Boeing 2006 Annual Report Download - page 55

The Boeing Company and Subsidiaries 53
Notes to Consolidated Financial Statements
Guarantees
We account for guarantees in accordance with FASB
Interpretation No. 45, Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. We record a liability for the fair value of
guarantees in Accounts Payable and other liabilities 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. For each future
period the credit or performance guarantee will be outstanding,
we determine the expected loss by multiplying the creditor’s
default rate by the guarantee amount reduced by the expected
recovery, if applicable. 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 – Standards Issued and Not Yet Implemented
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48). FIN 48 prescribes a more-likely-than-
not threshold for financial statement recognition and measure-
ment of a tax position taken or expected to be taken in a tax
return. This Interpretation also provides guidance on derecogni-
tion of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, accounting
for income taxes in interim periods, and income tax disclosures.
This Interpretation is effective as of January 1, 2007 and
the cumulative effects of applying this Interpretation will be
recorded as an adjustment to retained earnings as of
January 1, 2007. Additional guidance from the FASB on FIN 48
is pending. As a result, we are currently unable to finalize our
estimate of the impact that adopting this Interpretation will
have on our financial statements.
Note 3 – Acquisition
On September 20, 2006, we acquired all of the outstanding
shares of Aviall, Inc. (Aviall) for $1,780, including transaction
fees totaling $46. Aviall is an independent provider of new
aviation parts and services in the aerospace industry. Its
capabilities include global parts distribution and supply chain
services for aerospace, defense and marine industries
worldwide. The Aviall acquisition is intended to complement
existing offerings in our Commercial Airplanes and IDS Support
Systems reporting segments. The acquisition of Aviall was
accounted for under the purchase method of accounting
and the results of operations from the acquisition date are
included in Commercial Airplanes and IDS Support Systems
reporting segments.
The allocation of the purchase price is as follows:
Accounts receivable $÷«200
Net inventory 539
Other current assets 64
Property, plant and equipment 17
Goodwill 1,055
Finite-lived intangible assets (primarily contractual
supplier and customer relationships)*519
Indefinite-lived intangible assets not subject to
amortization (Aviall brand and trade names) 302
Other assets 42
Accounts payable (196)
Other current liabilities (79)
Debt acquired and repaid (458)
Other long-term liabilities (225)
Total net assets acquired $1,780
*The weighted average amortization period for finite-lived intangible assets
is 11 years.
Note 4 – Goodwill and Acquired Intangibles
Changes in the carrying amount of goodwill by reportable
segment for the years ended December 31, 2006, 2005 and
2004 were as follows:
Precision
Engagement Network
Commercial & Mobility & Space Support
Airplanes Systems Systems Systems Other Total
Balance at January 1, 2004 $«««282 $588 $922 $118 $3 $1,913
Goodwill Adjustments 25 2 27
Acquisitions 11 11
Impairment Losses (3)(3)
Balance at December 31, 2004 $«««282 $624 $924 $118 $1,948
Goodwill Adjustments 21 (13)(18)11 1
Divestitures (23)(2)(25)
Balance at December 31, 2005 $«««280 $611 $904 $129 $1,924
Aviall acquisition 1,014 41 1,055
Other* 71 (3)68
Balance at December 31, 2006 $1,365 $611 $901 $170 $3,047
*The increase in goodwill is primarily the result of an acquisition in the second quarter of 2006. The purchase price allocation for this acquisition was finalized in the
fourth quarter of 2006.