Boeing 2011 Annual Report Download - page 23

and charged as cost of sales by program instead of by individual units or contracts. 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 limited by the ability to
make reasonably dependable estimates. To establish the relationship of sales to cost of sales,
program accounting requires estimates of (a) the number of units to be produced and sold in a
program, (b) the period over which the units can reasonably be expected to be produced and (c) the
units’ expected sales prices, production costs, program tooling and other non-recurring costs, 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. Changes to customer or
model mix, production costs and rates, learning curve, escalation, costs of derivative aircraft, supplier
performance, customer negotiations/settlements, supplier claims and/or certification issues can impact
these estimates. Any such change in estimates relating to program accounting may adversely affect
future financial performance.
Because of the significance of the judgments and estimation processes described above, it is likely that
materially different sales and profit amounts could be recorded if we used different assumptions or if
the underlying circumstances were to change. Changes in underlying assumptions, circumstances or
estimates may adversely affect future period financial performance. For additional information on our
accounting policies for recognizing sales and profits, see our discussion under “Management’s
Discussion and Analysis – Critical Accounting Policies – Contract Accounting/Program Accounting” on
pages 42 – 44 and Note 1 to our Consolidated Financial Statements on pages 55 – 56 of this
Form 10-K.
Competition within our markets may reduce our future contracts and sales.
The markets in which we operate are highly competitive and one or more of our competitors may have
more extensive or more specialized engineering, manufacturing and marketing capabilities than we do
in some areas. In our Commercial Airplanes business, we anticipate increasing competition among
non-U.S. aircraft manufacturers and service providers in one or more of our market segments. In our
BDS business, we anticipate that the effects of defense industry consolidation and new priorities,
including long-term cost competitiveness, of our U.S. DoD customer will intensify competition for many
of our products and services. Furthermore, we are facing increased international competition and
cross-border consolidation of competition. There can be no assurance that we will be able to compete
successfully against our current or future competitors or that the competitive pressures we face will not
result in reduced revenues and market share.
We derive a significant portion of our revenues from non-U.S. sales and are subject to the risks
of doing business in other countries.
In 2011, non-U.S. customers accounted for approximately 50% of our revenues. We expect that
non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable
future. As a result, we are subject to risks of doing business internationally, including:
Šchanges in regulatory requirements;
Šdomestic and international government policies, including requirements to expend a portion of
program funds locally and governmental industrial cooperation or participation requirements;
Šfluctuations in international currency exchange rates;
Švolatility in international political and economic environments and changes in non-U.S. national
priorities and budgets, which can lead to delays or fluctuations in orders;
Šthe complexity and necessity of using non-U.S. representatives and consultants;
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