Boeing 2009 Annual Report Download

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The Boeing Company
2009 Annual Report

Table of contents

  • Page 1
    The Boeing Company 2009 Annual Report

  • Page 2
    ... manufacturer of commercial airplanes and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in more than 90 countries. Our products and tailored services include commercial and military aircraft, satellites, weapons...

  • Page 3
    ... and 777 deliveries in a given year, and captured 263 gross orders. - Delivered 121 production military aircraft and six satellites. - Captured new Boeing Defense, Space & Security business, including an Intelsat satellite contract; key proprietary and services contracts; and international sales of...

  • Page 4
    Message From Our Chairman W. James McNerney, Jr. Chairman, President and Chief Executive Officer 2

  • Page 5
    ... strength of this backlog is sufficient to keep our production lines full until an expected recovery in order activity in 2012. The commercial airplane market remains a substantial long-term growth opportunity, and we are strongly positioned for the eventual rebound. At the same time, we anticipate...

  • Page 6
    ... suppliers with new information technology tools. Through the purchase of Vought and Global Aeronautica facilities in North Charleston, South Carolina, and the establishment of a 787 final assembly facility there, we will also improve our long-term competitiveness and reduce the risk of production...

  • Page 7
    ...Space & Security will come from international markets. So we must continue to address market opportunities as one company - with a global team that broadens and deepens our relationships with customers, governments, nongovernmental organizations, technology centers, industry partners and communities...

  • Page 8
    ... grow our business in the years ahead. We also issued $5 billion of corporate debt at very attractive rates. In starting 2010 with more than $11 billion of cash and marketable securities, Boeing has sufficient liquidity to continue investing in our development efforts and growth strategies - while...

  • Page 9
    ..., Defense, Space & Security James A. Bell Executive Vice President; Corporate President and Chief Financial Officer Middle row, left to right: Wanda K. Denson-Low Senior Vice President, Office of Internal Governance John J. Tracy Senior Vice President, Engineering, Operations and Technology, and...

  • Page 10
    Financial Results Boeing delivered record revenues in 2009. Earnings performance was impacted by cost reclassification on the 787, commercial airplane market conditions and cost increases on the 747-8. Revenues ($ in billions) 09 08 07 06 05 68.3 60.9 66.4 61.5 53.6 Net Earnings ($ in billions) 09 ...

  • Page 11
    ...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 of the fiscal year ended December 31, 2009...

  • Page 12
    ... and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 15...

  • Page 13
    ... Integrated Defense Systems) business Boeing Military Aircraft (BMA), Network & Space Systems (N&SS) and Global Services & Support (GS&S) Boeing Capital Corporation (BCC). Our Other segment classification principally includes the activities of Engineering, Operations & Technology (EO&T) and...

  • Page 14
    ...our BDS government customers. BCC's portfolio consists of equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease and investments. Financial and Other Business Information See the Summary of Business Segment Data and Note 21 to the Consolidated...

  • Page 15
    ... the Consolidated Financial Statements for information regarding non-U.S. sales. Research and Development Research and development expenditures involve experimentation, design, development and related test activities for defense systems, new and derivative jet aircraft including both commercial and...

  • Page 16
    ...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 17
    ... 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, Illinois 60606 and our telephone number is (312...

  • Page 18
    ... in developed and emerging countries. Demand for our commercial aircraft is further influenced by airline industry profitability, world trade policies, government-to-government relations, terrorism, disease outbreaks, environmental constraints imposed upon aircraft operations, technological changes...

  • Page 19
    ... in which we participate may last several years; however, these programs are normally funded annually. Changes in military strategy and priorities may affect our future procurement opportunities and existing programs. Long-term government contracts and related orders are subject to cancellation, or...

  • Page 20
    .... Management 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...

  • Page 21
    ... to be produced and (c) the units' expected sales prices, production costs, program tooling and routine warranty costs for the total program. Several factors determine accounting quantity, including firm orders, letters of intent from prospective customers and market studies. Such estimates are 9

  • Page 22
    ... under "Management's Discussion and Analysis-Critical Accounting Policies-Contract Accounting/Program Accounting" on pages 43-45 and Note 1 to the Consolidated Financial Statements on pages 56-57 of this Form 10-K. Significant changes in discount rates, actual investment return on pension assets and...

  • Page 23
    ... concerning the availability of funding credit or guarantees; imposition of taxes, export controls, tariffs, embargoes and other trade restrictions; the difficulty of management and operation of an enterprise spread over various countries; compliance with a variety of international laws, as well...

  • Page 24
    ... accessing public and private markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance or outlook or credit ratings. The occurrence of any or all of these events may adversely affect our ability to fund our operations...

  • Page 25
    ...space on December 31, 2009 for manufacturing, warehousing, engineering, 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 Boeing...

  • Page 26
    ...a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 20 to our Consolidated Financial Statements, which is hereby incorporated by reference. BSSI/SES New Skies During 2007, the SES New Skies (New Skies) NSS-8 satellite, a Boeing 702 model spacecraft...

  • Page 27
    ..., except per share data) (a) (b) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(2) Total Number of Shares Purchased(1) Average Price Paid per Share 10/1/2009 thru 10...

  • Page 28
    ...-term investments Total debt Customer financing assets Shareholders' equity(b)(d) Per share Common shares outstanding (in millions)(c) Contractual Backlog Commercial Airplanes Boeing Defense, Space & Security:(a) Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing...

  • Page 29
    ... 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 30
    ... $3,950 $ 5,830 Operating earnings in 2009 decreased by $1,854 million compared with 2008. Commercial Airplanes earnings decreased by $1,769 million primarily due to $2,693 million of costs related to the first three 787 flight test aircraft included in research and development expense as a result...

  • Page 31
    ... 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. We recorded net periodic benefit cost related to pensions...

  • Page 32
    ... in 2009. For a discussion related to Income Taxes, see Note 5. Backlog Our backlog at December 31 was as follows: (dollars in millions) Contractual backlog: Commercial Airplanes Boeing Defense, Space & Security: Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing...

  • Page 33
    ... and Financial Condition Commercial Airplanes Business Environment and Trends Airline Industry Environment 2008 and 2009 were extremely challenging for the world's airlines as key external business factors (oil prices, economic growth, exchange rates, financing terms) experienced high levels of...

  • Page 34
    ...ensure a favorable market position at acceptable profit margins. Continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns. Approximately 10% of Commercial Airplanes' contractual backlog in dollar terms is with U.S. airlines...

  • Page 35
    ... of $804 million, and higher pre-strike deliveries, net of model mix changes, of $726 million. Aircraft trading activity decreased by $264 million as a result of fewer sales of used aircraft. Revenues in commercial aviation services business increased by $17 million driven by increased spares...

  • Page 36
    ...on 2008 deliveries, while the program infrastructure costs incurred during the IAM strike decreased margins on airplanes delivered during the second half of the year. Increased period and other costs reduced earnings by $108 million. A reduction in commercial aviation services volume and mix-related...

  • Page 37
    ... cumulative number of commercial jet aircraft deliveries plus undelivered firm orders. 737 Program The accounting quantity for the 737 program increased by 400 units during 2009 due to the program's normal progression of obtaining additional orders and delivering aircraft. Production rates remained...

  • Page 38
    ...and operations of Vought Aircraft Industries, Inc.'s (Vought) 787 business conducted at North Charleston, South Carolina. The facility produces aft fuselage sections, including the fabrication, assembly and systems installation. See Note 2. On December 22, 2009, we acquired Alenia North America's 50...

  • Page 39
    ...the flight test delays, production challenges, schedule delays and customer and supplier impacts create significant pressure on program revenue and cost estimates. We continue to assess our mitigation plans and cost reduction efforts to address these pressures. Fleet Support We provide the operators...

  • Page 40
    ... Network & Space Systems (N&SS) and Global Services & Support (GS&S). Additionally, BDS Phantom Works supports all three businesses via product development, rapid prototyping and customer engagement through experimentation and enterprise technology investment strategies. Defense Environment Overview...

  • Page 41
    ... on pricing. Adjacent Market Environment We see growth opportunities across a number of adjacent markets with both U.S. DoD and other U.S. government customers. These markets, including services, unmanned systems, intelligence, cyber, and energy, represent key development areas which support the...

  • Page 42
    ... analysis driven by the conflicts in Southwest Asia. Growth in data fusion, data management, and information sharing is expected as the use of ISR assets increase. Cyber The demand for defensive, offensive, and exploit operations in the emerging cyber market provides unique growth opportunities as...

  • Page 43
    ... of the BCTM (formerly FCS) System Development and Demonstration contract relating to Manned Ground Vehicles and associated systems and equipment. Current year deliveries and sales on multi-year contracts awarded in prior years also contributed to the backlog reduction. For further details on the...

  • Page 44
    ... increased by $236 million in 2009 partly due to higher deliveries on several programs and volume, partially offset by a change in delivery mix. Operating earnings in both years were negatively impacted by charges on the AEW&C and International KC-767 Tanker programs. BMA earnings decreased by $330...

  • Page 45
    ... cost and revenue estimates incorporated in the financial statements are appropriate; however, the technical complexity of the programs creates financial risk as additional completion costs may be necessary or scheduled delivery dates could be delayed. International KC-767 Tanker Program During 2009...

  • Page 46
    ... partly due to the partial termination for convenience from the U.S. Army of the BCTM (formerly FCS) System Development and Demonstration contract related to Manned Ground Vehicles and associated systems and equipment. Current year deliveries and sales on multi-year contracts awarded in prior years...

  • Page 47
    ... joint venture named United Launch Alliance L.L.C. ULA combines the production, engineering, test and launch operations associated with U.S. government launches of Boeing Delta and Lockheed Atlas rockets. We initially contributed net assets of $914 million at December 1, 2006. The book value of our...

  • Page 48
    ...and Energy Management in Advanced Global Services and Support. 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...

  • Page 49
    ... economic environment and capital market disruptions affected the availability of credit for the airline industry. While sources of financing available for aircraft deliveries improved during 2009, BCC provided limited financing to certain Boeing customers. To the extent capital market conditions...

  • Page 50
    ... expense. Business segment data for all periods presented have been adjusted to reflect the realignment. Other segment revenues for the year ended December 31, 2009 decreased by $402 million compared with 2008 primarily due to the sale of three C-17 aircraft in 2008 held under operating lease. Other...

  • Page 51
    ... assembly line in North Charleston, South Carolina. Financing Activities Cash provided by financing activities totaled $4,094 million during 2009 compared with $5,202 million used during 2008, primarily due to proceeds from borrowings of $5,961 million in 2009 and reductions in share repurchases...

  • Page 52
    ... long-term commitments and plans, and also to provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise within the next year. At this point in time, our access to liquidity sources has not been materially impacted by the current credit...

  • Page 53
    ... 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 54
    ...a purchase order commitment from us, a foreign supplier must have sufficient capability to meet our requirements and must be competitive in cost, quality and schedule. Income Tax Obligations As of December 31, 2009, our total liability for income taxes payable, including uncertain tax positions, was...

  • Page 55
    ..., 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...

  • Page 56
    ... amount of sales recognized for airplanes delivered and accepted by the customer. Factors that must be estimated include program accounting quantity, sales price, labor and employee benefit costs, material costs, procured part costs, major component costs, overhead costs, program tooling costs, and...

  • Page 57
    ... impairment expense of $8 million for the year ended December 31, 2009. Lease Residual Values Equipment under operating leases and assets held for re-lease are carried at cost less accumulated depreciation and are depreciated to estimated residual value using the straightline method over the period...

  • Page 58
    ... values of 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...

  • Page 59
    ... actual and expected returns can affect future year's pension cost. The asset balance used to calculate the expected return on pension plan assets is a calculated value that recognizes changes in the fair value of assets over a five year period. Despite investment gains during 2009, the significant...

  • Page 60
    ... be material for our fixed-rate debt. Foreign Currency Exchange Rate Risk We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. We use foreign currency forward and option contracts to hedge the price risk associated...

  • Page 61
    ... Position Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Summary of Business Segment Data Note 1 - Summary of Significant Accounting Policies Note 2 - Acquisition Note 3 - Goodwill and Acquired Intangibles Note 4 - Earnings Per Share Note 5 - Income Taxes...

  • Page 62
    ... 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 interest expense Total costs and expenses Income from operating investments...

  • Page 63
    ...of related costs Income taxes payable Short-term debt and current portion of long-term debt Total current liabilities Accrued retiree health care Accrued pension plan liability, net Non-current income taxes payable Other long-term liabilities Long-term debt Shareholders' equity: Common shares issued...

  • Page 64
    ... 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 provided/(used) by operating activities Cash flows - investing activities: Property, plant and equipment additions Property...

  • Page 65
    ...948) Comprehensive income Share-based compensation ShareValue Trust activity Tax benefit related to share-based plans Excess tax pools Treasury shares issued for stock options exercised, net Treasury shares issued for other share-based plans, net Treasury shares repurchased Cash dividends declared...

  • Page 66
    ..., net of tax of $(717) Comprehensive income Share-based compensation and related dividend equivalents ShareValue Trust activity Excess tax pools Treasury shares issued for stock options exercised, net Treasury shares issued for other sharebased plans, net Treasury shares repurchased Cash dividends...

  • Page 67
    ...Company and Subsidiaries Notes to Consolidated Financial Statements Summary of Business Segment Data (Dollars in millions) Years ended December 31, Revenues: Commercial Airplanes Boeing Defense, Space & Security: Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing...

  • Page 68
    ... 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 3 years. Revenue and Related Cost Recognition...

  • Page 69
    ...: support agreements associated with military aircraft and helicopter contracts, ongoing maintenance of International Space Station and Space Shuttle, commercial Delta launches and technical and flight operation services for commercial aircraft. Service revenue and associated cost of sales from pay...

  • Page 70
    ... at cost and depreciated over the period that we project we will hold the asset to an estimated residual value, using the straight-line method. Prepayments received on operating lease contracts are classified as Other long-term liabilities on the Consolidated Statements of Financial Position. We...

  • Page 71
    ... 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 return, and medical...

  • Page 72
    ...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 management salaries and plant services, not in excess of estimated net realizable value. To...

  • Page 73
    ... unit cost or market. We review our commercial spare parts and general stock materials quarterly to identify impaired inventory, including excess or obsolete inventory, based on historical sales trends, expected production usage, and the size and age of the aircraft fleet using the part. Impaired...

  • Page 74
    ... trade names. Any excess carrying value over the amount of discounted cash flows represents the amount of the impairment. Our finite-lived acquired intangible assets are amortized on a straight-line basis over their estimated useful lives as follows: developed technology, from 3 to 14 years; product...

  • Page 75
    Available-for-sale securities include marketable debt and equity securities and Enhanced Equipment Trust Certificates 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 Position....

  • Page 76
    ... of cost or market assessment is performed quarterly using the process described above. Asset valuation for assets under operating lease, assets held for sale or re-lease and collateral underlying receivables Customer financing includes operating lease equipment, notes receivables, and sales-type...

  • Page 77
    ... 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 the asset. We state assets held for sale...

  • Page 78
    ... Vought Aircraft Industries Inc. On July 30, 2009, we acquired the business, assets and operations of Vought Aircraft Industries, Inc.'s (Vought) 787 business conducted at North Charleston, South Carolina. In connection with the acquisition, we paid cash consideration of $590 and released Vought...

  • Page 79
    ... 3 - Goodwill and Acquired Intangibles Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2009, 2008 and 2007 were as follows: Boeing Network Global Commercial Military & Space Services Airplanes Aircraft Systems & Support Balance at January 1, Goodwill...

  • Page 80
    ... 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 68 2009 2008 2007...

  • Page 81
    ... effective income tax rate: Years ended December 31, U.S. federal statutory tax Research and Development credits Tax on international activities Tax deductible dividends State income tax provision, net of effect on U.S. federal tax Other provision adjustments Effective income tax rate 2009 2008 2007...

  • Page 82
    ... tax-related interest and penalties included in the Consolidated Statements of Financial Position was as follows: interest of $271 and $215, and penalties of $14 and $14. The amount of interest accrued during 2009 was $45. The years 2004-2006 are currently being examined by the Internal Revenue...

  • Page 83
    ... the credit. If the Research and Development credit is not legislatively enacted there would be an unfavorable impact on our 2010 effective income tax rate. Note 6 - Accounts Receivable Accounts receivable at December 31 consisted of the following: 2009 U.S. government contracts Commercial customers...

  • Page 84
    ..., expected to be collected after one year are not material. Sea Launch On June 22, 2009, the Sea Launch venture, in which Boeing Commercial Satellite Company (BCSC), a subsidiary of The Boeing Company, is a 40% partner with S.P. Koroley Rocket and Space Corporation Energia of Russia (25%), Aker ASA...

  • Page 85
    ... of 2009. Additionally, production costs incurred from August to December 2009 of $212 related to these flight-test airplanes were also included in research and development expense. Commercial aircraft program inventory included amounts credited in cash or other consideration (early issue sales...

  • Page 86
    ... uncertainties relating to the A-12 program at December 31, 2009 and 2008 (See Note 20). Note 8 - Customer Financing Customer financing at December 31 consisted of the following: 2009 Aircraft financing Notes receivable Investment in sales-type/finance leases Operating lease equipment, at cost, less...

  • Page 87
    ... leases)* * Out of production aircraft We recorded charges related to customer financing asset impairment in operating earnings, primarily as a result of declines in projected future cash flows. These charges for the years ended December 31 were as follows: 2009 2008 2007 Boeing Capital Corporation...

  • Page 88
    ... 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 $1,159, net of sublease payments of $11, at December 31, 2009. Non-cancellable future rentals due from customers for equipment...

  • Page 89
    ... years ended December 31, 2009, 2008, and 2007, respectively. Note 10 - Investments Our investments, which are recorded in Short-term investments or Investments, consisted of the following at December 31: 2009 Time deposits Available-for-sale investments Equity method investments Other investments...

  • Page 90
    ... Systems Network & Space Systems Primarily Commercial Airplanes and Global Services & Support Ownership Percentages Investment Balance 2009 2008 50% $ 962 $1,006 50% (150)(1) (197)(1) 162 $ 974 133 $ 942 Total Equity method investments (1) Credit balances are a result of our proportionate share...

  • Page 91
    ...Discontinued Operations As part of the 2004 purchase and sale agreement with General Electric Capital Corporation related to the sale of Boeing Capital Corporation's (BCC) Commercial Financial Services business, BCC is involved in a loss sharing arrangement for losses on transferred portfolio assets...

  • Page 92
    ... of December 31, 2009. Trade-in commitment agreements have expiration dates from 2010 through 2023. Future Lease Commitments As of December 31, 2009 and 2008, future lease commitments on aircraft and other commitments not recorded on the Consolidated Statements of Financial Position totaled $159 and...

  • Page 93
    ... our direction to suppliers to begin working on aircraft beyond those currently under contract with the USAF. Satellites Certain launch and satellite sales contracts include provisions that specify that we bear risk of loss associated with the launch phase through acceptance in orbit by the customer...

  • Page 94
    ... the USAF to re-price the contract value for two of the four satellite missions covered by the indemnification. In March 2009, the USAF issued a denial of that claim and in June 2009, ULA filed an appeal. During 2009, the USAF exercised its option for a third satellite mission. ULA intends to submit...

  • Page 95
    ... 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 96
    ... and market conditions. Total debt interest incurred, including amounts capitalized, was $610, $520, and $591 for the years ended December 31, 2009, 2008, and 2007, respectively. Interest expense recorded by BCC is reflected as a separate line item on our Consolidated Statements of Operations, and...

  • Page 97
    ... all employees. We fund our major pension 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...

  • Page 98
    ... of net periodic benefit cost are as follows: Pension 2009 2008 Other Postretirement Benefits 2007 2009 2008 2007 Years ended December 31, Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service costs Recognized net actuarial...

  • Page 99
    .../ dispositions, net Benefits paid Exchange rate adjustment Ending balance at fair value Amounts recognized in Consolidated Statements of Financial Position at December 31, consist of: Pension plan assets, net Other accrued liabilities Accrued retiree health care Accrued pension plan liability, net...

  • Page 100
    ... Expected return on plan assets Rate of compensation increase 5.80% 6.10% 8.00% 8.00% 5.50% 5.50% September 30 2007 2006 6.20% 8.25% 5.50% 5.90% 8.25% 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 101
    ... asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions (such as private equity and real estate), and the timing of benefit payments and contributions. Short term...

  • Page 102
    ... asset classes or markets, primarily using long-short positions in derivatives and physical securities. Hedge fund strategy types include, but are not limited to event driven, relative value, long-short and market neutral. A welldiversified number of hedge funds are held. Investment managers...

  • Page 103
    ... Corporate U.S. government and agencies Mortgage backed and asset backed securities Other Derivatives Assets Liabilities Cash equivalents and other short-term investments Currency overlay derivatives Assets Liabilities Global equity securities Common and preferred stock Boeing company stock...

  • Page 104
    ... and real assets, hedge funds and global strategies, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2009 plan asset reporting, publicly traded asset pricing was used where possible...

  • Page 105
    ... fund is valued using a market approach based on the quoted market price of an identical instrument (Level 1). The expected rate of return on these assets does not have a material effect on the net periodic benefit cost. Cash Flows Contributions Required pension contributions under the Employee...

  • Page 106
    ...is incentive compensation issued primarily to our executives. The share-based plans expense and related income tax benefit follow: Years ended December 31, Stock options Restricted stock units and other awards ShareValue Trust Performance Shares Share-based plans expense Income tax benefit 2009 2008...

  • Page 107
    ...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 108
    ...was determined using a binomial option-pricing model. The ShareValue Trust is accounted for as a contra-equity account and stated at market value. Market value adjustments are offset to Additional paid-in capital. At December 31, 2009, there was $36 of total unrecognized compensation cost related to...

  • Page 109
    ... were a significant component of our long-term incentive compensation. Performance Shares are stock units that are convertible to common stock, on a one-to-one basis, contingent upon stock price performance. If, at any time up to five years after award, the stock price reaches and maintains for 20...

  • Page 110
    ...incentive awards. Prior to May 1, 2006, employees who participated in the deferred compensation 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...

  • Page 111
    ... are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and the hedged items is reported in Boeing Capital Corporation interest expense. Ineffectiveness related to the interest rate swaps was insignificant for the years ended December 31, 2009 and...

  • Page 112
    ... Consolidated Statements of Financial Position. The notional amounts and fair values as of December 31, were as follows: Notional amounts1 Other assets 2009 2008 2009 2008 Derivatives designated as hedging instruments Foreign exchange contracts Interest rate contracts Commodity contracts Derivatives...

  • Page 113
    ... of the cost and time required to complete the work. Significant BDS fixed-price development contracts include AEW&C, International KC-767 Tankers and commercial and military satellites. Significant Commercial Airplanes development programs include the 787 and 747-8. The operational and technical...

  • Page 114
    ... 3 includes fair values estimated using significant non-observable inputs. Fair Value Measurements at December 31, 2009 Total Level 1 Level 2 Level 3 Assets Money market funds Available-for-sale investments: Debt: Residential mortgage-backed securities Other debt obligations Equity Derivatives Total...

  • Page 115
    ...discounted cash flow analysis based on the terms of the contract and the interest rate curve. The fair value of warrants is based on a third-party options model and principal inputs of stock price, volatility and time to expiry. The following table presents our assets that are measured at fair value...

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    ...is erroneous and in conflict with the governing law, and we intend to file a Petition for Writ of Certiorari to the United States Supreme Court on or before March 24, 2010. On December 29, 2009, the Department of the Navy sent letters to the Team requesting payment of $1,352 in unliquidated progress...

  • Page 117
    ... and deferred class certification motions for the class of employees who did not go to work for Spirit. A Memorandum and Order on November 3, 2009 resolves discovery disputes and discovery continues for both groups of employees. On September 13, 2006, two UAW Local 1069 retirees filed a class action...

  • Page 118
    ... 7, 2010. 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 Los Angeles County Superior Court seeking a declaration that ICO...

  • Page 119
    ...defend the claim. Civil Securities Litigation Plaintiff shareholders have filed a putative securities fraud class action against The Boeing Company and two of our senior executives. This lawsuit arises from our June 2009 announcement that the first flight of the 787 Dreamliner would be postponed due...

  • Page 120
    ... innovative products and services that help customers use the systems needed to execute their missions while reducing life-cycle costs. Although some BDS products are contracted in the commercial environment, the primary customer is the U.S. government. Our Boeing Military Aircraft segment programs...

  • Page 121
    ... directly from the segments' internal financial reporting used for corporate management purposes. Research and Development Expense* Years ended December 31, Commercial Airplanes Boeing Defense, Space & Security: Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing...

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    ... and Amortization Years ended December 31, Commercial Airplanes Boeing Defense, Space & Security: Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing Defense, Space & Security Boeing Capital Corporation Other segment Unallocated items and eliminations 2009 2008...

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    ... are summarized in the tables below. Assets As of December 31, Commercial Airplanes Boeing Defense, Space & Security: Boeing Military Aircraft Network & Space Systems Global Services & Support Total Boeing Defense, Space & Security Boeing Capital Corporation Other segment Unallocated items and...

  • Page 124
    ... $2,619 of research and development costs relating to the first three 787 flight test aircraft in our Commercial Airplanes segment. During the fourth quarter of 2009, we recorded pre-tax charges of $133 on our international AEW&C program in our Boeing Military Aircraft segment. During the second...

  • Page 125
    ... fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on the criteria...

  • Page 126
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The Boeing Company Chicago, Illinois We have audited the internal control over financial reporting of The Boeing Company and subsidiaries (the "Company") as of December 31, 2009, based on criteria established in Internal Control...

  • Page 127
    ...as of December 31, 2009, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this report and is incorporated by reference herein. (c) Changes in Internal Controls Over Financial Reporting. There were no...

  • Page 128
    ... Communications and General Manager of Communications and Community Relations for Military Aircraft and Missile Systems unit. Mr. Downey joined the Company in 1986. President, Boeing International since November 2007 and Senior Vice President, Business Development and Strategy since October 2009...

  • Page 129
    ... in management positions at General Electric Company, his most recent being President and Chief Executive Officer of GE Aircraft Engines from 1997 until 2000. In addition to The Boeing Company, Mr. McNerney serves on the boards of The Procter & Gamble Company and International Business Machines...

  • Page 130
    ... 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 131
    ... 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 future issuance under these plans as of December 31, 2009: Number...

  • 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
    ... for the year ended December 31, 2006 (File no. 001-00442)). Asset Purchase Agreement by and between Vought Aircraft Industries, Inc. and BCACSC, Inc. dated as of July 6, 2009 (Exhibit (10)(i) to the Company's Form 10-Q for the quarter ended September 30, 2009). 1988 Stock Option Plan. (a) Plan, as...

  • Page 134
    ... dated March 3, 2006). (Form of Performance Award. Form of Non-Qualified Stock Option Grant Notice.) (xxiv) The McDonnell Douglas 1994 Performance and Equity Incentive Plan (Exhibit 99.1 of Registration Statement No. 333-32567 on Form S-8 filed on July 31, 1997). (xxv) The Boeing Company ShareValue...

  • Page 135
    ... in its capacity as duly appointed and acting investment manager of a segregated account held in The Boeing Company Employee Retirement Plans Master Trust (the "Trust") (Exhibit 10.1 to the Company's Form S-3 Registration Statement filed November 10, 2009). (12) Computation of Ratio of Earnings to...

  • Page 136
    ... 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). (101) Interactive Data Files (101.INS) XBRL...

  • Page 137
    ..., on February 8, 2010. THE BOEING COMPANY By: By: W. James McNerney, Jr. - Chairman, President and Chief Executive Officer By: James A. Bell - Executive Vice President, Corporate President and Chief Financial Officer Robert J. Pasterick - Vice President of Finance & Corporate Controller 125

  • Page 138
    ... Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 8, 2010. John H. Biggs - Director Kenneth M. Duberstein - Director John E. Bryson - Director Edmund P. Giambastiani, Jr. - Director David L. Calhoun...

  • Page 139
    ... 31, 2009, $476 was related to other assets and $493 was related to our share of credit guarantees and receivables for partner loans. At December 31, 2008 and 2007, the entire amount was included in Other assets. EXHIBIT (12) Computation of Ratio of Earnings to Fixed Charges The Boeing Company and...

  • Page 140
    ... Ltd Aviall Australia Pty. Limited Aviall de Mexico, S.A. de C.V. Aviall Foreign Sales Corporation Aviall Japan Limited Aviall New Zealand Aviall Product Repair Services, Inc. Aviall PTE LTD Aviall Services, Inc. Aviall, Inc. Aviation Fleet Services India Management Company Limited BCC Aruba Leasing...

  • Page 141
    ... Airplanes Charleston South Carolina, Inc. Boeing Commercial Space Company Boeing Constructors, Inc. Boeing Cyprus Holdings Ltd Boeing Defence Australia LTD Boeing Defence UK Limited Boeing Domestic Sales Corporation Boeing Enterprises Australia, Inc. Boeing Financial Corporation Boeing Global...

  • Page 142
    ... Boeing Sales Corporation Guam Boeing Satellite Systems International, Inc. Delaware Boeing Satellite Systems, Inc. Delaware Boeing Service Company Texas Boeing Shanghai Aviation Flight Training Co., Ltd. China Boeing Singapore Training and Flight Services Pte. Ltd. Singapore Boeing Space Operations...

  • Page 143
    ... UK Limited) Boeing United Kingdom Limited Boeing US Training and Flight Services L.L.C. Boeing Worldwide Holdings B.V. Boeing Worldwide Operations Limited Boeing-SVS, Inc. CAG, Inc. Carmen Options AB CBSA Leasing II, Inc. CBSA Leasing, Inc. CBSA Partners, LLC C-Map USA, Inc. C-Map/Commercial, Ltd...

  • Page 144
    ... Company MDFC - Spring Limited MDFC - Tahoe Company 132 Place of Incorporation Germany Greece India Italy Japan Korea, Republic of Malaysia Australia United Kingdom Delaware Norway Sweden United Kingdom Delaware Poland Delaware South Africa Sweden United Kingdom Ukraine Delaware Delaware Washington...

  • Page 145
    .... Tapestry Solutions, Inc. Thayer Leasing Company-1 Wingspan, Inc. Yunnan Alteon Boeing Advanced Flight Training Co., Ltd Total Number of Subsidiaries: 263 Place of Incorporation Delaware Delaware Delaware Russian Federation California Netherlands Estonia Delaware United Kingdom Australia Delaware...

  • Page 146
    ... dated February 8, 2010, relating to the financial statements and financial statement schedule of The Boeing Company, 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, 2009. Chicago...

  • 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
    ...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 149
    ... 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 Executive Officer February 8, 2010 137

  • Page 150
    ...Annual Report of The Boeing Company (the "Company") on Form 10-K for the period ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Bell, Executive Vice President, Corporate President and Chief Financial Officer of the Company...

  • Page 151
    ...delivery scheduled for fourth quarter 2010 conversions, spare parts, airplane modification and engineering support. Training & Flight Services (formerly Alteon), the Boeing training and services component, is a Boeing Commercial Airplanes business unit reporting through Commercial Aviation Services...

  • Page 152
    ... Longbow features enhanced aircraft performance, joint digital operability, survivability and cognitive decision aiding, while reducing operations and support costs. The Block III program this year successfully Boeing is the prime contractor for ALTB, a directed-energy weapon system using speed...

  • Page 153
    ... activities, including material management and depot maintenance support. 2009 deliveries: 16 upgraded the ï¬,eet with an advanced communications suite and winglets to provide better fuel efficiency, and recently completed the auxiliary fuel system that will enhance the aircraft's range and...

  • Page 154
    ... to the AESA radar. Boeing also provides support for domestic and international F-15 operators, including technical data sustainment, field services, support and test equipment, training systems and a wide range of supply chain services. 2009 deliveries: 13 gear, life support, fire protection and...

  • Page 155
    ...Services & Support provides best-value mission readiness to 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...

  • Page 156
    ..., a mission-planning system and a logistics system. Boeing successfully completed development and operational testing of the SDB on schedule, and the U.S. Air Force deployed the system in September 2006. The Air Force approved SDB for full-rate production and awarded The space shuttle is the...

  • Page 157
    ...the International Space Station. TDRS also provides satellite communication and science data relay services for low-Earth orbiting spacecraft, including the Hubble Space Telescope. TS&S delivers comprehensive training systems, support services and mission planning solutions for Boeing Defense, Space...

  • Page 158
    ... of The Nielsen Company (marketing and media information) Boeing director since 2009 Committees: Audit; Finance Arthur D. Collins, Jr., 62 Senior Advisor, Oak Hill Capital Partners, Retired Chairman of the Board, Medtronic, Inc. (medical device and technology) Boeing director since 2007 Committees...

  • Page 159
    ...rm or bank to give notice of your change of address. Annual Meeting The annual meeting of Boeing shareholders is scheduled to be held on Monday, April 26, 2010. Details are provided in the proxy statement. Written Inquiries May Be Sent To: Shareholder Services The Boeing Company Mail Code 5003-1001...

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