Boeing 2009 Annual Report Download - page 78

Each quarter we review customer credit ratings, published historical credit default rates for different
rating categories, and multiple third party aircraft value publications as a basis to validate the
reasonableness of the allowance for losses on receivables. There can be no assurance that actual
results will not differ from estimates or that the consideration of these factors in the future will not result
in an increase or decrease to the allowance for losses on receivables.
Warranties
In conjunction with certain product sales, we provide warranties that cover factors such as
non-conformance to specifications and defects in material and design. The majority of our warranties
are issued by our Commercial Airplanes segment. Generally, aircraft sales are accompanied by a three
to four-year standard warranty for systems, accessories, equipment, parts, and software manufactured
by us or manufactured to certain standards under our authorization. These warranties are included in
the programs’ estimate at completion. Additionally, on occasion we have made commitments beyond
the standard warranty obligation to correct fleet-wide major issues of a particular model. These costs
are expensed as incurred. Warranties issued by our BDS segments principally relate to sales of
military aircraft and weapons hardware and are included in the contract cost estimates. These sales
are generally accompanied by a six to twelve-month warranty period and cover systems, accessories,
equipment, parts, and software manufactured by us to certain contractual specifications. Estimated
costs related to standard warranties are recorded in the period in which the related product sales
occur. The warranty liability recorded at each balance sheet date reflects the estimated number of
months of warranty coverage outstanding for products delivered times the average of historical monthly
warranty payments, as well as additional amounts for certain major warranty issues that exceed a
normal claims level. Estimated costs of these additional warranty issues are considered changes to the
initial liability estimate.
Supplier Penalties
We record an accrual for supplier penalties when an event occurs that makes it probable that a
supplier penalty will be incurred and the amount is reasonably estimable. Until an event occurs, we
fully anticipate accepting all products procured under production-related contracts.
Guarantees
We record a liability in Other accrued liabilities for the fair value of guarantees that are issued or
modified after December 31, 2002. For a residual value guarantee where we received a cash premium,
the liability is equal to the cash premium received at the guarantee’s inception. For credit and
performance guarantees, the liability is equal to the present value of the expected loss. We determine
the expected loss by multiplying the creditor’s default rate by the guarantee amount reduced by the
expected recovery, if applicable, for each future period the credit or performance guarantee will be
outstanding. If at inception of a guarantee, we determine there is a probable related contingent loss,
we will recognize a liability for the greater of (a) the fair value of the guarantee as described above or
(b) the probable contingent loss amount.
Note 2 – Acquisitions
Vought Aircraft Industries Inc.
On July 30, 2009, we acquired the business, assets and operations of Vought Aircraft Industries, Inc.’s
(Vought) 787 business conducted at North Charleston, South Carolina. In connection with the
acquisition, we paid cash consideration of $590 and released Vought from its obligation to repay
amounts of $416 previously advanced by us. Vought’s 787 business produces aft fuselage sections,
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