Boeing 2011 Annual Report Download - page 56

on revenues, costs and the profitability of the 787 program. The scale and duration of the 787 program
is such that relatively minor changes in assumptions or variables could have a material effect on our
reported results in any period if the program is determined to have a reach-forward loss.
Aircraft Valuation
Allowance for Losses on Customer Financing Receivables The allowance for losses on customer
financing receivables (valuation provision) is used to provide for potential impairment of customer
financing receivables in the Consolidated Statements of Financial Position. The balance represents an
estimate of probable but unconfirmed losses in the customer financing receivables portfolio. The
estimate is based on various qualitative and quantitative factors, including historical loss experience,
collateral values, and results of individual credit and collectibility reviews. The adequacy of the
allowance is assessed quarterly.
Three primary factors influencing the level of our allowance are customer credit ratings, collateral
values and default rates. If each customer’s credit rating were upgraded or downgraded by one major
rating category at December 31, 2011, the allowance would have decreased by $41 million or
increased by $107 million. If the collateral values were 20% higher or lower at December 31, 2011, the
allowance would have decreased by $24 million or increased by $21 million. If the cumulative default
rates used for each rating category increased or decreased 1%, the allowance would have increased
or decreased by $7 million.
Impairment Review for Assets Under Operating Leases and Held for Re-Lease We evaluate for
impairment assets under operating lease or assets held for re-lease when events or changes in
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 $10 million for the year ended December 31, 2011.
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, 2011, we estimate that we would have incurred additional impairment expense of $19
million for the year ended December 31, 2011, and a future cumulative pre-tax earnings reduction of
approximately $106 million recognized over the remaining depreciable periods, of which approximately
$11 million would be recognized in 2012.
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, 2011, we estimate that we would have
reduced pre-tax income by $48 million for the year ended December 31, 2011.
44