Notes to Consolidated Financial Statements

NOTE 10

LEASING ARRANGEMENTS

As Lessor

We are the lessor in leveraged and direct financing lease agreements for commercial aircraft and power generating facilities, which comprise the majority of the portfolio along with telecommunications equipment, real estate property, and other equipment. These leases have remaining terms up to 48 years as of December 31, 2007. Minimum lease payments receivable represent unpaid rentals, less principal and interest on third-party nonrecourse debt relating to leveraged lease transactions. Since we have no general liability for this debt, which holds a senior security interest in the leased equipment and rentals, the related principal and interest have been offset against the minimum lease payments receivable in accordance with GAAP. All recourse debt is reflected in our consolidated balance sheets. See Note 3 for information on lease impairment charges.

Finance lease receivables, which are included in Prepaid Expenses and Other and Other Assets in our consolidated balance sheets are comprised of the following:

(dollars in millions)

At December 31,

2007

 

2006

 

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Minimum lease payments receivable

$

2,959

 

$

131

 

$

3,090

 

$

3,311

 

$

128

 

$

3,439

 

Estimated residual value

 

1,434

 

 

16

 

 

1,450

 

 

1,637

 

 

18

 

 

1,655

 

Unamortized initial direct costs

 

 

 

1

 

 

1

 

 

 

 

 

 

 

Unearned income

 

(1,483

)

 

(25

)

 

(1,508

)

 

(1,895

)

 

(22

)

 

(1,917

)

 

$

2,910

 

$

123

 

 

3,033

 

$

3,053

 

$

124

 

 

3,177

 

Allowance for doubtful accounts

 

 

 

 

 

 

 

(168

)

 

 

 

 

 

 

 

(175

)

Finance lease receivables, net

 

 

 

 

 

 

$

2,865

 

 

 

 

 

 

 

$

3,002

 

Current

 

 

 

 

 

 

$

36

 

 

 

 

 

 

 

$

40

 

Noncurrent

 

 

 

 

 

 

$

2,829

 

 

 

 

 

 

 

$

2,962

 

Accumulated deferred taxes arising from leveraged leases, which are included in Deferred Income Taxes, amounted to $2,307 million at December 31, 2007 and $2,674 million at December 31, 2006.

The following table is a summary of the components of income from leveraged leases:

(dollars in millions)

Years Ended December 31,

2007

 

2006

 

2005

 

Pretax lease income

$

78

 

$

96

 

$

119

 

Income tax expense/(benefit)

 

30

 

 

57

 

 

(25

)

Investment tax credits

 

4

 

 

4

 

 

4

 

The future minimum lease payments to be received from noncancelable leases, net of nonrecourse loan payments related to leveraged and direct financing leases for the periods shown at December 31, 2007, are as follows:

(dollars in millions)

Years

Capital Leases

 

Operating Leases

 

2008

$

127

 

$

29

 

2009

 

215

 

 

23

 

2010

 

136

 

 

16

 

2011

 

110

 

 

10

 

2012

 

110

 

 

9

 

Thereafter

 

2,392

 

 

16

 

Total

$

3,090

 

$

103

 

As Lessee

We lease certain facilities and equipment for use in our operations under both capital and operating leases. Total rent expense from continuing operations under operating leases amounted to $1,712 million in 2007, $1,608 million in 2006 and $1,458 million in 2005.

Amortization of capital leases is included in depreciation and amortization expense in the consolidated statements of income. Capital lease amounts included in plant, property and equipment are as follows:

(dollars in millions)

At December 31,

2007

 

2006

 

Capital leases

$

329

 

$

359

 

Accumulated amortization

 

(153

)

 

(160

)

Total

$

176

 

$

199

 

The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2007, are as follows:

(dollars in millions)

Years

Capital
Leases

 

Operating
Leases

 

2008

$

75

 

$

1,489

 

2009

 

63

 

 

1,276

 

2010

 

59

 

 

1,016

 

2011

 

55

 

 

756

 

2012

 

38

 

 

497

 

Thereafter

 

132

 

 

1,967

 

Total minimum rental commitments

 

422

 

$

7,001

 

Less interest and executory costs

 

(110

)

 

 

 

Present value of minimum lease payments

 

312

 

 

 

 

Less current installments

 

(46

)

 

 

 

Long-term obligation at December 31, 2007

$

266

 

 

 

 

As of December 31, 2007, the total minimum sublease rentals to be received in the future under noncancelable operating and capital subleases were $50 million and $22 million, respectively.