Boeing 2006 Annual Report Download - page 75

The Boeing Company and Subsidiaries 73
Notes to Consolidated Financial Statements
The following table summarizes product warranty activity
recorded during 2006 and 2005:
Product Warranty
Liabilities*
Beginning balance – January 1, 2005 $«781
Additions for new warranties 119
Reductions for payments made (146)
Changes in estimates 27
Ending balance – December 31, 2005 781
Additions for new warranties 171
Reductions for payments made (206)
Changes in estimates 15
Ending balance – December 31, 2006 $«761
*Amounts included in Accounts payable and other liabilities.
Material Variable Interests in Unconsolidated Entities
Our investments in EETCs and other VIEs are included
within the scope of Revised Interpretation No. 46 (FIN 46(R)),
Consolidation of Variable Interest Entities. We have certain
investments in EETCs which were acquired between 1999 and
2005. EETCs are trusts that passively hold investments in aircraft
or pools of aircraft. The EETCs provide investors with collateral
position in the related assets and tranched rights to cash flows
from a financial instrument. Our investments in EETCs do not
require consolidation under FIN 46(R). At December 31, 2006
our maximum exposure to economic loss from our EETCs is
$152. At December 31, 2006, the EETC investments had
total assets of $559 and total debt of $407. This debt is non-
recourse to us. During 2006, we recorded income of $9 and
received cash of $18 related to these investments.
Industrial Revenue Bonds
Industrial Revenue Bonds (IRBs) issued by the City of Wichita
are used to finance the purchase and/or construction of real
and personal property at our Wichita site. Tax benefits associ-
ated with IRBs include a ten-year property tax abatement and a
sales tax exemption from the Kansas Department of Revenue.
We record the property on our Consolidated Statements of
Financial Position, along with a capital lease obligation to repay
the proceeds of the IRB. We have also purchased the IRBs and,
therefore, are the bondholder as well as the borrower/lessee of
the property purchased with the IRB proceeds.
We have a similar arrangement with the Development Authority
of Fulton County, Georgia where we are both borrower and
bondholder. Tax benefits associated with these IRBs are the
provision of a ten-year partial property tax abatement.
The capital lease obligation and IRB asset are recorded net in
the Consolidated Statements of Financial Position pursuant to
FIN 39, Offsetting of Amounts Related to Certain Contracts. As
of December 31, 2006 and 2005, the assets and liabilities
associated with the City of Wichita IRBs were $1,419 and
$1,416, and the amounts associated with the Fulton County
IRBs were $16 and $17.
Note 20 – Significant Group Concentrations of Risk
Credit Risk
Financial instruments involving potential credit risk are
predominantly with commercial aircraft customers and the
U.S. Government. Of the $14,175 in Accounts receivable and
Customer financing included in the Consolidated Statements
of Financial Position as of December 31, 2006, $8,562 related
to commercial aircraft customers ($358 of Accounts receivable
and $8,204 of Customer financing) and $2,832 related to the
U.S. Government. Of the $8,204 of aircraft customer financing,
$7,712 related to customers we believe have less than
investment-grade credit. AirTran Airways, AMR, United Airlines
and Midwest Airlines Inc. were associated with 19%, 14%,
9% and 8%, respectively, of our aircraft financing portfolio.
Financing for aircraft is collateralized by security in the related
asset. As of December 31, 2006, there was $10,164 of financ-
ing commitments related to aircraft on order including options
described in Note 23, of which $8,356 related to customers
we believe have less than investment-grade credit.
Other Risk
As of December 31, 2006, approximately 37% of our employ-
ees were represented by collective bargaining agreements and
approximately 4% of our employees were represented by
agreements expiring during 2007.
Note 21 – Disclosures About Fair Value
of Financial Instruments
The estimated fair value of our Investments and Notes receiv-
able balances at December 31, 2006 and 2005 approximate
their carrying value.
As of December 31, 2006, the carrying amounts of Accounts
receivable and Accounts payable were $5,285 and $5,643,
and the related fair values, based on current market rates for
loans of the same risk and maturities, were estimated at
$4,876 and $5,356. The estimated fair values of our Accounts
receivable and Accounts payable balances at December 31, 2005
approximate their carrying value. The estimated fair value of our
Other liabilities balance at December 31, 2006 and 2005
approximates its carrying value.
As of December 31, 2006 and 2005, the carrying amount of
debt, net of capital leases, was $9,395 and $10,516 and the
fair value of debt, based on current market rates for debt of the
same risk and maturities, was estimated at $10,297 and
$11,643. Our debt is generally not callable until maturity.
With regard to financial instruments with off-balance sheet
risk, it is not practicable to estimate the fair value of future
financing commitments because there is not a market for
such future commitments. Residual value and credit guarantees
are estimated to have a fair value of $113 and $148 at
December 31, 2006 and 2005. Contingent repurchase commit-
ments are estimated to have a fair value of $91 and $80 at
December 31, 2006 and 2005.