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| Notes
to Consolidated Financial Statements | | |
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| The costs incurred
and expected to be incurred in connection with such activities have not had, and
are not expected to have, a material impact to the Company’s financial position.
With respect to results of operations, related charges have averaged less than
2% of annual net earnings. Such accruals as of December 31, 2001, without consideration
for the related contingent recoveries from insurance carriers, are less than 2%
of total liabilities. | | Because of the regulatory complexities
and risk of unidentified contaminated sites and circumstances, the potential exists
for environmental remediation costs to be materially different from the estimated
costs accrued for identified contaminated sites. However, based on all known facts
and expert analyses, the Company believes it is not reasonably likely that identified
environmental contingencies will result in additional costs that would have a
material adverse impact to the Company’s financial position or operating
results and cash flow trends. | | The Company is subject to U.S.
Government investigations from which civil, criminal or administrative proceedings
could result. Such proceedings could involve claims by the Government for fines,
penalties, compensatory and treble damages, restitution and/or forfeitures. Under
government regulations, a company, or one or more of its operating divisions or
subdivisions, can also be suspended or debarred from government contracts, or
lose its export privileges, based on the results of investigations. The Company
believes, based upon all available information, that the outcome of any such government
disputes and investigations will not have a material adverse effect on its financial
position or continuing operations. | | In 1991, the U.S. Navy notified
McDonnell Douglas (now a subsidiary of the Company) and General Dynamics Corporation
(the “Team”) that it was terminating for default the Team’s contract
for development and initial production of the A-12 aircraft. The Team filed a
legal action to contest the Navy’s default termination, to assert its rights
to convert the termination to one for “the convenience of the Government,”
and to obtain payment for work done and costs incurred on the A-12 contract but
not paid to date. As of December 31, 2001, inventories included approximately
$583 of recorded costs on the A-12 contract, against which the Company has established
a loss provision of $350. The amount of the provision, which was established in
1990, was based on McDonnell Douglas’s belief, supported by an opinion of
outside counsel, that the termination for default would be converted to a termination
for convenience, and that the upper range of possible loss on termination for
convenience was $350. | | On August 31, 2001, the U.S. Court of
Federal Claims issued a decision after trial upholding the Government’s default
termination of the A-12 contract on the ground that the Team could not meet the
revised contract schedule unilaterally imposed by the Government after the Government
had waived the original schedule. The court did not, however, enter a judgment
for the Government on its claim that the Team be required, as a consequence of
the alleged default, to repay progress payments that had not been formally liquidated
by deliveries at the time of termination. These unliquidated progress payments
total $1,350. On October 4, 2001, the court confirmed that it would not be entering
judgment in favor of the Government in the amount of these unliquidated progress
payments. This is the latest decision relating to long-running litigation resulting
from the A-12 contract termination in 1991, and follows an earlier trial court
decision in favor of the contractors and reversal of that initial decision on
appeal. | | The Company believes, supported by an opinion of outside
counsel, that the trial court’s rulings with respect to the enforceability
of the unilateral schedule and the termination for default are contrary to law
and fact. The Company believes the decision raises valid issues for appeal and
is pursuing its appeal. | | If, contrary to the Company’s
belief, the decision of the trial court on termination were sustained on appeal,
the Company would incur an additional loss of approximately $275, consisting principally
of remaining inventory costs and adjustments. And if, contrary to the Company’s
belief, the appeals court further held that a money judgment should be entered
against the Team in the amount of the unliquidated progress payments, the Team
would be required to pay the Government $1,350 plus statutory interest from February
1991 (currently totaling approximately $970). Under this outcome, the Company
would be obligated to pay one half of these amounts. The additional loss to the
Company would total approximately $1,430 in pretax charges, consisting principally
of the repayment obligations and the remaining inventory costs and adjustments. |
| The Company believes that the loss provision established by McDonnell
Douglas in 1990 continues to provide adequately for the reasonably possible reduction
in value of A-12 net contracts in process as of December 31, 2001. Final resolution
of the A-12 litigation will depend upon the outcome of further proceedings or
possible negotiations with the Government. | | |
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2, 3,
4, 5,
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8, 9,
10, 11,
12, 13,
14, 15,
16, 17,
18, 19,
20, 21, 22,
23, 24 |
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