Boeing 2008 Annual Report Download

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The Boeing Company
2008 Annual Report

Table of contents

  • Page 1
    The Boeing Company 2008 Annual Report

  • Page 2
    ... WORKING TOGETHER AS A GLOBAL ENTERPRISE FOR AEROSPACE LEADERSHIP Contents Operational Summary Message to Shareholders Executive Council Financial Summary Charts Form 10-K Regulatory Certifications Selected Programs, Products and Services 144 Board of Directors 144 Company Officers 145 Shareholder...

  • Page 3
    ...satellites, launch systems and advanced information and communication systems. Our reach extends to customers in more than 90 countries around the world, and we are a leading U.S. exporter in terms of sales. With corporate offices in Chicago, Boeing employs more than 162,000 people across the United...

  • Page 4
    ... environment. We delivered double-digit margins from our defense business and solid results in production programs and services from our commercial airplanes business. However, the impact of a two-month strike and delays on key development programs outweighed that performance in our year-end numbers...

  • Page 5
    Our management team is addressing our challenges head-on and, as we enter an increasingly difficult 2009, I believe we are uniquely positioned to weather the current storm - and to emerge well equipped to deliver long-term growth and quality financial results. The strategy we set in motion more than...

  • Page 6
    ... years, we estimate the addressable market for the 787 class of airplanes at 3,500 units with a total value of more than $600 billion at list prices. Fuel efficient, less costly to maintain, more comfortable for passengers and able to fly long distances, the 787 will open economical, environmentally...

  • Page 7
    ... management system standard at all of our major manufacturing sites, and we continued to make good progress in meeting other long-term environmental performance targets by improving energy efficiency, enhancing recycling rates and reducing waste. The market value for commercial aviation...

  • Page 8
    ...work to the best possible location - even if that cuts across organizational lines. For example, when the first commercial 787s come out of flight test, they will be sent to an IDS facility in San Antonio, Texas, to modify the airplanes and incorporate final changes or improvements prior to delivery...

  • Page 9
    ... President, Office of Internal Governance John J. Tracy Senior Vice President, Engineering, Operations and Technology, and Chief Technology Officer Standing left to right: Thomas J. Downey Senior Vice President, Communications Michael J. Cave Senior Vice President, Business Development and Strategy...

  • Page 10
    ... OUR CUSTOMERS AND LEVERAGING GROWTH AND PRODUCTIVITY INITIATIVES INTO BETTER FINANCIAL RESULTS. Comparison of Cumulative* Five-Year Total Shareholder Returns $300 $250 $200 $150 $100 $50 $0 03 04 05 06 07 08 Company/Index Base Period 2003 2004 Years Ending December 2005 2006 2007 2008 Boeing...

  • Page 11
    ... outstanding shares held by the ShareValue Trust which are not eligible to vote.) DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference to the registrant's definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the close...

  • Page 12
    ... Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 19...

  • Page 13
    ... Commercial Airplanes program; the ability to successfully develop and timely produce the 787 and 747-8 aircraft; the effect on our revenues of political and legal processes; changing defense priorities; and associated budget reductions by U.S. and international government customers affecting Boeing...

  • Page 14
    ... for technical or quality issues on development programs, including the Airborne Early Warning and Control program, International KC-767 Tanker, other fixed-price development programs, or commercial satellite programs, to affect schedule and cost estimates, or cause us to incur a material charge...

  • Page 15
    ...-body model and the 747, 767, 777 and 787 wide-body models. The Commercial Airplanes segment also offers aviation services support, aircraft modifications, spares, training, maintenance documents and technical advice to commercial and government customers worldwide. Integrated Defense Systems IDS...

  • Page 16
    ... and Services on platforms including F-16, C-17, AH-64, and F-15; International Support. Boeing Capital Corporation Segment In the commercial aircraft market, BCC facilitates, arranges, structures and provides selective financing solutions for our Commercial Airplanes segment customers. In the space...

  • Page 17
    ...intent on increasing their market share. We are focused on improving our processes and continuing cost reduction efforts. We continue to leverage our extensive customer support services network which includes aviation support, spares, training, maintenance documents and technical advice for airlines...

  • Page 18
    ... between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The U.S. government can also hold us liable for damages resulting from the default. Commercial Aircraft. In the United States, our commercial aircraft products are...

  • Page 19
    ...at affordable prices. Seasonality No material portion of our business is considered to be seasonal. Other Information Boeing was originally incorporated in the State of Washington in 1916 and reincorporated in Delaware in 1934. Our principal executive offices are located at 100 N. Riverside, Chicago...

  • Page 20
    ... through increased costs as well as possible customer and/or supplier claims or assertions. In addition, the introduction of new commercial aircraft programs and major derivatives involves increased risks associated with meeting development, production and certification schedules. Market conditions...

  • Page 21
    ... payment for work done and commitments made at the time of termination. Modification, curtailment or termination of our major programs or contracts could have a material adverse effect on our results of operations and financial condition. Our contract costs are subject to audits by U.S. government...

  • Page 22
    ... uses its best judgment to estimate the cost to perform the work, the price we will eventually be paid and, in the case of commercial programs, the number of units to include in the initial accounting quantity. While we believe the cost and price estimates incorporated in the financial statements...

  • Page 23
    ...relating to financial market and other economic conditions. Changes in key economic indicators can change the assumptions. The most significant year-end assumptions used to estimate pension or other postretirement income or expense for the following year are the discount rate, the expected long-term...

  • Page 24
    ... trade restrictions; the difficulty of management and operation of an enterprise spread over various countries; compliance with a variety of international laws, as well as U.S. laws affecting the activities of U.S. companies abroad and economic and geopolitical developments and conditions. While...

  • Page 25
    ... issues, transaction-related charges, amortization of expenses related to intangibles, charges for impairment of long-term assets, credit guarantees, partner performance and indemnifications. Consolidations of joint ventures could also impact our results of operations or financial position. While we...

  • Page 26
    ..., administration and other productive uses, of which approximately 96% was located in the United States. The following table provides a summary of the floor space by business: (Square feet in thousands) Commercial Airplanes Integrated Defense Systems Other** Total * ** Owned Leased 34,901 30,732...

  • Page 27
    ... with others. Our rights to use such facilities are provided for under long-term leases with municipal, county or other government authorities. In addition, the U.S. government furnishes us certain office space, installations and equipment at U.S. government bases for use in connection with various...

  • Page 28
    ... with the Board staff to review and address the Notice. On December 8, 2008 the Board issued an Order requesting and authorizing the Company to prepare work plans and, upon approval, to perform interim contaminant source removal actions in watersheds feeding into two outfalls currently included in...

  • Page 29
    ... Information, Space and Defense Systems. Senior Vice President of Business Development and Strategy since November 2007. Prior thereto, he was Vice President of Business Strategy & Marketing for Boeing Commercial Airplanes; Vice President/General Manager of Airplane Programs for Commercial Airplanes...

  • Page 30
    ..., Global Government Relations, Honeywell International since 2002. Prior to that, Mr. Keating was Chairman of the Board and Managing Partner, Timmons and Company, from 1998 until 2002. Prior positions include Vice President for Federal Affairs for a major Washington, D.C. trade association, Director...

  • Page 31
    ... Homeland Security and Services, from July 2002 to December 2003. Mr. Stephens has previously led a number of Boeing businesses, including Space and Communications Services, Reusable Space Systems, Naval Systems and Tactical Systems. Chief Technology Officer and Senior Vice President of Engineering...

  • Page 32
    ..., 2008 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act: (Dollars in millions, except per share data) (a) (b) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value That May Yet be Purchased Under the...

  • Page 33
    ...Financial Data Five-Year Summary (Unaudited) (Dollars in millions, except per share data) Operations Revenues Commercial Airplanes Integrated Defense Systems:(a) Boeing Military Aircraft Network and Space Systems Global Services and Support Total Integrated Defense Systems Boeing Capital Corporation...

  • Page 34
    ... of Operations Consolidated Results of Operations and Financial Condition Overview We are a global market leader in design, development, manufacture, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services. We...

  • Page 35
    ... primarily due to fewer new airplane deliveries resulting from the strike, increased program infrastructure costs related to the strike and revised schedules on 787 and 747-8, and a charge taken on the 747-8 program. Commercial Airplanes' research and development expense decreased by $124 million to...

  • Page 36
    ...Generally accepted accounting principles in the United States of America (GAAP) in the consolidated financial statements and federal cost accounting standards required to be utilized by our business segments for U.S. government contracting purposes. Pension and other postretirement expense decreased...

  • Page 37
    ... U.S. and non-U.S. government contract funding. Contractual backlog increased by $26,896 million in 2008 compared to 2007 primarily as a result of increases at Commercial Airplanes of $23,399 million, which were due to new orders in excess of deliveries for our 737NG, 767, 777 and 787 programs. IDS...

  • Page 38
    ...and Financial Condition Commercial Airplanes Business Environment and Trends Airline Industry Environment For the world's airlines, 2008 was a challenging year characterized by volatility of several key operational factors including oil prices, economic growth, exchange rates and financing terms. In...

  • Page 39
    ... product development, gain market share through pricing, and/or improve earnings. We are focused on improving our processes and continuing cost-reduction efforts. We continue to leverage our extensive customer support services network which includes aviation support, spares, training, maintenance...

  • Page 40
    ... new airplane deliveries, including model mix changes, of $3,369 million, increased commercial aviation services business of $1,432 million and increased aircraft trading activity of $120 million. Commercial jet aircraft deliveries as of December 31, including deliveries under operating lease, which...

  • Page 41
    ... is adjusted as changes to price and schedule are agreed to with customers. The backlog increase in 2008 related to orders in excess of deliveries for our 737NG, 767, 777 and 787 programs, while the increase in 2007 related to orders in excess of deliveries for all programs. Accounting Quantity The...

  • Page 42
    ... certain components to suppliers and higher internal production costs also increased cost estimates. We believe that the cost and revenue estimates incorporated in the financial statements are appropriate; however, this remains a development program, with the associated inherent risks. 28

  • Page 43
    ... operational life of the aircraft. They include flight and maintenance training, field service support costs, engineering services and technical data and documents. The costs for fleet support are expensed as incurred and have been historically less than 1.5% of total consolidated costs of products...

  • Page 44
    ... of such commercial development programs include the 787, 747-8 and 777 freighter. Integrated Defense Systems Business Environment and Trends IDS consists of three capabilities-driven businesses: Boeing Military Aircraft (BMA), Network and Space Systems (N&SS), and Global Services and Support (GS...

  • Page 45
    ... deferrals taken by international countries has resulted in growing demands for new equipment to address operational requirements, aging inventories, and changing threat environments. Asymmetric warfare remains a key challenge with many nations placing renewed emphasis on acquiring material that is...

  • Page 46
    ... $42,287 $33,385 Since our operating cycle is long-term and involves many different types of development and production contracts with varying delivery and milestone schedules, the operating results of a particular year, or year-to-year comparisons of revenues and earnings, may not be indicative of...

  • Page 47
    ... Considerations Our business includes a variety of development programs which have complex design and technical challenges. Many of these programs have cost-type contracting arrangements. In these cases the associated financial risks are primarily in lower profit rates or program cancellation if...

  • Page 48
    ... affect delivery schedules to our other AEW&C customers. The AEW&C development program, also known as Wedgetail in Australia, Peace Eagle in Turkey and Peace Eye in the Republic of Korea, consists of a 737-700 aircraft outfitted with a variety of command and control and advanced radar systems, some...

  • Page 49
    ... direction to key suppliers to begin working on aircraft beyond the 190 ordered by the USAF. Network and Space Systems Operating Results (Dollars in millions) Years ended December 31, Revenues % of Total company revenues Earnings from operations Operating margins Research and development Contractual...

  • Page 50
    ... space intelligence systems. Along with increased funding to support these areas of architecture and network-enabled capabilities development, we also maintained our investment levels in global missile defense and advanced missile defense concepts and technologies. Backlog N&SS total backlog...

  • Page 51
    ...914 million at December 1, 2006. The book value of our investment exceeds our proportionate share of ULA's net assets. This difference will be expensed ratably in future years. Based on the adjusted contributions and the conformed accounting policies established by ULA, this amortization is expected...

  • Page 52
    ... of Boeing Satellite Systems International, Inc. (BSSI) in Note 20 Legal Proceedings. Global Services and Support Operating Results (Dollars in millions) Years ended December 31, Revenues % of Total company revenues Earnings from operations Operating margins Research and development Contractual...

  • Page 53
    ... Network Centric Logistics areas. Investments have been made to continue the development and implementation of innovative tools, processes and systems as market discriminators in the delivery of integrated customer solutions. Examples of successful programs stemming from these investment strategies...

  • Page 54
    Summary Financial Information (Dollars in millions) Years ended December 31, Revenues Earnings from operations Operating margins 2008 2007 2006 $703 $815 $1,025 $162 $234 $ 291 23% 29% 28% Revenues BCC segment revenues consist principally of lease income from equipment under operating lease and ...

  • Page 55
    ...our earnings, cash flow or financial position depends on a number of factors including whether the request is granted, the type of aircraft, the collateral value and market rental rates of the returned aircraft. In September 2008, we agreed to a restructuring of lease terms with Midwest, under which...

  • Page 56
    ... customer advances. The 2008 increase in inventories was driven by continued spending on production materials, airplane engines, and supplier advances during the IAM strike, lower commercial airplane deliveries and the continued ramp-up of the 787 program. We expect to generate positive operating...

  • Page 57
    ... 21,184,202 shares at an average price of $80.18 in our open market share repurchase program, 3,749,377 shares at an average price of $80.28 as part of the ShareValue Trust distribution, and 49,288 shares in stock swaps. We expect to reduce 2009 share repurchase activity to a minimal level. In 2008...

  • Page 58
    ... commercial paper program, in the debt markets or our credit facilities will not be materially impacted by the ongoing capital market disruptions. In accordance with Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans...

  • Page 59
    ... to cost-type government contracts. Purchase Obligations Not Recorded on the Consolidated Statement of Financial Position Production related purchase obligations not recorded on the Consolidated Statement of Financial Position include agreements for production goods, tooling costs, electricity...

  • Page 60
    ... must be competitive in cost, quality and schedule. Purchase Obligations Recorded on the Consolidated Statement of Financial Position Purchase obligations recorded on the Consolidated Statement of Financial Position primarily include accounts payable and certain other liabilities including accrued...

  • Page 61
    ...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...

  • Page 62
    ... substantial investment required for initial tooling, new commercial aircraft programs, such as the 787 program, typically have lower margins than established programs. Due to the significance of judgment in the estimation process described above, it is likely that materially different cost of sales...

  • Page 63
    ... the related operations using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future sales and operating costs, based primarily on existing firm orders, expected future orders, contracts with suppliers, labor agreements, and general market conditions. Changes...

  • Page 64
    ... postretirement benefit cost (165) (14) 180 14 Dollars (1,350) (164) Dollars 1,599 181 Pension expense is also sensitive to changes in the expected long-term rate of asset return. A decrease or increase of 25 basis points in the expected long-term rate of asset return would have increased or...

  • Page 65
    ...debt obligations to manage exposure to interest rate changes. The principal source of BCC's market risk relates to interest rate changes. Exposure to this risk is managed by generally matching the profile of BCC's liabilities with that of BCC's assets in relation to amount and terms such as expected...

  • Page 66
    ... Financial Statements and Supplemental Data The Boeing Company and Subsidiaries Consolidated Statements of Operations (Dollars in millions, except per share data) Years ended December 31, Sales of products Sales of services Total revenues Cost of products Cost of services Boeing Capital Corporation...

  • Page 67
    ...385 Total assets Liabilities and shareholders' equity Accounts payable and other liabilities Advances and billings in excess of related costs Income taxes payable Short-term debt and current portion of long-term debt Total current liabilities Deferred income taxes Accrued retiree health care Accrued...

  • Page 68
    ... excess of related costs Income taxes receivable, payable and deferred Other long-term liabilities Pension and other postretirement plans Customer financing, net Other Net cash (used)/provided by operating activities Cash flows - investing activities: Property, plant and equipment additions Property...

  • Page 69
    The Boeing Company and Subsidiaries Consolidated Statement of Shareholders' Equity Accumulated Additional Other (Dollars in millions, Common Paid-In Treasury ShareValue Retained Comprehensive except per share data) Stock Capital Stock Trust Earnings Loss Total Balance January 1, 2006 $5,061 $ 4,371 ...

  • Page 70
    ... Financial Statements Summary of Business Segment Data (Dollars in millions) Years ended December 31, Revenues: Commercial Airplanes Integrated Defense Systems: Boeing Military Aircraft Network and Space Systems Global Services and Support Total Integrated Defense Systems Boeing Capital Corporation...

  • Page 71
    ...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 3 years. Revenue and Related Cost Recognition Contract Accounting Contract accounting is used for development and production...

  • Page 72
    ...: Delta launches, ongoing maintenance of International Space Station and Space Shuttle, support agreements associated with military aircraft and helicopter contracts, and technical and flight operation services for commercial aircraft. Service revenue and associated cost of sales from pay-in-advance...

  • Page 73
    ...our commercial airplane models. Collectively known as fleet support services, these activities and services include flight and maintenance training, field service support, engineering services, and technical data and documents. Fleet support activity begins prior to aircraft delivery as the customer...

  • Page 74
    ..., benefits are also based on the employee's annual earnings. The net periodic cost of our pension and other postretirement plans is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset...

  • Page 75
    ... negative balances to Accounts payable and other liabilities. Inventories Inventoried costs on commercial aircraft programs and long-term contracts include direct engineering, production and tooling costs, and applicable overhead, which includes fringe benefits, production related indirect and plant...

  • Page 76
    ... complete exceed estimated program revenues to go, a program loss provision is recorded in the current period for the estimated loss on all undelivered units in the accounting quantity. Used aircraft purchased by the Commercial Airplanes segment and general stock materials are stated at cost not in...

  • Page 77
    ... in the Consolidated Financial Statements. A liability for these obligations will be recorded in the period when sufficient information regarding timing and method of settlement becomes available to make a reasonable estimate of the liability's fair value. In addition, there may be conditional asset...

  • Page 78
    ... Available-for-sale securities include marketable debt and equity securities and an Enhanced Equipment Trust Certificate (EETC) and are recorded at their fair values, with unrealized gains and losses reported as part of Accumulated other comprehensive loss on the Consolidated Statements of Financial...

  • Page 79
    ... for Sale Aircraft but prior to the purchase of the used trade-in aircraft. Estimates based on current aircraft values would be included in Accounts payable and other liabilities. The fair value of trade-in aircraft is determined using aircraft specific data such as model, age and condition, market...

  • Page 80
    ...how long we will hold an asset subject to operating lease before it is sold, the expected future lease rates, lease terms, residual value of the asset, periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the remaining economic life of...

  • Page 81
    ...in the carrying amount of goodwill by reportable segment for the years ended December 31, 2008, 2007 and 2006 were as follows: Boeing Network Global Commercial Military and Space Services Airplanes Aircraft Systems and Support Balance at January 1, 20061 Aviall acquisition2 Other Balance at December...

  • Page 82
    ... Participating securities Basic weighted average shares outstanding Dilutive potential common shares Diluted weighted average shares outstanding The numerator used to compute diluted earnings per share is as follows: Years ended December 31, Net earnings Expense related to diluted shares Total...

  • Page 83
    ... 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. (Shares in millions) Years ended December 31, Stock options ShareValue Trust Performance Awards Performance Shares Stock units 2008...

  • Page 84
    ... assets, net of deferred tax liabilities, at December 31 were as follows: 2008 Retiree health care accruals Inventory and long-term contract methods of income recognition and other (net of valuation allowance of $17 and $0) Partnerships and Joint Ventures Other employee benefits accruals In-process...

  • Page 85
    ...tax settlements for prior years. Penalties and tax-related interest expense are reported as a component of Income tax expense. As of December 31, 2008 and 2007, the amount of accrued income tax-related interest and penalties included in the Consolidated Statement of Financial Position was as follows...

  • Page 86
    ... expected to be collected after one year are not material. Note 6 - Inventories Inventories at December 31 consisted of the following: 2008 Long-term contracts in progress Commercial aircraft programs Commercial spare parts, used aircraft, general stock materials and other Less advances and progress...

  • Page 87
    ...programs production costs incurred on in-process and delivered units in excess of the estimated average cost of such units. As of December 31, 2008 and 2007, the balance of deferred production costs and unamortized tooling related to commercial aircraft programs in production, except the 777 program...

  • Page 88
    ...components of investment in sales-type/finance leases at December 31 were as follows: 2008 Minimum lease payments receivable Estimated residual value of leased assets Unearned income 2007 $ 3,451 $ 3,814 735 751 (1,658) (1,889) $ 2,528 $ 2,676 Aircraft financing operating lease equipment primarily...

  • Page 89
    ... is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and may be subject to reduced valuation with market decline. Our financing portfolio has a concentration of various model aircraft. Aircraft financing related to major...

  • Page 90
    ... At December 31, 2008, minimum rental payments under capital leases aggregated $10, and payments due under capital leases during the next five years are not material. Minimum rental payments under operating leases with initial or remaining terms of one year or more aggregated $1,154, net of sublease...

  • Page 91
    ... market funds and time deposits Available-for-sale investments Held-to-maturity investments Total cash and cash equivalents Short-term Investments Time deposits Available-for-sale investments Held-to-maturity investments Total short-term investments Investments Available-for-sale investments Equity...

  • Page 92
    ... Network and Space Systems Network and Space Systems Primarily Commercial Airplanes and Global Services & Support Ownership Percentages Investment Balance 2008 2007 50% $1,006 $1,019 50% (197)(1) (70)(1) 133 $ 942 136 $1,085 $ 46 (107) $ (61) 2007 $ 5 (11) $ (6) 2006 $ 56 $(11) $ 45 Total Equity...

  • Page 93
    ...: 2008 Accounts payable Accrued compensation and employee benefit costs Environmental Product warranties Forward loss recognition (a) Other Total (a) 2007 $ 5,714 4,996 679 962 607 3,718 $16,676 $ 5,871 4,479 731 959 1,458 4,089 $17,587 Forward loss recognition relates primarily to 747 and...

  • Page 94
    ... Commercial Airplanes segment. Generally, aircraft sales are accompanied by a three to four-year standard warranty for systems, accessories, equipment, parts, and software manufactured by us or manufactured to certain standards under our authorization. These warranties are included in the programs...

  • Page 95
    ...for payments made Changes in estimates Ending balance - December 31, 2008 $ 761 186 (220) 235 962 140 (253) 110 $ 959 Discontinued Operations As part of the 2004 purchase and sale agreement with General Electric Capital Corporation related to the sale of BCC's Commercial Financial Services business...

  • Page 96
    ... Air Force (USAF), with final deliveries scheduled for 2009. In June 2007 and April 2008, we directed key suppliers to begin work on 10 and 20 aircraft, respectively, beyond the 190 to support potential Fiscal Year 2008 (FY08) and Fiscal Year 2009 (FY09) orders and anticipated international orders...

  • Page 97
    ... with Company Owned Life Insurance (COLI), which are life insurance policies with a cash surrender value. Although we do not use COLI currently, these obligations from the merger with McDonnell Douglas are still a commitment at this time. We have loans in place to cover costs paid or incurred...

  • Page 98
    ... the sale of certain commercial aircraft. Under these guarantees, we are obligated to make payments to the guaranteed party if the related aircraft or equipment fair values fall below a specified amount at a future time. These obligations are collateralized principally by commercial aircraft and...

  • Page 99
    ... property at our Wichita site. Tax benefits associated with IRBs include a ten-year property tax abatement and a sales tax exemption from the Kansas Department of Revenue. We record the property on our Consolidated Statements of Financial Position, along with a capital lease obligation to repay the...

  • Page 100
    ... plans through trusts. Pension assets are placed in trust solely for the benefit of the plans' participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long term with the growth of obligations for future benefit payments...

  • Page 101
    ... Accrued retiree health care or Accrued pension plan liability, net. The portion of the amount by which the actuarial present value of benefits included in the PBO exceeds the fair value of plan assets, payable in the next 12 months, is reflected in Accounts payable and other liabilities. Effective...

  • Page 102
    ... Funded status-plan assets less projected benefit obligation Adjustment for fourth quarter contributions Net amount recognized Amounts recognized in statement of financial position at December 31, consist of: Pension plan assets, net Accounts payable and other liabilities Accrued retiree health care...

  • Page 103
    ... return on plan assets Rate of compensation increase September 30 2007 2006 2005 6.10% 6.20% 5.90% 5.50% 8.00% 8.25% 8.25% 8.50% 5.50% 5.50% 5.50% 5.50% The discount rate for each pension plan is determined by discounting the plans' expected future benefit payments using a yield curve developed...

  • Page 104
    ... care cost trend rates would have the following effect: Increase Effect on postretirement benefit obligation Effect on total of service and interest cost $640 56 Decrease $(567) (49) Market-Related Value of Assets The expected return on plan assets is determined based on the expected long-term rate...

  • Page 105
    ...periodic investment strategy changes, market value fluctuations, and the length of time it takes to complete investments in asset classes such as private equity, real estate, real assets, and other investments. Additionally, actual and target allocations vary due to the timing of benefit payments or...

  • Page 106
    ...15 to our OPB plans in 2009. Estimated Future Benefit Payments The table below reflects the total pension benefits expected to be paid from the plans or from our assets, including both our share of the benefit cost and the participants' share of the cost, which is funded by participant contributions...

  • Page 107
    ... shareholders approved an amendment to The Boeing Company 2003 Incentive Stock Plan (2003 Plan). The 2003 Plan permits awards of incentive stock options, nonqualified stock options, restricted stock, stock units, Performance Shares, performance units and other incentives to our employees, officers...

  • Page 108
    ...% Performance Shares not converted to common stock expire five years after the date of the award. Awards may vest based on total shareholder return as follows: Å Å For 2004 awards, up to 125% of the award may vest based on an award formula using the total shareholder return performance relative...

  • Page 109
    ... the conditions of the award, adjusted for the effect of retiree eligible participants. Each price growth target has a different expected term, resulting in the range of values provided. At December 31, 2008, there was $6 of unrecognized compensation cost related to the Performance Share plan which...

  • Page 110
    ...date by actively traded option contracts on our common stock. We determined the expected term of the stock option grants to be 6 years, calculated using the "simplified" method in accordance with the SEC Staff Accounting Bulletin 107, Valuation of ShareBased Payment Arrangements for Public Companies...

  • Page 111
    ... holds our common stock, receives dividends, and distributes to employees the appreciation in value above a 3% per annum threshold rate of return at the end of each period. The total compensation expense to be recognized over the life of the trust was determined using a binomial option-pricing model...

  • Page 112
    ... plan could choose to defer in either an interest earning account or a Boeing stock unit account. Effective May 1, 2006, participants can diversify deferred compensation among 19 investment funds including the interest earning account and the Boeing stock unit account. Total (income)/expense related...

  • Page 113
    ... unfavorable price changes for items used in production. These include commitments to purchase electricity at fixed prices through 2013. For the years ended December 31, 2008, 2007, and 2006, gains of $34, $24, and $24, respectively, (net of tax) were reclassified to cost of products and services...

  • Page 114
    ... in the Consolidated Statements of Financial Position as of December 31, 2008, $6,243 related to commercial aircraft customers ($462 of Accounts receivable and $5,781 of Customer financing) and $2,741 related to the U.S. government. Of the $6,551 of customer financing, $5,717 related to customers we...

  • Page 115
    ...(Level 1) (Level 2) (Level 3) $2,128 Assets Money market funds Available-for-sale investments: Debt: Marketable securities Enhanced equipment trust certificate (EETC) Derivatives Warrants Total Total $2,128 347 5 52 10 $2,542 $ 347 $ 5 52 $2,128 $ 399 10 $15 Liabilities Derivatives Total Total...

  • Page 116
    ... We believe, based upon current information, that the outcome of any such government disputes and investigations will not have a material adverse effect on our financial position, except as set forth below. A-12 Litigation In 1991, the U.S. Navy notified McDonnell Douglas Corporation (now one of our...

  • Page 117
    ...made by Spirit Aerospace, Inc. (Spirit) near the time of our sale of the Wichita facility were tainted by age discrimination, violated Employee Retirement Income Security Act (ERISA), violated our collective bargaining agreements, and constituted retaliation. The case is brought as a class action on...

  • Page 118
    ... outcome would have a material adverse effect on our financial position. BSSI/ICO Litigation On August 16, 2004, our wholly owned subsidiary, Boeing Satellite Systems International, Inc. (BSSI) filed a complaint for declaratory relief against ICO Global Communications (Operations), Ltd. (ICO) in...

  • Page 119
    ...competition, and other claims. ICO added The Boeing Company as a defendant in October 2005 to some of these claims and also sued it for interference with contract and misappropriation of trade secrets. On January 13, 2006, BSSI filed a cross-complaint against ICO, ICO Global Communications (Holdings...

  • Page 120
    ... await further developments. Note 21 - Segment Information We operate in five principal segments: Commercial Airplanes; Boeing Military Aircraft, (formerly Precision Engagement and Mobility Systems), Network and Space Systems, and Global Services and Support (formerly Support Systems), collectively...

  • Page 121
    ...and Australia, some key suppliers and subcontractors are located in Europe and Japan. Revenues by geographic area consisted of the following: Years ended December 31, Asia, other than China China Europe Middle East Oceania Africa Canada Latin America, Caribbean and other United States Total revenues...

  • Page 122
    ...internal financial reporting used for corporate management purposes. Research and Development Expense* Years ended December 31, Commercial Airplanes Integrated Defense Systems: Boeing Military Aircraft Network and Space Systems Global Services and Support Total Integrated Defense Systems Other Total...

  • Page 123
    ... in the United States of America and federal cost accounting standards as well as intercompany profit eliminations. The most significant items not allocated to segments are shown in the following table. Years ended December 31, Share-based plans Deferred compensation benefit/(expense) Pension...

  • Page 124
    ..., liabilities, capital expenditures and backlog are summarized in the tables below. Assets As of December 31, Commercial Airplanes Integrated Defense Systems: Boeing Military Aircraft Network and Space Systems Global Services and Support Total Integrated Defense Systems Boeing Capital Corporation...

  • Page 125
    ... a pre-tax charge of $248 on our international Airborne Early Warning and Control program in our Boeing Military Aircraft segment. During the fourth quarter of 2008, we recorded a pre-tax charge of $685 on our 747 program in our Commercial Airplanes segment. During the third and fourth quarters of...

  • Page 126
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The Boeing Company Chicago, Illinois We have audited the accompanying consolidated statements of financial position of The Boeing Company and subsidiaries (the "Company") as of December 31, 2008 and...

  • Page 127
    ...accounts receivable module in our Commercial Airplane business unit. These changes were made as part of an ongoing process improvement initiative to strengthen the overall design and operating effectiveness of our financial reporting controls and are not in response to an identified internal control...

  • Page 128
    ... also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2008 of the Company and our report dated February 9, 2009 expressed an...

  • Page 129
    ... Statement, and that information is incorporated by reference herein. Codes of Ethics. We have adopted: (1) The Boeing Company Code of Ethical Business Conduct for the Board of Directors; (2) The Boeing Company Code of Conduct for Finance Employees which is applicable to our Chief Financial Officer...

  • Page 130
    ...same basis as those of other director candidates. Shareholders can submit qualified candidates as nominees for election as director by writing to the Office of the Corporate Secretary, Boeing Corporate Offices, 100 North Riverside Plaza, MC 5003-1001, Chicago, Illinois 60606-1596. Submissions should...

  • Page 131
    ...two equity compensation plans that provide for the issuance of common stock to officers and other employees, directors and consultants. Each of these compensation plans was approved by our shareholders. The following table sets forth information regarding outstanding options and shares available for...

  • Page 132
    ... required information is included in the consolidated financial statements. 3. Exhibits (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession. (i) Agreement and Plan of Merger dated as of July 31, 1996, among Rockwell International Corporation, The Boeing Company and Boeing...

  • Page 133
    ...Global Markets Inc. and J.P. Morgan Securities, Inc., as joint lead arrangers and joint book managers, and Citibank, N.A. as administrative agent for such Lenders (Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-00442) dated November 14, 2008). (ii) U.S. $2.0 Billion Five-Year...

  • Page 134
    ... Named Executive Officers. (The Company's Current Report on Form 8-K, File No. 001-00442, dated March 3, 2006). (Form of Performance Award. Form of Non-Qualified Stock Option Grant Notice.) The McDonnell Douglas 1994 Performance and Equity Incentive Plan. (Exhibit 99.1 of Registration Statement No...

  • Page 135
    ... (xxiv) 2004 Variable Compensation Plan (formerly the 1999 Bonus and Retention Award Plan) as amended and restated effective January 1, 2008 (Exhibit 10.8 to the Company's Current Report in Form 8-K (File No. 001-00442) dated October 28, 2007.) (xxv) Restricted Stock Unit Grant Agreement with James...

  • Page 136
    ...906 of SarbanesOxley Act of 2002. (99) Additional Exhibits (i) (ii) Commercial Program Method of Accounting. (Exhibit (99)(i) to the 1997 Form 10-K.) Post-Merger Combined Statements of Operations and Financial Position. (Exhibit (99)(i) to the Company's Form 10-Q for the quarter ended June 30, 1997...

  • Page 137
    ... Chief Financial Officer Harry S. McGee III - Vice President Finance and Corporate Controller Date: February 9, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and...

  • Page 138
    SCHEDULE II - Valuation and Qualifying Accounts The Boeing Company and Subsidiaries Allowance for Customer Financing and Other Assets (Deducted from assets to which they apply) (Dollars in millions) Customer Financing Balance at January 1 Charged to costs and expenses Deductions from reserves ...

  • Page 139
    ...AeroSpace Employees' Superannuation Fund Pty Ltd AeroSpace Technologies of Australia Limited Aileron Inc. Akash, Inc. Alteon Training Asia LLC Alteon Training Australia Pty Ltd Alteon Training Holding UK Limited Alteon Training International Spain, S.L. Alteon Training L.L.C. Alteon Training Leasing...

  • Page 140
    ...LLC) Boeing Business Services Company Boeing Canada Holding Ltd. Boeing Canada Operations Ltd. Boeing Capital Corporation Boeing Capital Leasing Limited Boeing Capital Loan Corporation Boeing Capital Securities Inc. Boeing Capital Services Corporation Boeing Capital Washington Corporation Boeing CAS...

  • Page 141
    ... Australia, Inc. Boeing Financial Corporation Boeing Global Holdings Corporation Boeing Global Sales Corporation Boeing Global Services, Inc. Boeing Group United Kingdom Limited Boeing Hornet Enterprises, Inc. Boeing Hungary, Inc. Boeing India Property Management Private Limited Boeing International...

  • Page 142
    ... Pty. Ltd. Boeing Sweden Holdings AB Boeing Travel Management Company Boeing United Kingdom Limited Boeing Worldwide Holdings B.V. Boeing Worldwide Operations Limited Boeing-SVS, Inc. CAG, Inc. Carmen Options Sweden AB CBSA Leasing II, Inc. CBSA Leasing, Inc. CBSA Partners, LLC Chartworx Holland...

  • Page 143
    ... McDonnell Douglas Corporation McDonnell Douglas Dakota Leasing, Inc. McDonnell Douglas Express, Inc. McDonnell Douglas F-15 Technical Services Company, Inc. McDonnell Douglas Foreign Sales Corporation McDonnell Douglas Helicopter Company McDonnell Douglas Helicopter Support Services, Inc. McDonnell...

  • Page 144
    ...-4 Corporation Rocketdyne, Inc. Skarven Enterprises, Inc. Solhoi AS Spectrolab, Inc. Taiko Leasing, Inc. Tapestry Solutions, Inc. Team Apache Systems, LLC Thayer Leasing Company-1 Wingspan, Inc. World Navigation Management B.V. Yunnan Alteon Boeing Advanced Flight Training Co., Ltd Total Number of...

  • Page 145
    ... paragraph relating to the Company's changes in accounting for pension and postretirement benefits), and the effectiveness of The Boeing Company's internal control over financial reporting appearing in the Annual Report on Form 10-K, for the year ended December 31, 2008. Chicago, Illinois...

  • Page 146
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 147
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 148
    ... of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. W. James McNerney, Jr. Chairman, President and Chief...

  • Page 149
    ... Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. James A. Bell Executive Vice President, Corporate President and Chief Financial Officer February...

  • Page 150
    ... CERTIFICATIONS The Boeing Company submitted the annual CEO Certification to the New York Stock Exchange in 2008 and, separately, the Company filed Section 302 CEO and CFO certifications with the U.S. Securities and Exchange Commission as exhibits to its Annual Report on Form 10-K for the year ended...

  • Page 151
    .... Orders: 910* First delivery scheduled for 2010 freighter conversions, spare parts, airplane modification and engineering support. Alteon, the Boeing training component, is a Boeing Commercial Airplanes business unit reporting through Commercial Aviation Services. Additionally, Commercial Aviation...

  • Page 152
    ...to improve engine efficiency. The A160T is being developed to operate autonomously at sea, in austere land environments and on complex urban terrain. Its missions include intelligence, surveillance and reconnaissance; communications relay; precision re-supply and direct attack. support costs. Boeing...

  • Page 153
    ... Boeing business and better serve customers in the vast services sector, began operations in 2008. Its market includes services for infrastructure support, aviation and logistics, information, support operations, managed networks and communications, The E-4B Advanced Airborne Command Post is used...

  • Page 154
    ... a number of countries including India, Japan, Brazil and Denmark. Boeing provides support to the Navy's Super Hornet fleet through a performancebased logistics program that oversees supply chain management, in-service engineering and integrated information systems. 2008 deliveries: 40 design review...

  • Page 155
    ... its customers through total support solutions. The global business sustains aircraft and systems with a full spectrum of products and services, including aircraft maintenance, modification and upgrades; supply chain management; engineering and logistics support; pilot and maintenance training; and...

  • Page 156
    ... program, which includes training, service engineering, field service representatives, aircraft maintenance, support equipment, spares, repairs and warehousing. 2008 deliveries: 2 reliable, advanced and widespread voice and data coverage throughout North America. In addition, Boeing will develop...

  • Page 157
    ... comprehensive training systems, support services and mission planning solutions for Integrated Defense Systems, as well as for nonBoeing programs and systems. Award-winning training solutions encompass software, hardware, Boeing and Lockheed Martin marked the second anniversary of the United Launch...

  • Page 158
    ... Chief Executive Officer, Nortel Networks Corporation (telecommunications) Boeing director since 2004 Committees: Audit; Finance (Chair) John F. McDonnell, 71 Retired Chairman, McDonnell Douglas Corporation (aerospace) Boeing director since 1997 Committees: Compensation; Governance, Organization and...

  • Page 159
    ... Web site address). They can view their account history, change their address, certify their tax identification number, replace checks, request duplicate statements, consent to receive their proxy voting materials and other shareholder communications electronically, make additional investments and...

  • Page 160
    The Boeing Company 100 North Riverside Plaza Chicago, IL 60606-1596 U.S.A. 002CS17760