Boeing 2010 Annual Report Download - page 113

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, 2010, inventories included approximately $586 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 the trial 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. On September 28, 2010, the U.S.
Supreme Court granted our request to review the decision of the Court of Appeals. Oral argument was
held before the Supreme Court on January 18, 2011. We expect the U.S. Supreme Court to render a
decision in the case in 2011. On December 29, 2009, the Navy sent letters to the Team requesting
payment of $1,352 in unliquidated progress payments, plus applicable interest. On February 19, 2010,
the Navy sent a letter confirming that it would not pursue payment from the Team pending the U.S.
Supreme Court’s review of this matter.
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, 2010. Final resolution of the A-12 litigation will depend on
the outcome of further proceedings or possible negotiations with the U.S. government. If after
reviewing the Court of Appeals’ decision, the U.S. Supreme Court determines, contrary to our belief,
that a termination for default was appropriate, we could incur an additional loss of up to $275,
consisting principally of $236 of remaining inventory costs. If the courts further hold that a money
judgment should be entered against the Team, we could be required to pay the U.S. government up to
one-half of the unliquidated progress payments of $1,350 plus statutory interest from February 1991
(currently totaling up to $1,530). In that event, our loss would total approximately $1,711 in pre-tax
charges. Should, however, the March 31, 1998 judgment of the U.S. Court of Federal Claims in favor
of the Team be reinstated, we could be entitled to receive payment of approximately $1,163, including
interest from June 26, 1991.
Employment and Benefits Litigation
We have been named as a defendant in two pending class action lawsuits filed in the U.S. District
Court for the District of Kansas, each related to the 2005 sale of our former Wichita facility to Spirit
AeroSystems, Inc. (Spirit). The first action involves allegations that Spirit’s hiring decisions following
the sale were tainted by age discrimination, violated the Employee Retirement Income Security Act
(ERISA), violated our collective bargaining agreements, and constituted retaliation. The case was
brought in 2006 as a class action on behalf of individuals not hired by Spirit. During the second quarter
of 2010, the court granted summary judgment in favor of Boeing and Spirit on all class action claims.
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