Liabilities, Commitments and Contingencies
Accrued Liabilities
Accrued liabilities at December 31 consisted of the following:
|
| | | | | | | |
| 2013 |
| | 2012 |
|
Accrued compensation and employee benefit costs |
| $6,158 |
| |
| $5,769 |
|
Environmental | 649 |
| | 710 |
|
Product warranties | 1,570 |
| | 1,572 |
|
Forward loss recognition | 360 |
| | 387 |
|
Dividends payable | 542 |
| | 367 |
|
Other | 4,852 |
| | 4,190 |
|
Total |
| $14,131 |
| |
| $12,995 |
|
Environmental
The following table summarizes environmental remediation activity during the years ended December 31, 2013 and 2012.
|
| | | | | | | |
| 2013 |
| | 2012 |
|
Beginning balance – January 1 |
| $710 |
| |
| $758 |
|
Reductions for payments made | (120 | ) | | (121 | ) |
Changes in estimates | 59 |
| | 73 |
|
Ending balance – December 31 |
| $649 |
| |
| $710 |
|
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, 2013 and 2012, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $928 and $865.
Product Warranties
The following table summarizes product warranty activity recorded during the years ended December 31, 2013 and 2012.
|
| | | | | | | |
| 2013 |
| | 2012 |
|
Beginning balance – January 1 |
| $1,572 |
| |
| $1,046 |
|
Additions for current year deliveries | 595 |
| | 678 |
|
Reductions for payments made | (419 | ) | | (315 | ) |
Changes in estimates | (178 | ) | | 163 |
|
Ending balance - December 31 |
| $1,570 |
| |
| $1,572 |
|
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, 2013 have expiration dates from 2014 through 2023. At December 31, 2013 and 2012, total contractual trade-in commitments were $1,605 and $1,535. As of December 31, 2013 and 2012, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $325 and $108 and the fair value of the related trade-in aircraft was $325 and $108.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $17,987 and $18,083 as of December 31, 2013 and 2012. The estimated earliest potential funding dates for these commitments as of December 31, 2013 are as follows:
|
| | | |
| Total |
|
2014 |
| $2,309 |
|
2015 | 2,914 |
|
2016 | 3,257 |
|
2017 | 3,026 |
|
2018 | 1,930 |
|
Thereafter | 4,551 |
|
|
| $17,987 |
|
As of December 31, 2013 all 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 $4,376 and $4,545 as of December 31, 2013 and 2012.
Commitments to ULA
We and Lockheed Martin Corporation have each committed to provide ULA with up to $527 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 6.
C-17
In September 2013, we decided to end production of C-17 aircraft in 2015 and recorded charges of $92, primarily for pension curtailment costs. We plan to produce 20 C-17 aircraft in 2014 and 2015 before ending production. At December 31, 2013, our backlog included 6 international orders for C-17 aircraft that are scheduled for delivery through mid-2014 and we have active sales campaigns for the remaining 14 unsold aircraft. We are currently incurring costs and have made commitments to suppliers related to the unsold aircraft. We believe it is probable that we will recover costs related to the unsold aircraft from international customer orders. Should orders for the 14 unsold aircraft not materialize or should we decide to discontinue production of unsold aircraft, we could incur charges to write-down inventory and/or record termination liabilities. At December 31, 2013, we had approximately $430 of capitalized precontract costs and $420 of potential termination liabilities to suppliers associated with the unsold aircraft.
United States Government Defense Environment Overview
U.S. government appropriation levels remain subject to significant uncertainty. In August 2011, the Budget Control Act (The Act) established limits on U.S. government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012 and 2021 U.S. government fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period to the extent that discretionary spending limits are exceeded. The impact of sequestration cuts was reduced with respect to FY2014 and FY2015 following the enactment of The Bipartisan Budget Act in December 2013. However, significant uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. government discretionary spending levels will continue to be subject to significant pressure, including risk of future sequestration cuts.
In addition, there continues to be significant uncertainty 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. While the FY2014 appropriations finalized in January 2014 included funding for Boeing’s major programs, uncertainty remains about how defense budgets in FY2015 and beyond will affect Boeing’s programs. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the 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 could have impacts above and beyond those resulting from budget cuts or sequestration impacts. 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.
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 Airborne Early Warning and Control, India P-8I, Saudi Arabia 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 also result in lower margins or a material charge for reach-forward losses in 2014.
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.
747 and 787 Commercial Airplane Programs
The development and initial production of new commercial airplanes and new commercial airplane derivatives, which include the 747 and 787, entail significant commitments to customers and suppliers as well as substantial investments in working capital, infrastructure and research and development. The 747 and 787 programs had gross margins that were breakeven or near breakeven during 2013.
Continued weakness in the air cargo market and lower-than-expected demand for large commercial passenger aircraft have resulted in pricing pressures and fewer 747 orders than anticipated. We continue to have a number of unsold 747 production positions. If market and production risks cannot be mitigated, the program could face a reach-forward loss that may be material.
The combination of production challenges, change incorporation, schedule delays and customer and supplier impacts has created significant pressure on 787 program profitability. If risks related to this program, including risks associated with planned production rate increases, or introducing the 787-9 and 787-10 derivatives 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.
