years ended December 31, 2007 2006 2005
Current tax expense
U.S. federal $1,260 $193 $(276)
Non-U.S. 139 35 58
U.S. state 164 (58) (86)
1,563 170 (304)
Deferred tax expense
U.S. federal 487 750 547
Non-U.S. (6) (6) (120)
U.S. state 16 74 134
497 818 561
Total income tax expense $2,060 $988 $257
The following is a reconciliation of the U.S. federal statutory tax
rate of 35% to our recorded income tax expense/(benefit):
Years ended December 31, 2007 2006 2005
U.S. federal statutory tax 35.0% 35.0% 35.0%
Global Settlement with
U.S. Department of Justice 6.7
Foreign Sales Corporation/
Extraterritorial Income tax benefit (5.8) (5.6)
Research benefit (2.4) (0.7) (1.2)
Federal audit settlement (1.5) (13.1)
State income tax provision,
net of effect on U.S. federal tax 1.6 0.4 1.1
Change in valuation allowances 0.3 (3.2)
Other provision adjustments (0.8) (3.2) (3.9)
Income tax expense 33.7% 30.9% 9.1%
Significant components of our deferred tax assets, net of
deferred tax liabilities, at December 31 were as follows:
2007 2006
Retiree health care accruals $«2,581 $«3,257
Inventory and long-term contract
methods of income recognition 209 640
Other employee benefits accruals 1,476 1,473
In-process research and development
related to acquisitions 108 124
Net operating loss, credit, and charitable
contribution carryovers (net of valuation
allowance of $20 and $2) 275 319
Pension asset (1,648) (397)
Customer and commercial financing (1,587) (1,517)
Unremitted earnings of non-U.S. subsidiaries (48) (48)
Other net unrealized losses (18) 37
Net deferred tax assets1 $«1,348 $«3,888
1 Of the deferred tax asset for net operating loss and credit carryovers, $151
expires in years ending from December 31, 2008 through December 31, 2027
and $125 may be carried over indefinitely.
Net deferred tax assets at December 31 were as follows:
2007 2006
Deferred tax assets $«9,640 $12,174
Deferred tax liabilities (8,272) (8,284)
Valuation allowance (20) (2)
Net deferred tax assets $«1,348 $÷3,888
We recorded net deferred tax liabilities of $11 and $171 in
2007 and 2006, which were primarily due to acquisitions.
As required under SFAS 123R, deferred tax liabilities of $79 and
$306 were reclassified to Additional paid in capital in 2007 and
2006. This represents the tax effect of the net excess tax pool
created during 2007 and 2006 due to share awards paid with a
fair market value in excess of the book accrual for those awards.
Included in the net deferred tax assets at December 31, 2007
and 2006 are deferred tax assets in the amounts of $3,169
and $5,240 related to other comprehensive income.
Net income tax payments/(refunds) were $711, $28 and ($344)
in 2007, 2006 and 2005, respectively.
We have provided for U.S. deferred income taxes and foreign
withholding tax in the amount of $48 on undistributed earnings
not considered permanently reinvested in our non-U.S. sub-
sidiaries. We have not provided for U.S. deferred income taxes
or foreign withholding tax on the remainder of undistributed
earnings from our non-U.S. subsidiaries because such earn-
ings are considered to be permanently reinvested and it is not
practicable to estimate the amount of tax that may be payable
upon distribution.
FASB Interpretation No. 48
Effective January 1, 2007, we adopted FIN 48 which pre-
scribes a more-likely-than-not threshold for financial statement
recognition and measurement of a tax position taken or
expected to be taken in a tax return. This interpretation also
provides guidance on derecognition of income tax assets and
liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties
The Boeing Company and Subsidiaries