Boeing 2009 Annual Report Download - page 57

recorded at zero margin. Reductions to the estimated loss in subsequent periods are spread over all
undelivered units in the accounting quantity, whereas increases to the estimated loss are recorded
immediately.
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, 2009, the allowance would have decreased by $142 million or
increased by $308 million. If the collateral values were 10% higher or lower at December 31, 2009, the
allowance would have decreased by $56 million or increased by $54 million. If the cumulative default
rates used for each rating category should increase or decrease 1%, the allowance would have
increased by $6 million or decreased by $6 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 $8 million for the year ended December 31, 2009.
Lease 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 10% at December 31, 2009, this would result in a future cumulative pre-tax earnings impact of
approximately $180 million recognized over the remaining depreciable periods, of which approximately
$45 million would be recognized in 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
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