Boeing 2009 Annual Report Download - page 71

risk of developing this aircraft. Our cost sharing arrangements state that the supplier contributions are
for reimbursements of costs we incur for experimentation, basic design, and testing activities during the
787 development. In each arrangement, we retain substantial rights to the 787 part or component
covered by the arrangement. The amounts received from these cost sharing arrangements are
recorded as a reduction to research and development expenses since we have no obligation to refund
any amounts received per the arrangements regardless of the outcome of the development efforts.
Specifically, under the terms of each agreement, payments received from suppliers for their share of
the costs are typically based on milestones and are recognized as earned when we achieve the
milestone events and no ongoing obligation on our part exists. In the event we receive a milestone
payment prior to the completion of the milestone, the amount is classified in Other accrued liabilities
until earned.
Share-Based Compensation
We provide various forms of share-based compensation to our employees. For awards settled in
shares, we measure compensation expense based on the grant-date fair value net of estimated
forfeitures. For awards settled in cash, or that may be settled in cash, we measure compensation
expense based on the fair value at each reporting date net of estimated forfeitures. The expense is
recognized over the requisite service period, which is generally the vesting period of the award.
Income Taxes
Provisions for federal, state, and non-U.S. income taxes are calculated on reported Earnings before
income taxes based on current tax law and also include, in the current period, the cumulative effect of
any changes in tax rates from those used previously in determining deferred tax assets and liabilities.
Such provisions differ from the amounts currently receivable or payable because certain items of
income and expense are recognized in different time periods for financial reporting purposes than for
income tax purposes. Significant judgment is required in determining income tax provisions and
evaluating tax positions.
The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial
statement recognition and measurement of tax positions taken or expected to be taken in a tax return.
We record a liability for the difference between the benefit recognized and measured for financial
statement purposes and the tax position taken or expected to be taken on our tax return. To the extent
that our assessment of such tax positions changes, the change in estimate is recorded in the period in
which the determination is made. Tax-related interest and penalties are classified as a component of
Income tax expense.
Postretirement Plans
We sponsor various pension plans covering substantially all employees. We also provide
postretirement benefit plans other than pensions, consisting principally of health care coverage to
eligible retirees and qualifying dependents. Benefits under the pension and other postretirement benefit
plans are generally based on age at retirement and years of service and, for some pension plans,
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 return, and
medical trend (rate of growth for medical costs). A portion of net periodic pension and other
postretirement income or expense is not recognized in net earnings in the year incurred because it is
allocated to production as product costs, and reflected in inventory at the end of a reporting period. If
gains and losses, which occur when actual experience differs from actuarial assumptions, exceed ten
percent of the greater of plan assets or plan liabilities we amortize them over the average future
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