Note 12 – Liabilities, Commitments and Contingencies

Accrued Liabilities

Accrued liabilities at December 31 consisted of the following:


	2011		2010
Accrued Compensation and employee benefit costs	$	5,546	$	5,193
Environmental		758		721
Product warranties		1,046		1,076
Forward loss recognition⁽¹⁾		501		2,743
Other		4,388		4,069
Total	$	12,239	$	13,802

⁽¹⁾

Forward loss recognition in 2011 relates primarily to the Airborne Early Warning and Control program (AEW&C). $1,934 of loss related to the 747 Program included in the 2010 balance was reclassified to inventory during 2011.

Environmental

The following table summarizes environmental remediation during the years ended December 31, 2011 and 2010.


	2011			2010
Beginning balance – January 1	$	721		$	706
Reductions for payments made		(118	)		(93	)
Changes in estimates		155			108
Ending balance – December 31	$	758		$	721

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 the discovery of 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, 2011 and 2010, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,003 and $957.

Product Warranties

The following table summarizes product warranty activity recorded for the years ended December 31, 2011 and 2010.


	2011			2010
Beginning balance – January 1	$	1,076		$	999
Additions for current year deliveries		232			141
Reductions for payments made		(269	)		(234	)
Changes in estimates		7			170
Ending balance – December 31	$	1,046		$	1,076

Commercial Aircraft Commitments

In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into specified-price trade-in commitments with certain customers that give them the right to trade in used aircraft upon the purchase of Sale Aircraft. The total contractual trade-in value was $273 and $295 as of December 31, 2011 and 2010. We anticipate that a significant portion of these commitments will not be exercised by customers.

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 take into consideration the current economic environment. 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. The fair value of trade-in aircraft related to probable contractual trade-in commitments was $27 and $30 as of December 31, 2011 and 2010. Trade-in commitment agreements have expiration dates from 2012 through 2023.

Financing Commitments

Financing commitments totaled $15,866 and $9,865 as of December 31, 2011 and 2010. The estimated earliest potential funding dates for these commitments as of December 31, 2011 are as follows:


	Total
2012	$	1,562
2013		1,207
2014		2,217
2015		3,639
2016		2,475
Thereafter		4,766
	$	15,866

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 $6,199 and $7,599 as of December 31, 2011 and 2010.

Commitments to ULA

We and Lockheed have each committed to provide ULA with up to $352 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, 2011, our backlog included 3 C-17 aircraft currently under contract with the U.S. Air Force (USAF) as well as international orders for 2 aircraft. The probable orders, not under contract at December 31, 2011, totaled 19 aircraft of which 13 were for international customers and 6 for the USAF. USAF orders included 5 aircraft for which a contract was received in January 2012 and 1 aircraft which was funded in the Fiscal Year 2012 Defense Appropriations Act. At December 31, 2011, we had approximately $940 of inventory expenditures and potential termination liabilities to suppliers associated with probable orders, of which $870 was related to the 5 USAF orders and 12 international orders received in January and February 2012. We completed the planned production rate decrease from 15 aircraft per year to 10 per year during the third quarter of 2011. The associated reduction in headcount resulted in pension curtailment charges of $34 in the first quarter of 2011. Should additional orders not materialize, it is reasonably possible that we will decide in 2012 to end production of the C-17 at a future date. We are still evaluating the full financial impact of a potential production shut-down, including additional 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 with the USAF.

F-15

At December 31, 2011, we had approximately $2,275 of inventory expenditures and potential termination liabilities to suppliers related to the production of F-15 aircraft not currently under contract. On December 29^th, 2011, the Kingdom of Saudi Arabia and the U.S. government announced the signing of a letter of offer and acceptance for a foreign military sale for 84 new F-15SE Eagle fighters and associated products and services. We expect this order to be under contract in 2012.

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, 2011 and 2010, the cash surrender value was $397 and $381 and the total loans were $377 and $363. 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, 2011 and 2010.