Boeing 2012 Annual Report Download - page 23

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11
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 – 65 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 2012, non-U.S. customers accounted for approximately 54% 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:
• changes in regulatory requirements;
• domestic and international government policies, including requirements to expend a portion of
program funds locally and governmental industrial cooperation or participation requirements;
• fluctuations in international currency exchange rates;
• volatility 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;
• the complexity and necessity of using non-U.S. representatives and consultants;
• the uncertainty of the ability of non-U.S. customers to finance purchases, including the availability
of financing from the U.S. Export-Import Bank;