Liabilities, Commitments And Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Liabilities, Commitments And Contingencies

Liabilities, Commitments and Contingencies

Accrued Liabilities

Accrued liabilities at December 31 consisted of the following:

	2012		2011
Accrued compensation and employee benefit costs		$5,769		$5,546
Environmental	710		758
Product warranties	1,572		1,046
Forward loss recognition	387		501
Other	4,557		4,388
Total		$12,995		$12,239

Environmental

The following table summarizes environmental remediation activity during the years ended December 31, 2012 and 2011.

	2012			2011
Beginning balance – January 1		$758			$721
Reductions for payments made	(121		)	(118		)
Changes in estimates	73			155
Ending balance – December 31		$710			$758

The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios which include the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At December 31, 2012 and 2011, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $865 and $1,003.

Product Warranties

The following table summarizes product warranty activity recorded during the years ended December 31, 2012 and 2011.

	2012			2011
Beginning balance – January 1		$1,046			$1,076
Additions for current year deliveries	678			232
Reductions for payments made	(315		)	(269		)
Changes in estimates	163			7
Ending balance – December 31		$1,572			$1,046

Commercial Aircraft Commitments

In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.

Trade-in commitment agreements at December 31, 2012 have expiration dates from 2013 through 2023. At December 31, 2012 and 2011, total contractual trade-in commitments were $1,535 and $273. As of December 31, 2012 and 2011, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $108 and $30 and the fair value of the related trade-in aircraft was $108 and $27.

Financing Commitments

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $18,083 and $15,866 as of December 31, 2012 and 2011. The estimated earliest potential funding dates for these commitments as of December 31, 2012 are as follows:

	Total
2013		$1,341
2014	2,591
2015	3,997
2016	3,457
2017	2,796
Thereafter	3,901
		$18,083

As of December 31, 2012$17,014 of these financing commitments related to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.

Standby Letters of Credit and Surety Bonds

We have entered into standby letters of credit agreements and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately $4,545 and $6,199 as of December 31, 2012 and 2011.

Commitments to ULA

We and Lockheed Martin Corporation have each committed to provide ULA with up to $494 of additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. See Note 7.

C-17

At December 31, 2012, our backlog included 5 C-17 aircraft under contract with the U.S. Air Force (USAF) and international orders for 10 C-17 aircraft. We are currently producing C-17 aircraft at a rate of 10 per year. Should additional orders not materialize, it is reasonably possible that we will decide in 2013 to end production of the C-17 at a future date. We are still evaluating the full financial impact of a potential production shutdown, including pension curtailment charges, and any recovery that would be available from the U.S. government. Such recovery from the U.S. government would not include the costs incurred by us resulting from our direction to suppliers to begin working on aircraft beyond those currently under contract. At December 31, 2012, we had approximately $245 of inventory expenditures and potential termination liabilities to suppliers associated with 12 aircraft for international customers not currently under contract.

U.S. Government Defense Budget/Sequestration

In August 2011, the Budget Control Act reduced the United States Department of Defense (U.S. DoD) top line budget by approximately $490 billion through 2021. In addition, U.S. government expenditures are subject to the potential for further reductions, generally referred to as “sequestration”. Sequestration would result in additional reductions of approximately $500 billion from the defense top line budget through 2021. The Office of Management and Budget (OMB) has estimated that sequestration would reduce non-exempt defense discretionary accounts during U.S. government fiscal year 2013 by approximately 9.4% (excluding military personnel accounts). The OMB has further stated that the budget for Overseas Contingency Operations and any unobligated balances in prior year funds would be included in aggregate reductions, but has otherwise indicated that it cannot yet assess the impact of sequestration at the program, project, and activity level. The U.S. DoD has indicated that such reductions might require the termination of certain, as yet undetermined, procurement programs and other U.S. government customers, such as NASA and various intelligence agencies, may be required to take comparable actions. Any such impacts could have a material effect on our results of operations, financial position and/or cash flows.

Company Owned Life Insurance

McDonnell Douglas Corporation insured its executives with Company Owned Life Insurance (COLI), which are life insurance policies with a cash surrender value. Although we do not use COLI currently, these obligations from the merger with McDonnell Douglas are still a commitment at this time. We have loans in place to cover costs paid or incurred to carry the underlying life insurance policies. As of December 31, 2012 and 2011, the cash surrender value was $423 and $397 and the total loans were $400 and $377. As we have the right to offset the loans against the cash surrender value of the policies, we present the net asset in Other assets on the Consolidated Statements of Financial Position as of December 31, 2012 and 2011.