Honeywell 2002 Annual Report Download - page 223

probable and the costs can be reasonably estimated.
Retained Interests in Factored Pools of Trade Accounts Receivables
As a source of liquidity, we sell interests in designated pools of trade
accounts receivables to third parties. The sold receivables ($500 million at
December 31, 2002) are over-collateralized and we retain a subordinated interest
in the pool of receivables representing that over-collateralization as well as
an undivided interest in the balance of the receivables pools. The
over-collateralization provides credit support to the purchasers of the
receivable interest by limiting their losses in the event that a portion of the
receivables sold becomes uncollectible. At December 31, 2002, our retained
subordinated and undivided interests at risk were $120 and $291 million,
respectively. Based on the underlying credit quality of the receivables placed
into the designated pools of receivables being sold, we do not expect that any
losses related to our retained interests at risk will have a material adverse
effect on our consolidated results of operations, financial position or
liquidity.
Variable Interest Entities
We have entered into agreements to lease land, equipment and buildings.
Principally all of our operating leases have initial terms of up to 25 years and
some contain renewal options subject to customary conditions. At any time during
the terms of some of our leases, we may at our option purchase the leased assets
for amounts that approximate fair value. In certain instances, to obtain
favorable financing terms from lessors, we used variable interest entities as
defined in Financial Accounting Standards Board Interpretation No. 46 (FIN 46)
to finance leased property. At December 31, 2002, we were leasing aircraft,
equipment, land and buildings with related liabilities of approximately $320
million on which we provided residual value guarantees on the leased assets of
approximately $265 million. Pursuant to FIN 46 we must consolidate all variable
interest entities in which we are the primary beneficiary no later than July 1,
2003. Minimum operating lease payments are reflected in the table of contractual
obligations and residual value guarantees are reflected in the table of
guarantees. We do not expect any of our off-balance sheet arrangements to have a
material adverse effect on our consolidated results of operations, financial
position or liquidity.
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