Boeing 2007 Annual Report Download - page 75

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Notes to Consolidated Financial Statements
Note 20 – Disclosures About Fair Value
of Financial Instruments
The carrying values and estimated fair values of our financial
instruments were as follows at December 31:
2007 2006
Carrying Fair Carrying Fair
Amount Value Amount Value
Accounts receivable $5,740 $5,629 $5,285 $4,876
Accounts payable 5,714 5,714 5,643 5,356
Debt, excluding capital
lease obligations 8,129 8,865 9,395 10,297
Notes receivable 885 937 1,823 1,823
Residual value and
credit guarantees 207 72 210 113
Contingent repurchase
commitments 7 46 7 91
The fair values of the Accounts receivable and Accounts
payable is based on current market rates for loans of the same
risk and maturities. The fair value of our debt is based on
current market rates for debt of the same risk and maturities.
The estimated fair value of our Other liabilities balance at
December 31, 2007 and 2006 approximates its carrying value.
Items not included in the above disclosures are cash, cash
equivalents and investments. The estimated fair value of those
items approximate their carrying value at December 31, 2007
and 2006 as reflected in Note 10. The estimated fair value of
our Investments at December 31, 2007 and 2006 approximate
the carrying value. With regard to financial instruments with
off-balance sheet risk, it is not practicable to estimate the fair
value of future financing commitments because there is not a
market for such future commitments.
Note 21 – Legal Proceedings
Various legal proceedings, claims and investigations related to
products, contracts and other matters are pending against us.
Many potentially significant legal proceedings are related to
matters covered by our insurance. Potential material contin-
gencies are discussed below.
We are subject to various U.S. government investigations,
from which civil, criminal or administrative proceedings could
result or have resulted. Such proceedings involve, or could
involve claims by the government for fines, penalties, com-
pensatory and treble damages, restitution and/or forfeitures.
Under government regulations, a company, or one or more
of its operating divisions or subdivisions, can also be suspend-
ed or debarred from government contracts, or lose its export
privileges, based on the results of investigations. We believe,
based upon current information, that the outcome of any
such government disputes and investigations will not have
a material adverse effect on our financial position, except as
set forth below.
A-12 Litigation
In 1991, the U.S. Navy notified McDonnell Douglas
Corporation (now one of our subsidiaries) and General
Dynamics Corporation (together, the Team) that it was termi-
nating for default the Team’s contract for development and
initial production of the A-12 aircraft. The Team filed a legal
action to contest the U.S. Navy’s default termination, to assert
its rights to convert the termination to one “for the convenience
of the government,” and to obtain payment for work done
and costs incurred on the A-12 contract but not paid to date.
As of December 31, 2007, inventories included approximately
$584 of recorded costs on the A-12 contract, against which
we have established a loss provision of $350. The amount
of the provision, which was established in 1990, was based
on McDonnell Douglas Corporation’s belief, supported by an
opinion of outside counsel, that the termination for default
would be converted to a termination for convenience, and
that the best estimate of possible loss on termination for
convenience was $350.
On August 31, 2001, the U.S. Court of Federal Claims issued
a decision after trial upholding the government’s default termi-
nation of the A-12 contract. In 2003, the Court of Appeals for
the Federal Circuit, finding that the trial court had applied the
wrong legal standard, vacated the trial court’s 2001 decision
and ordered the case sent back to that court for further pro-
ceedings. On May 3, 2007, the U.S. Court of Federal Claims
issued a decision upholding the government’s default termina-
tion of the A-12 contract. We believe that the ruling raises seri-
ous issues for appeal, and on May 4, 2007 we filed a Notice of
Appeal which we are now pursuing in the Court of Appeals for
the Federal Circuit. This follows an earlier trial court decision in
favor of the Team and reversal of that initial decision on appeal.
If, after all judicial proceedings have ended, the courts deter-
mine, contrary to our belief, that a termination for default was
appropriate, we would incur an additional loss of approximately
$275, consisting principally of remaining inventory costs and
adjustments, and, if the courts further hold that a money judg-
ment should be entered against the Team, we would be
required to pay the U.S. government one-half of the unliquidat-
ed progress payments of $1,350 plus statutory interest from
February 1991 (currently totaling approximately $1,350). In that
event, our loss would total approximately $1,621 in pre-tax
charges. Should, however, the March 31, 1998 judgment of
the U.S. Court of Federal Claims in favor of the Team be rein-
stated, we would be entitled to receive payment of approxi-
mately $1,087, including interest.
We believe that the termination for default is contrary to law
and fact and that the loss provision established by McDonnell
Douglas Corporation in 1990, which was supported by an
opinion from outside counsel, continues to provide adequately
for the reasonably possible reduction in value of A-12 net con-
tracts in process as of December 31, 2007. Final resolution of
the A-12 litigation will depend on the outcome of further pro-
ceedings or possible negotiations with the U.S. government.
Employment and Benefits Litigation
We are a defendant in two employment discrimination class
actions. In the Williams class action, which was filed on June
8, 1998 in the U.S. District Court for the Western District of
Washington (alleging race discrimination), we prevailed in a jury
trial in December 2005, but plaintiffs appealed the pre-trial dis-
missal of compensation claims in November 2005. In the
Calender class action, which was filed January 25, 2005 in the
The Boeing Company and Subsidiaries