Boeing 2007 Annual Report Download - page 39

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Management’s Discussion and Analysis
Purchase Obligations Not Recorded on the Consolidated
Statement of Financial Position Production related purchase
obligations not recorded on the Consolidated Statement of
Financial Position include agreements for production goods,
tooling costs, electricity and natural gas contracts, property,
plant and equipment, and other miscellaneous production
related obligations. The most significant obligation relates to
inventory procurement contracts. We have entered into certain
significant inventory procurement contracts that specify deter-
minable prices and quantities, and long-term delivery time-
frames. In addition, we purchase raw materials on behalf of our
suppliers. These agreements require suppliers and vendors to
be prepared to build and deliver items in sufficient time to meet
our production schedules. The need for such arrangements
with suppliers and vendors arises from the extended produc-
tion planning horizon for many of our products. A significant
portion of these inventory commitments is supported by firm
contracts and/or has historically resulted in settlement through
reimbursement from customers for penalty payments to the
supplier should the customer not take delivery. These amounts
are also included in our forecasts of costs for program and
contract accounting. Some inventory procurement contracts
may include escalation adjustments. In these limited cases, we
have included our best estimate of the effect of the escalation
adjustment in the amounts disclosed in the table above.
Industrial Participation Agreements We have entered into vari-
ous industrial participation agreements with certain customers
outside of the U.S. to facilitate economic flow back and/or
technology transfer to their businesses or government agen-
cies as the result of their procurement of goods and/or servic-
es from us. These commitments may be satisfied by our
placement of direct work or vendor orders for supplies, oppor-
tunities to bid on supply contracts, transfer of technology or
other forms of assistance. However, in certain cases, our com-
mitments may be satisfied through other parties (such as our
vendors) who purchase supplies from our non-U.S. customers.
We do not commit to industrial participation agreements unless
a contract for sale of our products or services is signed. In cer-
tain cases, penalties could be imposed if we do not meet our
industrial participation commitments. During 2007, we incurred
no such penalties. As of December 31, 2007, we have out-
standing industrial participation agreements totaling $8.9 billion
that extend through 2024. Purchase order commitments asso-
ciated with industrial participation agreements are included in
the table above. To be eligible for such a purchase order com-
mitment from us, a country outside the U.S. or customer must
have sufficient capability to meet our requirements and must
be competitive in cost, quality and schedule.
Purchase Obligations Recorded on the Consolidated
Statement of Financial Position Purchase obligations recorded
on the Consolidated Statement of Financial Position primarily
include accounts payable and certain other liabilities including
accrued compensation and dividends payable.
Commercial Commitments
The following table summarizes our commercial commitments
outstanding as of December 31, 2007.
Total Amounts
Committed/ Less
Maximum than 1–3 4–5 After 5
(Dollars in millions) Amount of Loss 1 year years years years
Standby letters of credit
and surety bonds $««4,973 $4,585 $«««238 $«««««««1 $«««149
Aircraft financing
commercial commitments 8,350 879 2,764 3,443 1,264
Total commercial
commitments $13,323 $5,464 $3,002 $3,444 $1,413
Aircraft financing commercial commitments include commit-
ments to arrange or provide financing related to aircraft on
order, under option for deliveries or proposed as part of sales
campaigns based on estimated earliest funding dates. Based
on historical experience, we currently do not anticipate that all
of these commitments will be exercised by our customers,
see Note 13.
Industrial Revenue Bonds
We utilize Industrial Revenue Bonds (IRB) issued by the City
of Wichita, Kansas and Fulton County, Georgia to finance the
purchase and/or construction of real and personal property,
see Note 12.
Contingent Obligations
We have significant contingent obligations that arise in the
ordinary course of business, which include the following:
Legal
Various legal proceedings, claims and investigations are pend-
ing against us. Most significant legal proceedings are related to
matters covered by our insurance. Legal contingencies are dis-
cussed in Note 21, including our contesting the default termi-
nation of the A-12 aircraft, employment and benefits litigation
brought by several of our employees, and litigation/arbitration
involving BSSI programs.
Environmental Remediation
We are involved with various environmental remediation activi-
ties and have recorded a liability of $679 million at December
31, 2007. For additional information, see Note 13.
Income Taxes
We have recorded a net liability of $1,272 million at December
31, 2007 for uncertain tax positions. For further discussion of
these contingencies, see Note 4.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements
including certain guarantees. For discussion of these arrange-
ments, see Note 12.
The Boeing Company and Subsidiaries