Boeing 2006 Annual Report Download - page 74

72 The Boeing Company and Subsidiaries
Notes to Consolidated Financial Statements
Contingent Repurchase Commitments In conjunction with signing
a definitive agreement for the sale of new aircraft (Sale Aircraft),
we have entered into contingent repurchase commitments with
certain customers. Under such commitments, we agree to
repurchase the Sale Aircraft at a specified price, generally ten
years after delivery of the Sale Aircraft. Our repurchase of the
Sale Aircraft is contingent upon a future, mutually acceptable
agreement for the sale of additional new aircraft.
Indemnifications to ULA We agreed to indemnify ULA against
potential losses that ULA may incur from certain contracts
contributed by us. In the event ULA is unable to obtain certain
additional contract pricing to which we believe ULA is entitled,
we will be responsible for any shortfall and may record up to
$322 in pre-tax losses. We recorded a liability of $7 as our best
estimate of the fair value of this indemnification. The term of the
indemnification is indefinite.
We entered into an inventory supply agreement with ULA for
the sale of $1,860 of Delta program inventories which were
not contributed to the joint venture. The term of the inventory
supply agreement extends to March 31, 2021. We have agreed
to indemnify ULA in the event that these inventories are not
recoverable from existing and future orders. We also agreed to
indemnify ULA against potential losses that ULA may incur
relating to the recoverability of $1,375 of inventories included
in the contributed assets. The term of the inventory indemnifica-
tion extends to December 31, 2020. Although we believe that
the $1,375 of contributed inventories and the additional $1,860
of Boeing Delta inventories to be sold to ULA will be recover-
able based on our assessment of the mission manifest, losses
could occur if the manifest is reduced and the inventories are
not recovered by ULA.
Residual Value Guarantees We have issued various residual
value guarantees principally to facilitate the sale of certain
commercial aircraft. Under these guarantees, we are obligated
to make payments to the guaranteed party if the related aircraft
or equipment fair values fall below a specified amount at a
future time. These obligations are collateralized principally by
commercial aircraft and expire in 2 to 12 years.
Credit Guarantees Related to the Sea Launch Venture We have
issued credit guarantees to creditors of the Sea Launch
venture, of which we are a 40% partner, to assist the venture
in obtaining financing. Under these credit guarantees, we are
obligated to make payments to a guaranteed party in the event
that Sea Launch does not make its loan payments. We have
substantive guarantees from the other venture partners, who
are obligated to reimburse us for their share (in proportion to
their Sea Launch ownership percentages) of any guarantee
payment we may make related to the Sea Launch obligations.
These guarantees expire within the next 9 years.
Other Credit Guarantees We have issued credit guarantees,
principally, to facilitate the sale of commercial aircraft. Under
these arrangements, we are obligated to make payments to a
guaranteed party in the event that lease or loan payments are
not made by the original debtor or lessee. A substantial portion
of these guarantees has been extended on behalf of original
debtors or lessees with less than investment-grade credit. Our
commercial aircraft credit-related guarantees are collateralized
by the underlying commercial aircraft. Current outstanding
credit guarantees expire within the next 9 years.
Performance Guarantees We have outstanding performance
guarantees issued in conjunction with joint venture investments.
Pursuant to these guarantees, we would be required to
make payments in the event a third-party fails to perform
specified services. We have guarantees from the other venture
partners, who are obligated to reimburse us for a portion of any
guarantee payments we may make related to the performance
guarantee. Current performance guarantees expire within the
next 11 years.
Other Indemnifications In conjunction with our sales of the EDD
and Rocketdyne businesses and the sale of our Commercial
Airplanes facilities in Wichita, Kansas and Tulsa and McAlester,
Oklahoma in 2005, we provided indemnifications to the buyers
relating to pre-closing environmental contamination and certain
other items. The terms of the indemnifications are indefinite.
As it is impossible to assess whether there will be damages
in the future or the amounts thereof, we cannot estimate the
maximum potential amount of future payments under these
guarantees. Therefore, no liability has been recorded.
Product Warranties
We provide product warranties in conjunction with certain
product sales. The majority of our warranties are issued by
our Commercial Airplanes segment. Generally, aircraft sales
are accompanied by a three- to four-year standard warranty for
systems, accessories, equipment, parts and software manufac-
tured by us or manufactured to certain standards under our
authorization. These items are included in the programs’
estimate at completion (EAC). Additionally, on occasion we
have made commitments beyond the standard warranty
obligation to correct fleet wide major warranty issues of a
particular model. These costs are expensed as incurred.
These warranties cover factors such as non-conformance to
specifications and defects in material and design. Warranties
issued by our IDS segments principally relate to sales of military
aircraft and weapons hardware. These sales are generally
accompanied by a six- to twelve-month warranty period and
cover systems, accessories, equipment, parts and software
manufactured by us to certain contractual specifications.
These warranties cover factors such as non-conformance to
specifications and defects in material and workmanship.
Estimated costs related to standard warranties are recorded
in the period in which the related product sales occur. The
warranty liability recorded at each balance sheet date reflects
the estimated number of months of warranty coverage out-
standing for products delivered times the average of historical
monthly warranty payments, as well as additional amounts for
certain major warranty issues that exceed a normal claims level.