GE 2006 Annual Report Download - page 108

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Note 29
Commitments and Guarantees
Commitments, including guarantees
In our Aviation business of Infrastructure, we had committed to
provide financial assistance on $2,481 million of future customer
acquisitions of aircraft equipped with our engines, including
commitments made to airlines in 2006 for future sales under our
GE90 and GEnx engine campaigns. The Aviation Financial Services
business of Infrastructure had placed multiple-year orders for
various Boeing, Airbus and other aircraft with list prices approxi-
mating $14,019 million at December 31, 2006.
At December 31, 2006, we were committed under the follow-
ing guarantee arrangements beyond those provided on behalf of
securitization entities. See note 28.
• LIQUIDITY SUPPORT. Liquidity support provided to holders of
certain variable rate bonds issued by municipalities amounted
to $1,093 million at December 31, 2006. If holders elect to sell
supported bonds that cannot be remarketed, we are obligated
to repurchase them at par. If called upon, our position would
be secured by the repurchased bonds. While we hold any such
bonds, we would receive interest payments from the munici-
palities at a rate that is in excess of the stated rate on the
bond. To date, we have not been required to perform under
such arrangements and our existing liquidity support will
decrease $1,033 million in 2007 and the remaining $60 million
by the end of 2008 as the underlying variable rate bonds reach
their maturity date. We are currently not providing any such
new liquidity facilities.
• CREDIT SUPPORT. We have provided $7,436 million of credit
support on behalf of certain customers or associated compa-
nies, predominantly joint ventures and partnerships, using
arrangements such as standby letters of credit and performance
guarantees. These arrangements enable these customers and
associated companies to execute transactions or obtain
desired financing arrangements with third parties. Should the
customer or associated company fail to perform under the
terms of the transaction or financing arrangement, we would
be required to perform on their behalf. Under most such
arrangements, our guarantee is secured, usually by the asset
being purchased or financed, but possibly by certain other
assets of the customer or associated company. The length of
these credit support arrangements parallels the length of the
related financing arrangements or transactions. The liability
for such credit support was $146 million at December 31, 2006.
• INDEMNIFICATION AGREEMENTS. These are agreements that
require us to fund up to $629 million under residual value
guarantees on a variety of leased equipment and $854 million
of other indemnification commitments arising primarily from
sales of businesses or assets. Under most of our residual
value guarantees, our commitment is secured by the leased
asset at termination of the lease. The liability for these indem-
nification agreements was $38 million at December 31, 2006.
• CONTINGENT CONSIDERATION. These are agreements to provide
additional consideration in a business combination to the seller
if contractually specified conditions related to the acquired
entity are achieved. At December 31, 2006, we had total max-
imum exposure for future estimated payments of $255 million,
of which none was earned and payable.
At year-end 2006, NBC Universal had $10,230 million of commit-
ments to acquire film and broadcast material and the rights to
broadcast television programs, including U.S. television rights to
future Olympic Games and National Football League (NFL) games,
contractual commitments under various creative talent arrange-
ments and commitments under long-term television station
affiliation agreements that require payments through 2014.
Our guarantees are provided in the ordinary course of business.
We underwrite these guarantees considering economic, liquidity
and credit risk of the counterparty. We believe that the likelihood
is remote that any such arrangements could have a signifi cant
adverse effect on our financial position, results of operations or
liquidity. We record liabilities for guarantees at estimated fair value,
generally the amount of the premium received, or if we do not
receive a premium, the amount based on appraisal, observed
market values or discounted cash flows. Any associated expected
recoveries from third parties are recorded as other receivables;
not netted against the liabilities.
Product warranties
We provide for estimated product warranty expenses when
we sell the related products. Because warranty estimates are
forecasts that are based on the best available information —
mostly historical claims experience — claims costs may differ
from amounts provided. An analysis of changes in the liability for
product warranties follows.
(In millions) 2006 2005 2004
Balance at January 1 $1,075 $1,326 $1,437
Current year provisions 735 448 720
Expenditures
(a) (665) (699) (838)
Other changes (3) — 7
Balance at December 31 $1,142 $1,075 $1,326
(a) Primarily related to Infrastructure and Healthcare.
106 ge 2006 annual report