Boeing 2009 Annual Report Download - page 116

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Note 20 – Legal Proceedings
Various legal proceedings, claims and investigations related to products, contracts and other matters
are pending against us. Potentially material contingencies are discussed below.
We are subject to various U.S. government investigations, from which civil, criminal or administrative
proceedings could result or have resulted. Such proceedings involve, or could involve claims by the
government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures.
Under government regulations, a company, or one or more of its operating divisions or subdivisions,
can also be suspended or debarred from government contracts, or lose its export privileges, based on
the results of investigations. We believe, based upon current information, that the outcome of any such
government disputes and investigations will not have a material adverse effect on our financial
position, results of operations, or cash flows, except as set forth below.
A-12 Litigation
In 1991, the U.S. Navy notified McDonnell Douglas Corporation (now merged into The Boeing
Company) and General Dynamics Corporation (together, the Team) that it was terminating for default
the Team’s contract for development and initial production of the A-12 aircraft. The Team had full
responsibility for performance of the contract and both contractors are jointly and severally liable for
any potential liabilities resulting from the termination. The Team filed a legal action to contest the
Navy’s default termination, to assert its rights to convert the termination to one for “the convenience of
the government,” and to obtain payment for work done and costs incurred on the A-12 contract but not
paid to date. As of December 31, 2009, inventories included approximately $585 of recorded costs on
the A-12 contract, against which we have established a loss provision of $350. The amount of the
provision, which was established in 1990, was based on McDonnell Douglas Corporation’s belief,
supported by an opinion of outside counsel, that the termination for default would be converted to a
termination for convenience, and that the best estimate of possible loss on termination for convenience
was $350.
On August 31, 2001, the U.S. Court of Federal Claims issued a decision after trial upholding the
government’s default termination of the A-12 contract. In 2003, the Court of Appeals for the Federal
Circuit, finding that the trial court had applied the wrong legal standard, vacated the trial court’s 2001
decision and ordered the case sent back to that court for further proceedings. On May 3, 2007, the
U.S. Court of Federal Claims issued a decision upholding the government’s default termination of the
A-12 contract. We filed a Notice of Appeal on May 4, 2007 with the Court of Appeals for the Federal
Circuit. On June 2, 2009, the Court of Appeals rendered an opinion affirming the trial court’s 2007
decision sustaining the government’s default termination. On August 14, 2009, we filed a Combined
Petition for Panel Rehearing and for Rehearing En Banc in the Court of Appeals for the Federal Circuit.
On November 24, 2009, the Court denied our Combined Petition. We believe that the ruling of the
Court of Appeals upholding the default termination is erroneous and in conflict with the governing law,
and we intend to file a Petition for Writ of Certiorari to the United States Supreme Court on or before
March 24, 2010. On December 29, 2009, the Department of the Navy sent letters to the Team
requesting payment of $1,352 in unliquidated progress payments, plus applicable interest. We believe
that the U.S. government is not entitled to repayment of any progress payments at this time and have
advised the Department of the Navy of our position.
We believe that the termination for default is contrary to law and fact and that the loss provision
established by McDonnell Douglas Corporation in 1990, which was supported by an opinion from
outside counsel, continues to provide adequately for the reasonably possible reduction in value of A-12
net contracts in process as of December 31, 2009. Final resolution of the A-12 litigation will depend on
the outcome of further proceedings or possible negotiations with the U.S. government. We expect the
United States Supreme Court to decide whether or not to review the Court of Appeals’ decision in
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