Liabilities, Commitments And Contingencies

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Liabilities, Commitments And Contingencies

Liabilities, Commitments and Contingencies

Accrued Liabilities

Accrued liabilities at December 31 consisted of the following:

	2018		2017
Accrued compensation and employee benefit costs		$6,841		$6,659
Environmental	555		524
Product warranties	1,127		1,211
Forward loss recognition	1,488		622
Dividends payable	1,160		1,005
Income Taxes Payable	485		380
Other	3,152		2,668
Total		$14,808		$13,069

Environmental

The following table summarizes environmental remediation activity during the years ended December 31, 2018 and 2017.

	2018			2017
Beginning balance – January 1		$524			$562
Reductions for payments made	(37		)	(45		)
Changes in estimates	68			7
Ending balance – December 31		$555			$524

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, 2018 and 2017, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $796 and $868.

Product Warranties

The following table summarizes product warranty activity recorded during the years ended December 31, 2018 and 2017.

	2018			2017
Beginning balance – January 1		$1,211			$1,414
Additions for current year deliveries	232			274
Reductions for payments made	(193		)	(241		)
Changes in estimates	(123		)	(236		)
Ending balance – December 31		$1,127			$1,211

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, 2018 have expiration dates from 2019 through 2026. At December 31, 2018 and 2017, total contractual trade-in commitments were $1,519 and $1,462. As of December 31, 2018 and 2017, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $522 and $155 and the fair value of the related trade-in aircraft was $485 and $155.

Financing Commitments

Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $19,462 and $10,221 as of December 31, 2018 and 2017. The estimated earliest potential funding dates for these commitments as of December 31, 2018 are as follows:

	Total
2019		$2,331
2020	3,432
2021	2,784
2022	1,787
2023	3,402
Thereafter	5,726
		$19,462

As of December 31, 2018, $18,785 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 $3,761 and $3,708 as of December 31, 2018 and 2017.Company Owned Life InsuranceMcDonnell 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, 2018 and 2017, the cash surrender value was $466 and $489 and the total loans were $447 and $470. 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, 2018 and 2017.United States Government Defense Environment Overview

The Bipartisan Budget Act of 2018, passed in February 2018, raised the 2011 Budget Control Act spending caps for fiscal years 2018 and 2019 (FY18 and FY19). The consolidated spending bills signed into law in September 2018 provide defense funding for FY19, in compliance with the revised caps. These bills also provide FY19 appropriations for most of the federal government. Full year funding for the departments and agencies not covered by enacted FY19 appropriations, including the National Aeronautics and Space Administration (NASA) and Federal Aviation Administration (FAA), remains uncertain. The unfunded departments and agencies affected by the partial government shutdown (December 22, 2018 through January 25, 2019) are now covered by a Continuing Resolution that extends funding at FY18 levels through February 15, 2019. Congress and the President must agree to FY19 appropriations or an additional Continuing Resolution to fund affected departments and agencies beyond the February 15 deadline in order to prevent a second partial government shutdown. The impact of a partial government shutdown to the Company’s operations would increase as the shutdown continues. 

There continues to be uncertainty with respect to future program-level appropriations for the U.S. DoD and other government agencies, including NASA. The 2011 Budget Control Act continues to mandate limits on U.S. government discretionary spending for fiscal years 2020 and 2021 (FY20 and FY21). The lower budget caps will take effect again in FY20 and FY21 unless Congress acts to raise the spending caps or to repeal or suspend the law. As a result, continued budget uncertainty and the risk of future sequestration cuts remain. Future budget cuts or investment priority changes 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.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, T-X Trainer, VC-25B Presidential Aircraft, MQ-25 Stingray, 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, we have recorded reach-forward losses on the KC-46A Tanker in 2018 as well as in prior years, and we continue to have risk for further losses if we experience further production, technical or quality issues, and delays in flight testing, certification and/or

delivery. In addition, in 2018, in connection with winning the T-X Trainer and MQ-25 Stingray competitions, we recorded a loss of $400 associated with options for 346 T-X Trainer aircraft and a loss of $291 related to the MQ-25 Stingray Engineering, Manufacturing and Development (EMD) contract. Moreover, our fixed-price development programs remain subject to additional reach-forward losses if we experience further technical or quality issues, schedule delays, or increased costs. 

KC-46A Tanker

In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. This EMD contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. In 2016, the USAF authorized two LRIP lots for 7 and 12 aircraft valued at $2.8 billion and in 2017, the USAF authorized an additional LRIP lot for 15 aircraft valued at $2.1 billion. On September 10, 2018, the USAF authorized an additional LRIP lot for 18 aircraft valued at $2.9 billion. In January 2019, we delivered the first KC-46A Tanker to the USAF.

At December 31, 2018, we had approximately $370 of capitalized precontract costs and $550 of potential termination liabilities to suppliers.

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.