Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

For the year ended December 31, 2001, a loss of $14, net of tax, reflected in accumulated other comprehensive income was reclassified to other income. During the next twelve months, the Company expects to reclassify to other income a loss of $20, net of tax, from the amount recorded in accumulated other comprehensive income.

Derivative Financial Instruments Not Receiving Hedge Treatment The Company holds interest exchange agreements and related interest rate swaps. The intent of these interest rate swaps is to economically hedge the exposures created by the interest exchange agreements. However, because the exposures being hedged are derivative instruments, this relationship does not qualify for hedge accounting under SFAS No. 133. As a result, changes in fair value of both instruments are immediately recognized in income. For the year ended December 31, 2001, the interest exchange agreements resulted in other income of $8 and the related interest rate swaps resulted in a reduction of other income of $9. The Company also holds a forward-starting interest rate swap that is not accounted for as a hedge.

As of December 31, 2001, the conversion feature of certain convertible debt and warrants were reflected in other assets at their fair values of $12. For the year ended December 31, 2001, the conversion feature of the convertible debt and warrants recorded in other assets had an increase in fair value, resulting in $2 recorded in other income.

At December 31, 2001, the Company had foreign currency forward contracts carried at fair value that did not qualify for hedge accounting. The Company realized a pretax gain of $9 attributable to these forward contracts during the year ended December 31, 2001, reflected in other income.

Upon adoption of SFAS No. 133, the Company recorded an unrecognized net gain of $9 ($6 net of tax) in accumulated other comprehensive income attributable to derivatives not receiving hedge treatment. The components of this transition adjustment are being amortized to other income, with a net loss of $1 expected to be reclassified to other income during the next twelve months. At December 31, 2001, the unamortized balance in accumulated other comprehensive income was a net gain of $9 ($6 net of tax).

Interest rate swap contracts and foreign currency forward contracts are entered into with a number of major financial institutions in order to minimize counterparty credit risk. The Company generally does not require collateral or other security supporting derivative contracts with its counterparties. The Company believes that it is unlikely that any of its counterparties will be unable to perform under the terms of derivative financial instruments.

Note 24 – Arrangements with Off-Balance-Sheet Risk

Financial Instruments The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business, principally relating to customer financing activities. Financial instruments with off-balancesheet risk include financing commitments, credit guarantees, and participation in customer financing receivables with third-party investors that involve interest rate terms different from the underlying receivables.

Irrevocable financing commitments related to aircraft on order, including options, scheduled for delivery through 2010 totaled $7,508 and $6,230 as of December 31, 2001 and 2000. The Company anticipates that not all of these commitments will be utilized and that it will be able to arrange for third-party investors to assume a portion of the remaining commitments, if necessary. The Company has additional commitments to arrange for commercial equipment financing totaling $344 and $288 as of December 31, 2001 and 2000.

Participations in customer financing receivables with third-party investors that involve interest rate terms different from the underlying receivables totaled $51 and $54 as of December 31, 2001 and 2000.

The Company’s maximum exposure to credit-related losses associated with credit guarantees, without regard to collateral but net of established reserves, totaled $558 ($174 associated with commercial aircraft and collateralized and $357 associated with the Sea Launch joint venture) and $655 ($261 associated with commercial aircraft and collateralized and $373 associated with the Sea Launch joint venture) as of December 31, 2001 and 2000. Of the $174 exposure associated with commercial aircraft as of December 31, 2001, the Company estimates that the fair value of the underlying collateral, principally commercial aircraft, would cover approximately $63 of the exposure. A substantial portion of the commercial aircraft credit-related guarantees have been extended on behalf of counterparties with less than investment-grade credit. The credit-related exposure related to Sea Launch is not significantly covered by a collateral position in any assets.

The Company’s maximum exposure to losses associated with asset value guarantees, without regard to collateral but net of established reserves, totaled $725 and $522 as of December 31, 2001 and 2000. These exposures relate principally to commercial aircraft and are collateralized. As of December 31, 2001, the Company estimates that the fair value of the underlying collateral, principally commercial aircraft, would cover approximately $680 of the exposure.

As of December 31, 2001 and 2000, accounts payable and other liabilities included $416 ($48 related to the events of September 11, 2001) and $343 attributable to risks associated with credit-related guarantees and asset value guarantees.

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