E-Z-GO 2007 Annual Report Download - page 93

Notes to the Consolidated Financial Statements
72
Software Indemnifi cations
We enter into software license agreements with customers through our Overwatch Systems business. These software license agreements
generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual
property rights. To date, we have not incurred any material costs as a result of such indemnifi cations and have not accrued any liabilities related
to such obligations.
Forward Contract
We enter into a forward contract in our common stock on an annual basis. The contract is intended to hedge the earnings and cash volatility of
stock-based incentive compensation indexed to our stock. The forward contract requires annual cash settlement between the counterparties based
upon a number of shares multiplied by the difference between the strike price and the prevailing common stock price. As of December 29, 2007,
the contract was for approximately 2.5 million shares with a strike price of $47.28. The market price of the stock was $71.62 at December 29,
2007, resulting in a receivable of $62 million, compared with a receivable of $24 million at December 30, 2006.
Warranty and Product Maintenance Contracts
We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to
fi ve years. We estimate the costs that may be incurred under warranty programs and record a liability in the amount of such costs at the time
product revenue is recognized. Factors that affect this liability include the number of products sold, historical and anticipated rates of warranty
claims, and cost per claim. We assess the adequacy of our recorded warranty and product maintenance liabilities periodically and adjust the
amounts as necessary.
Changes in our warranty and product maintenance liability are as follows:
(In millions) 2007 2006 2005
Accrual at beginning of year $ 315 $ 318 $ 280
Provision 191 189 188
Settlements (181) (167) (149)
Adjustments to prior accrual estimates* (13) (25) (1)
Acquisitions 9 — —
Accrual at end of year $ 321 $ 315 $ 318
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
Note 18. Variable Interest Entities
In the normal course of business, we have entered into various joint ventures or investments in other entities that qualify as operating businesses.
Generally, these ventures meet the criteria for exclusion from the scope of FASB Interpretation No. 46(R), “Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51.” For those ventures or investments that are within the scope of this Interpretation, we consolidate, as the
primary benefi ciary, the variable interest entities in which we absorb a majority of the entity’s expected losses, receive a majority of the entity’s
expected losses or both, as a result of contractual or other fi nancial interests in the entity.
BAAC is a joint venture established in 1998 between our Bell Helicopter unit and a predecessor of Agusta S.p.A. to share certain costs and profi ts
for the joint design, development, manufacture, marketing, sale, customer training and product support of the civil tiltrotor Model BA609 and,
through December 2005, the commercial helicopter Model AB139. This venture is a variable interest entity since it relies on its partners to fund
the development and to provide services for substantially all of the venture’s operations. We became the primary benefi ciary of BAAC on
December 20, 2005 when we obtained the controlling voting interest in the venture, along with the right to absorb more than half of its expected
losses and residual returns. BAAC was consolidated prospectively in our fi nancial statements as of December 20, 2005.