Boeing 2009 Annual Report Download - page 47

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GMD, and Proprietary programs also contributed to the backlog reduction. Total backlog decreased by
12% in 2008 compared with 2007 primarily due to revenues recognized on multi-year orders received
in prior years on BCTM, GMD and C3 programs, partially offset by an increase in the International
Space Station program.
Additional Considerations
Items which could have a future impact on N&SS operations include the following:
United Launch Alliance On December 1, 2006, we and Lockheed Martin Corporation (Lockheed)
created a 50/50 joint venture named United Launch Alliance L.L.C. ULA combines the production,
engineering, test and launch operations associated with U.S. government launches of Boeing Delta
and Lockheed Atlas rockets. We initially contributed net assets of $914 million at December 1, 2006.
The book value of our investment exceeded our proportionate share of ULA’s net assets. This
difference is expensed ratably in future years. Based on the adjusted contributions and the conformed
accounting policies established by ULA, this amortization is expected to be approximately $15 million
annually for the next 15 years.
In connection with the formation of ULA, we and Lockheed each have agreed to extend a line of credit
to ULA of up to $200 million to support its working capital requirements during the 5 year period
following December 1, 2006. We and Lockheed transferred performance responsibility for certain U.S.
government contracts to ULA as of the closing date. We and Lockheed agreed to jointly guarantee the
performance of those contracts to the extent required by the U.S. government. We and Lockheed have
also each committed to provide ULA with up to $122 million of additional capital contributions in the
event ULA does not have sufficient funds to make a required payment to us under an inventory supply
agreement. See Note 7.
We agreed to indemnify ULA through December 31, 2020 against potential non-recoverability and
non-allowability of $1,360 million of Boeing Delta inventories included in contributed assets plus $1,860
million of inventory subject to an inventory supply agreement which ends on March 31, 2021. Since
inception, ULA has consumed $1,111 million of inventories that were contributed by us and has made
payments of $120 million to us under the inventory supply agreement. As part of its integration, ULA is
continuing to assess the future of the Delta II program beyond what is currently on contract. In the
event ULA is unable to sell additional Delta II inventory, earnings could be reduced by up to $62
million.
We agreed to indemnify ULA against potential losses that ULA may incur in the event ULA is unable to
obtain certain additional contract pricing from the U.S. Air Force (USAF) for four satellite missions. We
believe ULA is entitled to additional contract pricing. In December 2008, ULA submitted a claim to the
USAF to re-price the contract value for two of the four satellite missions covered by the indemnification.
In March 2009, the USAF issued a denial of that claim and in June 2009, ULA filed an appeal. During
2009, the USAF exercised its option for a third satellite mission. ULA intends to submit a claim to the
USAF in 2010 to re-price the contract value of the third mission. If ULA is unsuccessful obtaining
additional pricing we may be responsible for some of the shortfall and may record up to $382 million in
pre-tax losses associated with the four missions.
Business Environment and Trends During 2009, we received a partial termination for convenience
from the U.S. Army of the BCTM (formerly FCS) System Development and Demonstration contract
relating to Manned Ground Vehicles and associated systems and equipment. We believe the final
restructured BCTM contract will negatively impact revenue and earnings in the N&SS segment going
forward. In addition, we completed the TSAT risk reduction and system definition contract in July 2009
and do not anticipate a future TSAT space segment program competition. As a result of lower than
anticipated revenue and earnings, we tested N&SS goodwill for impairment during 2009. No
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