Commitments, including guarantees
In our Transportation business, we have committed to provide financial assistance on future sales of aircraft equipped with our engines, totaling $818 million at December 31, 2004. In addition, our Commercial Finance business had placed multiple-year orders for various Boeing, Airbus and other aircraft with list prices approximating $10.2 billion at December 31, 2004.
At December 31, 2004, we were committed under the following guarantee arrangements beyond those provided on behalf of SPEs. See note 29.
- LIQUIDITY SUPPORT. Liquidity support provided to holders of certain variable rate bonds issued by municipalities amounted to $3,612 million at December 31, 2004. 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 municipalities 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. In addition, we are currently not providing any new liquidity facilities.
- CREDIT SUPPORT. We have provided $6,868 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable our 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 $95 million at December 31, 2004.
- INDEMNIFICATION AGREEMENTS. These are agreements that require us to fund up to $837 million under residual value guarantees on a variety of leased equipment and $194 million of other indemnification commitments arising 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 indemnification agreements was $85 million at December 31, 2004.
- 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, 2004, we had recognized liabilities for estimated payments amounting to $56 million of our total exposure of $444 million.
At year-end 2004, NBC Universal had $7,598 million of commitments to acquire film and broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic Games, contractual commitments under various creative talent arrangements 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 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 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) | 2004 | 2003 | 2002 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1 | $ | 1,437 | $ | 1,304 | $ | 968 | |||
| Current year provisions | 720 | 751 | 918 | ||||||
| Expenditures(a) | (838 | ) | (749 | ) | (694 | ) | |||
| Other changes | 7 | 131 | 112 | ||||||
| Balance at December 31 | $ | 1,326 | $ | 1,437 | $ | 1,304 | |||
| (a) | Primarily related to Energy. |
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