Boeing 2008 Annual Report Download - page 61

Environmental Remediation We are involved with various environmental remediation activities and
have recorded a liability of $731 million at December 31, 2008. For additional information, see Note 11.
Income Taxes We have recorded a net liability of $1,453 million at December 31, 2008 for uncertain
tax positions. For further discussion of these contingencies, see Note 4.
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. The 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.
Due to the significance of judgment in the estimation process described above, it is likely that
materially different cost of sales amounts could be recorded if we used different assumptions or if the
underlying circumstances were to change. Changes in underlying assumptions/estimates, supplier
performance, or circumstances may adversely or positively affect financial performance in future
periods. If the combined gross margin for all contracts in IDS for all of 2008 had been estimated to be
higher or lower by 1%, it would have increased or decreased pre-tax income for the year by
approximately $320 million.
Program Accounting
Program accounting requires the demonstrated ability to reliably estimate the relationship of sales to
costs for the defined program accounting quantity. A program consists of the estimated number of units
(accounting quantity) of a product to be produced in a continuing, long-term production effort 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
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