Boeing 2007 Annual Report Download - page 57

54
Notes to Consolidated Financial Statements
associated with tax positions, accounting for income taxes in
interim periods and income tax disclosures. The cumulative
effects of applying this interpretation have been recorded as a
decrease of $11 to Retained earnings, an increase of $125 to
Deferred income taxes and an increase of $136 to Income
taxes payable as of January 1, 2007.
In conjunction with adoption of FIN 48, we classified uncertain
tax positions as non-current income tax liabilities unless
expected to be paid in one year. We also began reporting
income tax-related interest income in Income tax expense in
our Consolidated Statement of Operations. In prior periods,
such interest income was reported in Other income. Within the
Consolidated Statements of Operations, Other income includ-
ed interest of $16 in 2006 and $100 in 2005 related to federal
income tax settlements for prior years. Penalties and tax-related
interest expense are reported as a component of Income
tax expense. As of December 31 and January 1, 2007, the
amount of accrued income tax-related interest and penalties
included in the Consolidated Statement of Financial Position
was as follows: interest of $143 and $63, and penalties of
$17 and $1. The amounts of interest and penalties accrued
during 2007 are $108 and $17 respectively.
We are subject to examination in the U.S. federal tax jurisdic-
tion for the 1998-2007 tax years. We are also subject to exam-
ination in major state and foreign jurisdictions for the
2001–2007 tax years, for which no individually material unrec-
ognized tax benefits exist. During the third quarter of 2007 we
received an Internal Revenue Service (IRS) audit report for the
2002-2003 tax years and have filed an appeal. We have also
filed appeals with the IRS for the 1998-2001 tax years. We
believe appropriate provisions for all outstanding issues have
been made for all jurisdictions and all open years.
A reconciliation of the beginning and ending amount of un-
recognized tax benefits is as follows:
Unrecognized Tax Benefits – January 1, 2007 $1,097
Gross increases – tax positions in prior periods 181
Gross decreases – tax positions in prior periods (85)
Gross increases – current-period tax positions 89
Lapse of statute of limitations (10)
Unrecognized Tax Benefits – December 31, 2007 $1,272
As of December 31 and January 1, 2007, the total amount of
unrecognized tax benefits was $1,272 and $1,097, of which
$1,032 and $905 would affect the effective tax rate, if recog-
nized. These amounts are primarily associated with U.S. feder-
al tax issues such as the tax benefits from the Foreign Sales
Corporation/Extraterritorial Income (FSC/ETI) tax rules, the
amount of research and development tax credits claimed,
U.S. taxation of foreign earnings, and valuation issues regard-
ing charitable contributions claimed. Also included in these
amounts are accruals for domestic state tax issues such as
the allocation of income among various state tax jurisdictions
and the amount of state tax credits claimed.
It is reasonably possible that within the next 12 months we
and the IRS will resolve some of the matters presently under
consideration at appeals for 1998-2003 which may increase
or decrease unrecognized tax benefits for all open tax years.
Settlement could increase earnings in an amount ranging from
$0 to $130 based on current estimates. Audit outcomes and the
timing of audit settlements are subject to significant uncertainty.
The Research and Development credit expired on December
31, 2007. The credit provided a 2.4% and a 0.7% reduction in
the 2007 and 2006 effective tax rate. Congress is currently
considering bills that will extend the credit. If the Research and
Development credit is not legislatively enacted there could be
an unfavorable impact on our 2008 effective income tax rate.
Note 5 – Accounts Receivable
Accounts receivable at December 31 consisted of
the following:
2007 2006
U.S. government contracts $2,838 $2,667
Commercial customers 1,232 1,423
Other1 1,742 1,278
Less valuation allowance (72) (83)
$5,740 $5,285
1 Included $498 and $538 of reinsurance receivables held by Astro Ltd., a
wholly owned subsidiary, which operates as a captive insurance company and
$683 and $308 related to non-U.S. military contracts at December 31, 2007
and 2006.
The following table summarizes our accounts receivable
under long-term contracts that were not billable or related to
outstanding claims as of December 31:
2007 2006
Unbillable
Current $«««825 $«««830
Expected to be collected after one year 520 705
$1,345 $1,535
Claims
Current $÷÷«18 $÷÷«10
Expected to be collected after one year 128 84
$÷«146 $÷÷«94
Unbillable receivables on long-term contracts arise when the
sales or revenues based on performance attainment, though
appropriately recognized, 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 uncertainty concerning their determination or
ultimate realization. Accounts receivable, other than those
described above, expected to be collected after one year
are not material.
Note 6 – Inventories
Inventories at December 31 consisted of the following:
2007 2006
Long-term contracts in progress $«13,159 $«12,329
Commercial aircraft programs 11,710 8,743
Commercial spare parts, used aircraft,
general stock materials and other 3,401 2,888
28,270 23,960
Less advances and progress billings (18,707) (15,855)
$«««9,563 $«««8,105
The Boeing Company and Subsidiaries