Boeing 2010 Annual Report Download - page 57

circumstances indicate that the expected undiscounted cash flow from the asset may be less than its
carrying value. We use various assumptions when determining the expected undiscounted cash flow
including the expected future lease rates, lease terms, residual value of the asset, periods in which the
asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the
remaining economic life of the asset.
When we determine that impairment is indicated for an asset, the amount of impairment expense
recorded is the excess of the carrying value over the fair value of the asset.
Had future lease rates on assets evaluated for impairment been 10% lower, we estimate that we would
have incurred additional impairment expense of $30 million for the year ended December 31, 2010.
Residual Values Equipment under operating leases and assets held for re-lease are carried at cost
less accumulated depreciation and are depreciated to estimated residual value using the straight-line
method over the period that we project we will hold the asset for lease. Estimates used in determining
residual values significantly impact the amount and timing of depreciation expense for equipment
under operating leases and assets held for re-lease. If the estimated residual values declined 20% at
December 31, 2010, we estimate that we would have incurred additional impairment expense of $31
million for the year ended December 31, 2010, and a future cumulative pre-tax earnings reduction of
approximately $132 million recognized over the remaining depreciable periods, of which approximately
$30 million would be recognized in 2011.
Our investment in sales-type/finance leases includes future minimum lease payments receivable plus
the estimated residual value of leased assets less unearned income. Declines in estimated residual
value that are deemed other than temporary are recognized in the period in which the decline occurs. If
the estimated residual values declined 20% at December 31, 2010, we estimate that we would have
reduced pre-tax income by $50 million for the year ended December 31, 2010.
Goodwill and Indefinite-Lived Intangible Impairments
Goodwill and other acquired intangible assets with indefinite lives are not amortized but are annually
tested for impairment, and when an event occurs or circumstances change such that it is reasonably
possible that an impairment may exist. April 1 is our annual testing date. We test goodwill for
impairment by first comparing the book value of net assets to the fair value of the related operations. If
the fair value is determined to be less than book value, a second step is performed to compute the
amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the
fair value of the operations, and is compared to its carrying value. The shortfall of the fair value below
carrying value represents the amount of goodwill impairment.
We estimate the fair values of the related operations using discounted cash flows. Forecasts of future
cash flows are based on our best estimate of future sales and operating costs, based primarily on
existing firm orders, expected future orders, contracts with suppliers, labor agreements, and general
market conditions. Changes in these forecasts could significantly change the amount of impairment
recorded, if any.
The cash flow forecasts are adjusted by an appropriate discount rate derived from our market
capitalization plus a suitable control premium at the date of evaluation. Therefore, changes in the stock
price may also affect the amount of impairment recorded, if any.
Changes in our forecasts or decreases in the value of our common stock could cause book values of
certain operations to exceed their fair values which may result in goodwill impairment charges in future
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