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, power generating facilities, telecommunications equipment, real estate property and other equipment. These leases have remaining terms of up to 40 years as of December 31, 2010. 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.

At each reporting period, we monitor the credit quality of the various lessees in our portfolios. Regarding the leveraged lease portfolio, external credit reports are used where available and where not available we use internally developed indicators. These indicators or internal credit risk grades factor historic loss experience, the value of the underlying collateral, delinquency trends, industry and general economic conditions. The credit quality of our lessees vary from AAA to B-. All accounts are current as of the end of this reporting period. For each reporting period the leveraged leases within the portfolio are reviewed for indicators of impairment where it is probable the rent due according to the contractual terms of the lease will not be collected. Currently there are no impaired leases.

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

At December 31,	2010									2009
(dollars in millions)
	Leveraged Leases			Directo Finanzas Leases			Total			Leveraged Leases			Directo Finanzas Leases			Total
Minimum lease payments receivable	$	2,360		$	155		$	2,515		$	2,504		$	166		$	2,670
Estimated residual value		1,305			7			1,312			1,410			12			1,422
Unearned income		(1,140	)		(20	)		(1,160	)		(1,251	)		(19	)		(1,270	)
Total	$	2,525		$	142		$	2,667		$	2,663		$	159		$	2,822
Allowance for doubtful accounts								(152	)								(158	)
Finance lease receivables, net							$	2,515								$	2,664
Prepaid expenses and other							$	59								$	72
Other assets								2,456									2,592
							$	2,515								$	2,664

Accumulated deferred taxes arising from leveraged leases, which are included in Deferred income taxes, amounted to $2.0 billion at December 31, 2010 and $2.1 billion at December 31, 2009.

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

Years Ended December 31,	2010		2009		2008
(dollars in millions)
Pretax income	$	74	$	83	$	74
Income tax expense		32		34		30

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 and allowances for doubtful accounts, along with payments relating to operating leases for the periods shown at December 31, 2010, are as follows:

Años	Capital Leases		Operating Leases
(dollars in millions)
2011	$	194	$	109
2012		156		89
2013		151		71
2014		129		51
2015		85		26
Thereafter		1,800		40
Total	$	2,515	$	386

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 $2.5 billion in 2010 and 2009, and $2.2 billion in 2008.

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:

At December 31,		2010		2009
(dollars in millions)
Capital leases	$	321	$	357
Less accumulated amortization		79		126
Total	$	242	$	231

The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2010, are as follows:

Años	Capital Leases		Operating Leases
(dollars in millions)
2011	$	97	$	1,898
2012		74		1,720
2013		70		1,471
2014		54		1,255
2015		42		1,012
Thereafter		81		5,277
Total minimum rental commitments		418	$	12,633
Less interest and executory costs		86
Present value of minimum lease payments		332
Less current installments		75
Long-term obligation at December 31, 2010	$	257

As of December 31, 2010, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was not significant.