Boeing 2005 Annual Report Download - page 61

Notes to Consolidated Financial Statements
IRS Audit Overview
During 2005 we received various refunds of federal income tax
and interest totaling $738 for tax years 1987-2001. Included in
such amounts are settlements reached in the current year for
tax years 1998-2001 of $537, which had the effect of decreas-
ing federal income tax expense by $368 and interest expense
by $64 (net of tax of $24) during the year-ended December 31,
2005. During 2004 we received refunds of federal income tax
and interest totaling $1,113 for which estimated accruals had
primarily been recorded in prior periods. We have filed protests
contesting certain adjustments made by the IRS in the 1998-
2001 audit. IRS examinations have been completed through
2001 and income taxes have been settled with the IRS for all
years through 1996 and for McDonnell Douglas Corporation for
all years through 1992. We have filed appeals with the IRS for
1993 through 1997 for McDonnell Douglas Corporation. We
believe adequate provisions for all outstanding issues have
been made for all open years.
Contingencies
We are subject to income taxes in the U.S. and numerous
foreign jurisdictions.
Amounts accrued for potential tax assessments recorded in
current tax liabilities total $867 and $1,678 at December 31,
2005 and 2004. The decrease is primarily due to a settlement
with the IRS for the years 1998-2001. Accruals relate to tax
issues for U.S. federal, U.S. state, and taxation of foreign earn-
ings as follows:
� The accruals associated with U.S. federal tax issues such
as the tax benefits from the FSC/ETI tax rules, the amount
of research and development tax credits claimed, deduc-
tions associated with employee benefit plans, U.S. taxation
of foreign earnings, and valuation issues regarding charita-
ble contributions claimed were $738 at December 31,
2005, and $1,412 at December 31, 2004.
� The accruals for U.S. state tax issues such as the allocation
of income among various state tax jurisdictions and the
amount of state tax credits claimed were $98 at December
31, 2005 and $214 at December 31, 2004, net of federal
benefit.
� The accruals associated with taxation of foreign earnings were
$31 at December 31, 2005 and $52 at December 31, 2004.
Legislative Update
The American Jobs Creation Act of 2004 (the Act) provides for
a special deduction for qualified domestic production activities
and a two-year phase-out of the existing ETI exclusion tax ben-
efit for foreign sales which the World Trade Organization (WTO)
ruled was an illegal export subsidy. These new provisions did
not have a material impact on the 2005 income tax rate.
The European Union filed a complaint with the WTO challeng-
ing the transitional provisions of the Act. On September 30,
2005 the WTO ruled that the Act failed to comply with its prior
ruling and the U.S. appealed. On January 9, 2006, the WTO
appellate body heard arguments regarding the U.S. appeal. On
February 13, 2006, the appellate body upheld the WTO’s prior
ruling from September 30, 2005. The U.S. has three months to
act to avoid the re-imposition of retaliatory measures. As such,
it is not possible to predict what impact this issue will have on
future earnings, cash flows and/or financial position pending
the final resolution of this matter.
Effective December 31, 2005, the U.S. research tax credit
expired. The House of Representatives and the Senate have
passed bills to reinstate the credit. However, a bill has not been
signed into law. If the proposed legislation is not signed into
law, there could be an unfavorable impact on our 2006 effec-
tive income tax rate. The impact of the R&D credit reduced the
2005 effective income tax rate by 1.2%.
Note 6 - Accounts Receivable
Accounts receivable at December 31 consisted of the following:
2005 2004
U.S. Government contracts $2,620 $2,701
Commercial and customers 1,155 985
Other 1,561 1,075
Less valuation allowance (90) (108)
$5,246 $4,653
The following table summarizes our accounts receivable under
U.S. Government contracts and commercial satellite contracts
that were not billable or related to outstanding claims as of
December 31:
2005 2004
Unbillable
Current $ 687 $ 413
Expected to be collected after one year 404 708
$1,091 $1,121
Claims
Current $««« «15 $ ««8
Expected to be collected after one year 90 23
$«« 105 $« «31
Unbillable receivables on U.S. Government contracts and com-
mercial satellite contracts arise when the sales or revenues
based on performance attainment, though appropriately recog-
nized, cannot be billed yet under terms of the contract as of
the balance sheet date. Accounts receivable related to claims
are items that we believe are earned, but are subject to uncer-
tainty concerning their determination or ultimate realization.
Accounts receivable, other than those described above,
expected to be collected after one year are not material.
As of December 31, 2005 and 2004, other accounts receivable
included $621 and $671 of reinsurance receivables held by
Astro Ltd., a wholly-owned subsidiary, which operates as a
captive insurance company. Currently, Astro Ltd. insures avia-
tion liability, workers compensation, general liability, property, as
well as various other smaller risk liability insurances. Other also
included $650 and $194 at December 31, 2005 and 2004,
related to foreign military contracts.
The Boeing Company and Subsidiaries 59