Boeing 2011 Annual Report Download - page 70

arrangements that meet the requirement for best efforts research and development accounting.
Accordingly, the amounts funded by the customer are recognized as an offset to our research and
development expense rather than as contract revenues.
We have established cost sharing arrangements with some suppliers for the 787 program. 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 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
The majority of our employees are covered by defined benefit pension plans. All nonunion and some
union employees hired after December 31, 2008 are not covered by defined benefit plans. 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
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