Boeing 2015 Annual Report Download - page 62

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two-step impairment process is then performed; otherwise, no further testing is required. For operations
where the two-step impairment process is used, we first compare 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 amount of the impairment. In this process, a fair value for goodwill is estimated,
based in part on the fair value of the operations, and is compared to its carrying value. The shortfall of the
fair value below carrying value represents the amount of goodwill impairment.
We estimate the fair values of the related operations using discounted cash flows. Forecasts of future cash
flows are based on our best estimate of future sales and operating costs, based primarily on existing firm
orders, expected future orders, contracts with suppliers, labor agreements and general market conditions.
Changes in these forecasts could significantly change the amount of impairment recorded, if any.
The cash flow forecasts are adjusted by an appropriate discount rate derived from our market capitalization
plus a suitable control premium at the date of evaluation. Therefore, changes in the stock price may also
affect the amount of impairment recorded, if any.
We completed our assessment of goodwill as of April 1, 2015 and determined that there is no impairment
of goodwill. As of December 31, 2015, we estimated that the fair value of each reporting unit significantly
exceeded its corresponding carrying value. Changes in our forecasts, or decreases in the value of our
common stock could cause book values of certain operations to exceed their fair values which may result
in goodwill impairment charges in future periods.
As of December 31, 2015 and 2014, we had $490 million of indefinite-lived intangible assets related to
the Jeppesen and Aviall brand and trade names acquired in business combinations. We test these
intangibles for impairment by comparing their carrying value to current projections of discounted cash
flows attributable to the brand and trade names. Any excess carrying value over the amount of discounted
cash flows represents the amount of the impairment. A 10% decrease in the discounted cash flows would
not impact the carrying value of these indefinite-lived intangible assets.
Pension Plans
The majority of our employees have earned benefits under defined benefit pension plans. Nonunion and
the majority of union employees that had participated in defined benefit pension plans will transition to a
company-funded defined contribution retirement savings plan in 2016. Accounting rules require an annual
measurement of our projected obligation and plan assets. These measurements are based upon several
assumptions, including the discount rate and the expected long-term rate of asset return. Future changes
in assumptions or differences between actual and expected outcomes can significantly affect our future
annual expense, projected benefit obligation and Shareholders’ equity.
The following table shows the sensitivity of our pension plan liability and net periodic cost to a 25 basis
point change in the discount rate as of December 31, 2015.
(Dollars in millions)
Change in discount rate
Increase 25 bps
Change in discount rate
Decrease 25 bps
Pension plans
Projected benefit obligation ($2,128) $2,648
Net periodic pension cost (129) 152
Pension expense is also sensitive to changes in the expected long-term rate of asset return. A decrease
or increase of 25 basis points in the expected long-term rate of asset return would have increased or
decreased 2015 net periodic pension expense by $148 million. We expect 2016 net periodic pension cost