Boeing 2012 Annual Report Download - page 114

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based on current market yields. For our debt that is not traded in the secondary market, the fair value is
classified as Level 2 and is based on our indicative borrowing cost derived from dealer quotes or discounted
cash flows. The fair value of our debt classified as Level 3 is based on the median of the underlying
collateral value as described above. With regard to other financial instruments with off-balance sheet risk,
it is not practicable to estimate the fair value of our indemnifications because the amount and timing of
those arrangements are uncertain. Items not included in the above disclosures include cash, restricted
cash, time deposits and other deposits, commercial paper, money market funds, Accounts payable and
long-term payables. The carrying values of those items, as reflected in the Consolidated Statements of
Financial Position, approximate their fair value at December 31, 2012 and 2011. The fair value of assets
and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the
exception of cash (Level 1).
Note 21 – Legal Proceedings
Various legal proceedings, claims and investigations related to products, contracts and other matters are
pending against us. Potentially material contingencies 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, compensatory 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
suspended 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 effect on our financial position, results of operations,
or cash flows, except as set forth below. Where it is reasonably possible that we will incur losses in excess
of recorded amounts in connection with any of the matters set forth below, we have disclosed either the
amount or range of reasonably possible losses in excess of such amounts or, where no such amount or
range can be reasonably estimated, the reasons why no such estimate can be made.
A-12 Litigation
In 1991, the Department of the Navy (the Navy) notified McDonnell Douglas Corporation (now merged
into The Boeing Company) and General Dynamics Corporation (together, the Team) that it was terminating
for default the Team’s contract for development and initial production of the A-12 aircraft.
The Team had full responsibility for performance of the contract and both contractors are jointly and severally
liable for any potential liabilities resulting from the termination. The Team filed a legal action to contest the
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, 2012, inventories included approximately $587 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 termination 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 the trial court for further proceedings. On May 3, 2007, the U.S. Court of
Federal Claims issued a decision upholding the government’s default termination of the A-12 contract. We
filed a Notice of Appeal on May 4, 2007 with the Court of Appeals for the Federal Circuit. On June 2, 2009,
the Court of Appeals rendered an opinion affirming the trial court’s 2007 decision sustaining the
government’s default termination. On May 23, 2011, the U.S. Supreme Court vacated the decision of the