Boeing 2010 Annual Report Download - page 77

undiscounted cash flow, including our intentions for how long we will hold an asset subject to operating
lease before it is sold, 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. We state assets held for sale at the lower of
carrying value or fair value less costs to sell.
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.
Allowance for losses on customer financing receivables We record the potential impairment of
customer financing receivables in our portfolio in a valuation account, the balance of which is an
accounting estimate of probable but unconfirmed losses in the receivables portfolio. The allowance for
losses on receivables relates to two components of receivables: (a) specifically identified receivables
that are evaluated individually for impairment and (b) all other receivables.
We determine a receivable is impaired when, based on current information and events, it is probable
that we will be unable to collect amounts due according to the original contractual terms of the
receivable agreement, without regard to any subsequent restructurings. Factors considered in
assessing collectibility include, but are not limited to, a customer’s extended delinquency, requests for
restructuring and filings for bankruptcy. We determine a specific impairment allowance based on the
difference between the carrying value of the receivable and the estimated fair value of the related
collateral.
We review the adequacy of the allowance attributable to the remaining receivables (after excluding
receivables subject to a specific impairment allowance) by assessing both the collateral exposure and
the applicable cumulative default rate. Collateral exposure for a particular receivable is the excess of
the carrying value of the receivable over the fair value of the related collateral. A receivable with an
estimated fair value in excess of the carrying value is considered to have no collateral exposure. The
applicable cumulative default rate is determined using two components: customer credit ratings and
weighted average remaining contract term. Internally assigned credit ratings, our credit quality
indicator, are determined for each customer in the portfolio. Those ratings are updated based upon
public information and information obtained directly from our customers.
We have entered into agreements with certain customers that would entitle us to look beyond the
specific collateral underlying the receivable for purposes of determining the collateral exposure as
described above. Should the proceeds from the sale of the underlying collateral asset resulting from a
default condition be insufficient to cover the carrying value of our receivable (creating a shortfall
condition), these agreements would, for example, permit us to take the actions necessary to sell or
retain certain other assets in which the customer has an equity interest and use the proceeds to cover
the shortfall.
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
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