Notes to Consolidated Financial Statements

NOTE 8

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 41 years as of December 31, 2009. In addition, we lease space on certain of our cell towers to other wireless carriers. 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,

2009

 

2008

 

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Leveraged
Leases

 

Direct
Finance
Leases

 

Total

 

Minimum lease payments receivable

$

2,504

 

$

166

 

$

2,670

 

$

2,734

 

$

133

 

$

2,867

 

Estimated residual value

 

1,410

 

 

12

 

 

1,422

 

 

1,501

 

 

12

 

 

1,513

 

Unearned income

 

(1,251

)

 

(19

)

 

(1,270

)

 

(1,400

)

 

(23

)

 

(1,423

)

Total

$

2,663

 

$

159

 

$

2,822

 

$

2,835

 

$

122

 

$

2,957

 

Allowance for doubtful accounts

             

(158

)

             

(159

)

Finance lease receivables, net

           

$

2,664

             

$

2,798

 

Current

           

$

72

             

$

46

 

Noncurrent

           

 

2,592

               

2,752

 
             

$

2,664

             

$

2,798

 

Accumulated deferred taxes arising from leveraged leases, which are included in Deferred income taxes, amounted to $2,081 million at December 31, 2009 and $2,218 million at December 31, 2008.

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

(dollars in millions)

Years Ended December 31,

 

2009

 

 

2008

 

 

2007

 

Pretax lease income

$

83

 

$

74

 

$

78

 

Income tax expense

 

34

 

 

30

 

 

30

 

Investment tax credits

 

4

 

 

4

 

 

4

 

The future minimum lease payments to be received from noncancelable capital leases (direct financing and leveraged leases), net of nonrecourse loan payments related to leveraged leases, along with payments relating to operating leases for the periods shown at December 31, 2009, are as follows:

(dollars in millions)

Years

Capital Leases

 

Operating Leases

 

2010

$

228

 

$

117

 

2011

 

169

 

 

96

 

2012

 

135

 

 

70

 

2013

 

136

 

 

41

 

2014

 

124

 

 

20

 

Thereafter

 

1,878

 

 

47

 

Total

$

2,670

 

$

391

 

As Lessee

We lease certain facilities and equipment for use in our operations under both capital and operating leases. Total rent expense under operating leases amounted to $2,518 million, $2,201 million and $2,051 million in 2009, 2008 and 2007, respectively.

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,

2009

 

2008

 

Capital leases

$

357

 

$

298

 

Less accumulated amortization

 

126

 

 

97

 

Total

$

231

 

$

201

 

The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2009, are as follows:

(dollars in millions)

Years

Capital
Leases

 

Operating
Leases

 

2010

$

102

 

$

1,971

 

2011

 

92

 

 

1,706

 

2012

 

73

 

 

1,422

 

2013

 

68

 

 

1,154

 

2014

 

53

 

 

938

 

Thereafter

 

106

 

 

5,135

 

Total minimum rental commitments

 

494

 

$

12,326

 

Less interest and executory costs

 

97

 

 

 

 

Present value of minimum lease payments

 

397

 

 

 

 

Less current installments

 

79

 

 

 

 

Long-term obligation at December 31, 2009

$

318

 

 

 

 

As of December 31, 2009, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was approximately $44 million.