GE 2009 Annual Report Download - page 111

GE 2009 ANNUAL REPORT 109
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Note 24.
Commitments and Guarantees
Commitments
In our Aviation business of Technology Infrastructure, we had
committed to provide financial assistance on $1,151 million of
future customer acquisitions of aircraft equipped with our
engines, including commitments made to airlines in 2009 for
future sales under our GE90 and GEnx engine campaigns. The
GECAS business of Capital Finance had placed multiple-year
orders for various Boeing, Airbus and other aircraft with list
prices approximating $12,603 million and secondary orders with
airlines for used aircraft of approximately $2,165 million at
December 31, 2009.
At December 31, 2009, NBC Universal had commitments to
acquire film and television programming, including U.S. television
rights to future Olympic Games and National Football League
games, contractual commitments under various creative talent
arrangements and various other arrangements of $8,860 million,
substantially all of which requires payments through 2015.
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) 2009 2008 2007
Balance at January 1 $1,675 $1,541 $ 1,339
Current-year provisions 780 1,038 827
Expenditures (a) (794) (917) (763)
Other changes (20) 13 138
Balance at December 31 $1,641 $ 1,675 $1,541
(a) Primarily related to Technology Infrastructure and Energy Infrastructure.
Guarantees
At December 31, 2009, we were committed under the following
guarantee arrangements beyond those provided on behalf of
QSPEs and VIEs. See Note 23.
• CREDIT SUPPORT. We have provided $7,597 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 perfor-
mance 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, or 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 $43 million for December 31, 2009.
• INDEMNIFICATION AGREEMENTS. These are agreements that require
us to fund up to $353 million under residual value guarantees
on a variety of leased equipment. Under most of our residual
value guarantees, our commitment is secured by the leased
asset at December 31, 2009. The liability for these indemnifi-
cation agreements was $15 million at December 31, 2009.
We had $1,532 million of other indemnification commitments
arising primarily from sales of businesses or assets.
• 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, 2009, we had
total maximum exposure, excluding GE Money Japan, for
future estimated payments of $58 million, of which none was
earned and payable.
In connection with the sale of GE Money Japan, we reduced
the proceeds on the sale for estimated interest refund claims
in excess of the statutory interest rate. Proceeds from the
sale may be increased or decreased based on the actual
claims experienced in accordance with terms specified in the
agreement, and will not be adjusted unless total claims as
calculated under the terms of the agreement exceed approxi-
mately $3,000 million. During the second quarter of 2009, we
accrued $132 million, which represents the amount by which
we expect claims to exceed those levels and is based on our
historical and recent claims experience and the estimated
future requests, taking into consideration the ability and
likelihood of customers to make claims and other industry
risk factors. Uncertainties around the status of laws and
regulations and lack of certain information related to the
individual customers make it difficult to develop a meaningful
estimate of the aggregate possible claims exposure. We will
continue to review our estimated exposure quarterly, and
make adjustments when required.
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 significant
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.
At December 31, 2009 and 2008, the likelihood that we will
be called upon to perform on these guarantees is remote.