Boeing 2007 Annual Report Download - page 58

55
Notes to Consolidated Financial Statements
Delta launch program inventories that will be sold at cost to
United Launch Alliance L.L.C. (ULA) under an inventory supply
agreement that terminates on March 31, 2021 are included in
long-term contracts in progress inventories. At December 31,
2006, the inventory balance was $1,860. No sales have
occurred through December 31, 2007. As part of its integra-
tion ULA is continuing to assess the future of the Delta II pro-
gram. During the third quarter of 2007, ULA determined that
certain Delta II inventory is not fully recoverable. As a result we
recorded charges of $31 for non-recoverable Delta II inventory
and $39 for our share of the loss recorded by ULA related to
Delta II. Future decisions regarding the Delta II program could
reduce our earnings by up to $100 (see Note 12).
As a normal course of our Commercial Airplanes segment pro-
duction process, our inventory may include a small quantity of
airplanes that are completed but unsold. As of December 31,
2007 and 2006, the value of completed but unsold aircraft in
inventory was insignificant. Inventory balances included $234
subject to claims or other uncertainties relating to the A-12
program as of December 31, 2007 and 2006 (See Note 21).
Commercial aircraft program inventory includes amounts cred-
ited in cash or other consideration (early issued sales consider-
ation), to airline customers totaling $1,355 and $1,375 as of
December 31, 2007 and 2006.
Deferred production costs represent commercial aircraft pro-
grams production costs incurred on in-process and delivered
units in excess of the estimated average cost of such units. As
of December 31, 2007 and 2006, the balance of deferred pro-
duction costs and unamortized tooling related to commercial
aircraft programs, except the 777 program, was insignificant
relative to the programs’ balance-to-go estimates. As of
December 31, 2007 and 2006, all significant excess deferred
production costs or unamortized tooling costs are recoverable
from existing firm orders for the 777 program. The deferred
production costs and unamortized tooling are summarized in
the following table:
2007 2006
Deferred production costs:
777 program $1,043 $871
Unamortized tooling:
777 program 256 329
Note 7 – Exit Activity and Divestitures
During August 2006, we decided that we would exit the
Connexion by Boeing high speed broadband communications
business. Our decision resulted in a pre-tax charge of $320,
which has been recognized in Loss/(gain) on dispositions/
business shutdown, net during 2006 as outlined below:
Contract termination costs1 $142
Write-off of assets2 492
Early contract terminations3 (314)
Total $320
1 Included termination fees associated with operating leases as well as supplier
and customer costs
2 Primarily included write-off of capital lease assets
3 Primarily early terminations of capital lease obligations
As of December 31, 2006, $52 was recorded in Accounts
payable and other liabilities related to contract termination costs,
which was substantially paid out during 2007 to complete the
business shutdown. The exit of the Connexion by Boeing busi-
ness resulted in cash expenditures of $177 during 2006.
On February 28, 2005, we completed the stock sale of
Electron Dynamic Devices Inc. (EDD) to L-3 Communications.
EDD was a separate legal entity wholly owned by us. The cor-
responding net assets of the entity were $45 and a net pre-tax
gain of $25 was recorded in the Network and Space Systems
(N&SS) segment of IDS from the sale of the net assets. In
addition, there was a related pre-tax loss of $68 recorded in
Accounting differences/eliminations for net pension and other
postretirement benefit curtailments and settlements. In 2006, a
$15 gain was recorded for a subsequent purchase price
adjustment on the sale.
On August 2, 2005, we completed the sale of the Rocketdyne
Propulsion and Power (Rocketdyne) business to United
Technologies Corporation for cash proceeds of approximately
$700 under an asset purchase agreement. This divestiture
includes assets and sites in California, Alabama, Mississippi,
and Florida. The Rocketdyne business primarily develops and
builds rocket engines and provides booster engines for the
space shuttle and the Delta family as well as propulsion sys-
tems for missile defense systems. A net pre-tax gain of
approximately $578 was recorded predominantly in the N&SS
segment and a related pre-tax loss of $200 for estimated pen-
sion and postretirement curtailments and settlements was
recorded in our Other segment.
On June 16, 2005, we completed the sale of substantially all of
the assets at our Commercial Airplanes facilities in Wichita,
Kansas and Tulsa and McAlester, Oklahoma under an asset
purchase agreement to a new entity which was subsequently
named Spirit Aerosystems, Inc. (Spirit). Transaction considera-
tion given to us included cash of approximately $900, together
with the transfer of certain liabilities and long-term supply
agreements that provide us with ongoing cost savings. The
consolidated net loss on this sale recorded in 2005 was $287,
including pension and postretirement impacts. We recognized
a loss of $103 in 2005 in the Consolidated Statement of
Operations as Gain on dispositions, net, of which $68 was rec-
ognized by the Commercial Airplanes segment and $35 was
recognized as Accounting differences/eliminations and
Unallocated expense. The remaining loss of $184 related to
estimated pension and postretirement curtailments and settle-
ments, was recorded in our Other segment. In 2006, a $15
gain was recorded for a subsequent purchase price adjust-
ment on the sale.
See Note 12 for discussion of the environmental indemnifica-
tion provisions of these agreements.
The Boeing Company and Subsidiaries