E-Z-GO 2008 Annual Report Download - page 99

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86
program due to cost overruns, requiring recertification of the program. We do not have enough information at this time to make a determination of
whether the program will be recertified; however, if the program were to be terminated, we do not believe that the guarantee will be triggered as it
relates solely to performance under the subcontract.
Guaranteed Minimum Resale Contracts
We have a number of guaranteed minimum resale value contracts associated with certain past aircraft sales. If the fair value of an aircraft falls
below a minimum guaranteed amount, we may be required to make a future payment to the customer or provide a minimum trade-in value toward
a new aircraft. These agreements generally include operating restrictions such as maximum usage over the contract period or minimum
maintenance requirements. We also have guaranteed the minimum resale value of certain customer-owned aircraft anticipated to be traded in
upon completion of a model currently under development. These contracts expire as follows: $3 million in each year in 2009, 2010 and 2011,
$19 million in 2012 and $2 million in 2013. Based upon the expected guarantees to be exercised under these arrangements, we had an accrued
liability of $3 million as of both January 3, 2009 and December 27, 2007.
Guarantees Related to Dispositions
We indemnified the purchasers of the Fastening Systems and Fluid & Power businesses for remediation costs related to pre-existing
environmental conditions to the extent they exist at the sold locations and certain retained litigation matters. We have estimated the fair value of
these indemnifications at approximately $19 million. Potential payments under these obligations are not capped, and, as a result, the maximum
potential obligation cannot be determined. During 2008 and 2007, we incurred approximately $2 million and $1 million, respectively, in
remediation costs. We also have other obligations, some of which are capped, arising from sales of these and certain other businesses, including
representations and warranties and related indemnities for environmental, health and safety, and tax and employment matters. The maximum
potential payment related to other obligations that are capped is $17 million, while the maximum potential payment for the obligations that are not
capped cannot be determined. At January 3, 2009, we do not believe there are any capped or uncapped matters that could have a significant
adverse effect on our financial position, results of operations or liquidity.
Software Indemnifications
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 indemnifications and have not accrued any liabilities related to
such obligations. The risk that we will be required to perform on any of these indemnifications is low.
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
five 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) 2008 2007 2006
Accrual at beginning of year $ 315 $ 310 $ 313
Provision 190 189 188
Settlements (195) (178) (165)
Adjustments to prior accrual estimates* (26) (15) (26)
Acquisitions and related adjustments (4) 9 —
Accrual at end of year $ 280 $ 315 $ 310
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
Notes to the Consolidated Financial Statements