UNITED TECHNOLOGIES CORPORATION 92 We extend a variety of financial guarantees to third parties. As of December 31, 2012 and 2011 the following financial guarantees were outstanding: The following table provides the balance of aerospace long-term receivables and summarizes the associated changes in the reserve for estimated credit losses and exposure for the years ended December 31, 2012 and 2011, respectively: We determine credit ratings for each customer in the portfo- lio based upon public information and information obtained directly from our customers. We conduct a review of customer credit rat- ings, published historical credit default rates for different rating categories, and multiple third party aircraft value publications as a basis to validate the reasonableness of the allowance for losses on these balances quarterly or when events and circumstances war- rant. The credit ratings listed below range from “A” which indicates an extremely strong capacity to meet financial obligations and the receivable is either collateralized or uncollateralized, to “D” which indicates that payment is in default and the receivable is uncollateralized. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses on long-term receivables. NOTE 16: GUARANTEES We also have obligations arising from sales of certain busi- nesses and assets, including those from representations and war- ranties and related indemnities for environmental, health and safety, tax and employment matters. The maximum potential payment related to these obligations is not a specified amount as a number of the obligations do not contain financial caps. The carrying amount of liabilities related to these obligations was $144 million and $138 million at December 31, 2012 and 2011, respectively. For additional information regarding the environmental indemnifications, see Note 18. We accrue for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. In accordance with the FASB ASC Topic “Guarantees” of FASB ASC, we record a liability for the fair value of such guarantees in the balance sheet. We provide service and warranty policies on our products and extend performance and operating cost guarantees beyond our normal service and warranty policies on some of our products, particularly commercial aircraft engines. In addition, we incur discre- tionary costs to service our products in connection with specific product performance issues. Liabilities for performance and operat- ing cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are made to accruals as claim data and historical experience warrant. The changes in the carrying amount The following table summarizes the credit risk profile by creditworthiness category for aerospace long-term receivable balances at December 31, 2012 and 2011: * Represents IAE’s gross obligation; at December 31, 2011 our proportionate share of IAE’s obligations was 33%. As disclosed in Note 2, on June 29, 2012 Pratt & Whitney, Rolls-Royce, MTU and JAEC, completed a restructuring of their interests in IAE and as a result, we now consolidate IAE. 2012 2011 (DOLLARS IN MILLIONS) Maximum Potential Payment Carrying Amount of Liability Maximum Potential Payment Carrying Amount of Liability IAE’s financing arrangements* (See Note 5) $ – $ – $ 989 $ 20 Commercial aerospace financing arrangements (See Note 5) 346 7 323 30 Credit facilities and debt obligations—unconsolidated subsidiaries (expire 2013 to 2034) 240 2 239 3 Performance guarantees 33 – 33 – (DOLLARS IN MILLIONS) 2012 2011 Beginning balance of the reserve for credit losses and exposure as of January 1 $ 70 $ 42 Provision 1 25 Charge-offs – – Recoveries (5) (9) Other (6) 12 Ending balance of the reserve for credit losses and exposure: individually evaluated for impairment as of December 31 $ 60 $ 70 Ending balance of long-term receivables: individually evaluated for impairment as of December 31 $ 1,177 $ 569 December 31, 2012 December 31, 2011 (DOLLARS IN MILLIONS) Long-term trade accounts receivable Notes and leases receivable Long-term trade accounts receivable Notes and leases receivable A—(low risk, collateralized/ uncollateralized) $ 569 $ 26 $ 201 $ – B—(moderate risk, collateralized/ uncollateralized) 21 458 3 295 C—(high risk, collateralized/ uncollateralized) 3 100 – 70 D—(in default, uncollateralized) – – – – Total $ 593 $ 584 $ 204 $ 365