Notes to Consolidated Financial Statements

NOTE 9

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 42 years as of December 31, 2008. 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.

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,

2008

 

2007

 

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Minimum lease payments receivable

$

2,734

 

$

133

 

$

2,867

 

$

2,834

 

$

131

 

$

2,965

 

Estimated residual value

 

1,501

 

 

12

 

 

1,513

 

 

1,559

 

 

16

 

 

1,575

 

Unamortized initial direct costs

 

 

 

1

 

 

1

 

 

 

 

1

 

 

1

 

Unearned income

 

(1,400

)

 

(24

)

 

(1,424

)

 

(1,483

)

 

(25

)

 

(1,508

)

 

$

2,835

 

$

122

 

 

2,957

 

$

2,910

 

$

123

 

 

3,033

 

Allowance for doubtful accounts

 

 

 

 

 

 

 

(159

)

 

 

 

 

 

 

 

(168

)

Finance lease receivables, net

 

 

 

 

 

 

$

2,798

 

 

 

 

 

 

 

$

2,865

 

Current

 

 

 

 

 

 

$

46

 

 

 

 

 

 

 

$

36

 

Noncurrent

 

 

 

 

 

 

$

2,752

 

 

 

 

 

 

 

$

2,829

 

Accumulated deferred taxes arising from leveraged leases, which are included in Deferred Income Taxes, amounted to $2,218 million at December 31, 2008 and $2,307 million at December 31, 2007.

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

(dollars in millions)

Years Ended December 31,

2008

 

2007

 

2006

 

Pretax lease income

$

74

 

$

78

 

$

96

 

Income tax expense

 

30

 

 

30

 

 

57

 

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 leases, along with payments relating to direct financing leases for the periods shown at December 31, 2008, are as follows:

(dollars in millions)

Years

Capital Leases

 

Operating Leases

 

2009

$

240

 

$

26

 

2010

 

148

 

 

19

 

2011

 

114

 

 

14

 

2012

 

124

 

 

7

 

2013

 

124

 

 

5

 

Thereafter

 

2,117

 

 

12

 

Total

$

2,867

 

$

83

 

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 $1,835 million in 2008, $1,712 million in 2007 and $1,608 million in 2006.

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,

2008

 

2007

 

Capital leases

$

298

 

$

329

 

Accumulated amortization

 

(97

)

 

(153

)

Total

$

201

 

$

176

 

The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2008, are as follows:

(dollars in millions)

Years

Capital
Leases

 

Operating
Leases

 

2009

$

90

 

$

1,620

 

2010

 

81

 

 

1,339

 

2011

 

76

 

 

1,039

 

2012

 

56

 

 

770

 

2013

 

51

 

 

539

 

Thereafter

 

126

 

 

1,995

 

Total minimum rental commitments

 

480

 

$

7,302

 

Less interest and executory costs

 

(90

)

 

 

 

Present value of minimum lease payments

 

390

 

 

 

 

Less current installments

 

(63

)

 

 

 

Long-term obligation at December 31, 2008

$

327

 

 

 

 

As of December 31, 2008, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was approximately $57 million.