Boeing 2015 Annual Report Download - page 73

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We recognize sales for commercial airplane deliveries as each unit is completed and accepted by the
customer. Sales recognized represent the price negotiated with the customer, adjusted by an escalation
formula as specified in the customer agreement. The amount reported as cost of sales is determined by
applying the estimated cost of sales percentage for the total remaining program to the amount of sales
recognized for airplanes delivered and accepted by the customer. Changes in estimated revenues, cost
of sales and the related effects on program margins are recognized prospectively except in cases where
the program is determined to have a reach-forward loss in which case the loss is recognized in the current
period. See Note 11.
Concession Sharing Arrangements We account for sales concessions to our customers in consideration
of their purchase of products and services as a reduction to revenue when the related products and services
are delivered. The sales concessions incurred may be partially reimbursed by certain suppliers in
accordance with concession sharing arrangements. We record these reimbursements, which are presumed
to represent reductions in the price of the vendor’s products or services, as a reduction in Cost of products.
Spare Parts Revenue We recognize sales of spare parts upon delivery and the amount reported as cost
of sales is recorded at average cost.
Service Revenue Service revenue is recognized when the service is performed with the exception of U.S.
government service agreements, which are accounted for using contract accounting. Service activities
primarily include: support agreements associated with military aircraft and helicopter contracts, space
travel on Commercial Crew, ongoing maintenance of International Space Station, and technical and flight
operation services for commercial aircraft. Service revenue and associated cost of sales from pay-in-
advance subscription fees are deferred and recognized as services are rendered.
Financial Services Revenue We record financial services revenue associated with sales-type/finance
leases, operating leases, and notes receivable.
Lease and financing revenue arrangements are included in Sales of services on the Consolidated
Statements of Operations. For sales-type/finance leases, we record an asset at lease inception. This asset
is recorded at the aggregate future minimum lease payments, estimated residual value of the leased
equipment, and deferred incremental direct costs less unearned income. Income is recognized over the
life of the lease to approximate a level rate of return on the net investment. Residual values, which are
reviewed periodically, represent the estimated amount we expect to receive at lease termination from the
disposition of the leased equipment. Actual residual values realized could differ from these estimates.
Declines in estimated residual value that are deemed other-than-temporary are recognized in the period
in which the declines occur.
For operating leases, revenue on leased aircraft and equipment is recorded on a straight-line basis over
the term of the lease. Operating lease assets, included in Customer financing, are recorded at cost and
depreciated over the period that we project we will hold the asset to an estimated residual value, using
the straight-line method. We periodically review our estimates of residual value and recognize forecasted
changes by prospectively adjusting depreciation expense.
For notes receivable, notes are recorded net of any unamortized discounts and deferred incremental direct
costs. Interest income and amortization of any discounts are recorded ratably over the related term of the
note.
Reinsurance Revenue Our wholly-owned insurance subsidiary, Astro Ltd., participates in a reinsurance
pool for workers’ compensation. The member agreements and practices of the reinsurance pool minimize
any participating members’ individual risk. Reinsurance revenues were $136, $135 and $160 during 2015,
2014 and 2013, respectively. Reinsurance costs related to premiums and claims paid to the reinsurance
pool were $132, $144 and $147 during 2015, 2014 and 2013, respectively. Revenues and costs are
presented net in Cost of sales in the Consolidated Statements of Operations.