Boeing 2013 Annual Report Download - page 67

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55
The Boeing Company and Subsidiaries
Notes to the Consolidated Financial Statements
Years ended December 31, 2013, 2012 and 2011
(Dollars in millions, except per share data)
Note 1 – Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements included in this report have been prepared by management of
The Boeing Company (herein referred to as “Boeing,” the “Company,” “we,” “us,” or “our”). These statements
include the accounts of all majority-owned subsidiaries and variable interest entities that are required to
be consolidated. All significant intercompany accounts and transactions have been eliminated. Amounts
reported in prior periods as Interest and debt expense have been reclassified to Boeing Capital interest
expense to conform to the current year presentation.
Use of Estimates
Management makes assumptions and estimates to prepare financial statements in conformity with
accounting principles generally accepted in the United States of America. Those assumptions and
estimates directly affect the amounts reported in the Consolidated Financial Statements. Significant
estimates for which changes in the near term are considered reasonably possible and that may have a
material impact on the financial statements are disclosed in these Notes to 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.
Revenue and Related Cost Recognition
Contract Accounting Contract accounting is used for development and production activities
predominantly by Defense, Space & Security (BDS). The majority of business conducted by BDS is
performed under contracts with the U.S. government and other customers that extend over several years.
Contract accounting involves a judgmental process of estimating total sales and costs for each contract
resulting in the development of estimated cost of sales percentages. For each contract, the amount reported
as cost of sales is determined by applying the estimated cost of sales percentage to the amount of revenue
recognized. When the current estimates of total sales and costs for a contract indicate a loss, a provision
for the entire loss on the contract is recognized.
Changes in estimated revenues, cost of sales and the related effect on operating income are recognized
using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of
the changes on current and prior periods based on a contract’s percent complete. In 2013, 2012 and 2011
net favorable cumulative catch-up adjustments increased Earnings from operations by $242, $379 and
$229, respectively and diluted EPS by $0.23, $0.33 and $0.23, respectively.
We combine contracts for accounting purposes when they are negotiated as a package with an overall
profit margin objective. These essentially represent an agreement to do a single project for a single
customer, involve interrelated construction activities with substantial common costs, and are performed
concurrently or sequentially. When a group of contracts is combined, revenue and profit are earned
uniformly over the performance of the combined contracts. Similarly, we may segment a single contract