Liabilities, Commitments And Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Liabilities, Commitments And Contingencies

Liabilities, Commitments and Contingencies

Accrued Liabilities

Accrued liabilities at December 31 consisted of the following:

	2015		2014
Accrued compensation and employee benefit costs		$5,624		$5,868
Environmental	566		601
Product warranties	1,485		1,504
Forward loss recognition	757		414
Dividends payable	721		637
Income Taxes Payable	262		119
Other	4,599		4,319
Total		$14,014		$13,462

Environmental

The following table summarizes environmental remediation activity during the years ended December 31, 2015 and 2014.

	2015			2014
Beginning balance – January 1		$601			$649
Reductions for payments made	(78		)	(89		)
Changes in estimates	43			41
Ending balance – December 31		$566			$601

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 that includes 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, 2015 and 2014, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $853 and $874.

Product Warranties

The following table summarizes product warranty activity recorded during the years ended December 31, 2015 and 2014.

	2015			2014
Beginning balance – January 1		$1,504			$1,570
Additions for current year deliveries	421			566
Reductions for payments made	(323		)	(432		)
Changes in estimates	(117		)	(200		)
Ending balance - December 31		$1,485			$1,504

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, 2015 have expiration dates from 2016 through 2026. At December 31, 2015 and 2014, total contractual trade-in commitments were $1,585 and $2,392. As of December 31, 2015 and 2014, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $240 and $446 and the fair value of the related trade-in aircraft was $240 and $446.

Financing Commitments

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $16,283 and $16,723 as of December 31, 2015 and 2014. The estimated earliest potential funding dates for these commitments as of December 31, 2015 are as follows:

	Total
2016		$2,897
2017	3,664
2018	3,235
2019	2,884
2020	1,321
Thereafter	2,282
		$16,283

As of December 31, 2015, $15,919 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 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 $4,968 and $3,985 as of December 31, 2015 and 2014.

Commitments to ULA

We and Lockheed Martin Corporation have each committed to provide ULA with additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. As of December 31, 2015, ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120. See Note 6.

C-17

Production of the C-17 aircraft ended in the fourth quarter of 2015. At December 31, 2015, one aircraft remained unsold, while our backlog includes international orders for four C-17 aircraft that are scheduled for delivery in 2016. During 2015 we received orders for six C-17 aircraft and we believe it is probable that we will receive an order for the remaining unsold aircraft from an international customer. Should an order not materialize we could incur charges to write down inventory.

F/A-18

At December 31, 2015, our backlog included 48 F/A-18 aircraft under contract with the U.S. Navy. The orders in backlog include an order for 15 aircraft finalized in October 2015. The Consolidated Appropriations Act, 2016, passed in December 2015, funds 12 additional F/A-18 aircraft that, combined with the orders in backlog, would complete production in mid-2018. The President’s Fiscal Year 2017 Budget request submitted in February 2016 includes funding for two additional F/A-18 aircraft. We are continuing to work with our U.S. customers as well as international customers to secure additional orders that would extend the program beyond 2018. 

Should additional orders not materialize, it is reasonably possible that we will decide to end production of the F/A-18 in 2018. We are still evaluating the full financial impact of a potential production shutdown, including any recovery that may be available from the U.S. government.

KC-46A Tanker

We have also begun work on low rate initial production aircraft for the U.S. Air Force (USAF). The USAF is expected to authorize twolow rate initial production lots in 2016 for a total of 19 aircraft, subject to satisfactory progress being made on the Engineering, Manufacturing and Development contract. At December 31, 2015, we had approximately $429 of capitalized precontract costs and $1,589 of potential termination liabilities to suppliers associated with the KC-46A Tanker.

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, 2015 and 2014, the cash surrender value was $487 and $466 and the total loans were $456 and $439. 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, 2015 and 2014.

United States Government Defense Environment Overview

The enactment of The Bipartisan Budget Act of 2015 in November 2015 established overall defense spending levels for FY2016 and FY2017. However, uncertainty remains with respect to levels of defense spending for FY2018 and beyond, including risk of future sequestration cuts. Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies, including the National Aeronautics and Space Administration, within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization and appropriations process could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company’s operations, financial position and/or cash flows.

In addition to the risks described above, if Congress is unable to pass appropriations bills in a timely manner, a government shutdown could result which may have impacts above and beyond those resulting from budget cuts, sequestration impacts or program-level appropriations. For example, requirements to furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.

KC-46A Tanker and BDS Fixed-Price Development Contracts

Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Commercial Crew, Saudi F-15, USAF KC-46A Tanker and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, during the second quarter of 2015, higher estimated costs to complete the KC-46A Tanker contract for the USAF resulted in a reach-forward loss of $835.

Recoverable Costs on Government Contracts

Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S. government to assess the merits of claims and where appropriate reserve for amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.

Russia/Ukraine

We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.

747 Program

During the fourth quarter of 2015, we recorded a charge of $885 to recognize a reach-forward loss on the 747 program primarily due to slower than expected growth in global cargo markets, resulting in market and pricing pressures and fewer orders than anticipated driving reductions in our planned production rates. The charge is primarily related to lower anticipated revenues reflecting ongoing pricing and market pressures as well as higher estimated costs due to the reduction in the production rate from 1.0 per month to 0.5 per month in September 2016. We currently plan to return to a rate of 1.0 per month in 2019. We have a number of completed aircraft in inventory as well as unsold production positions and we remain focused on obtaining additional orders and implementing cost-reduction efforts. If we are unable to obtain sufficient orders in 2016 and/or market, production and other risks cannot be mitigated, the program could face an additional reach-forward loss that may be material.

787 Program

During 2015 the 787 program continued to have near breakeven gross margins. The combination of production challenges, change incorporation on early build aircraft, schedule delays, customer and supplier impacts and changes to price escalation factors has created significant pressure on program profitability. If risks related to this program, including risks associated with planned production rate increases or introducing and manufacturing the 787-10 derivative as scheduled cannot be mitigated, the program could face additional customer claims and/or supplier assertions, as well as a reach-forward loss that may be material.