Leasing Arrangements

12 Months Ended

Dec. 31, 2012

Leasing Arrangements

Note 7

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 our leasing portfolio along with telecommunications equipment, commercial real estate property and other equipment. These leases have remaining terms of up to 38 years as of December 31, 2012. 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 is secured by 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, and industry and general economic conditions. The credit quality of our lessees primarily varies from AAA to CCC+. 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. All significant accounts, individually or in the aggregate, are current and none are classified as impaired.

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,					2012							2011
	Leveraged Leases		Direct Finance Leases		Total		Leveraged Leases			Direct Finance Leases		Total
Minimum lease payments receivable	$	1,253	$	58	$	1,311	$	1,610		$	119	$	1,729
Estimated residual value		923		6		929		1,202			9		1,211
Unearned income		(654)		(10)		(664)		(874	)		(19)		(893)
Total	$	1,522	$	54	$	1,576	$	1,938		$	109	$	2,047
Allowance for doubtful accounts						(99)							(137)
Finance lease receivables, net					$	1,477						$	1,910
Prepaid expenses and other					$	22						$	46
Other assets						1,455							1,864
					$	1,477						$	1,910

Accumulated deferred taxes arising from leveraged leases, which are included in Deferred income taxes, amounted to $1.2 billion at December 31, 2012 and $1.6 billion at December 31, 2011.

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

	(dollars in millions)
Years Ended December 31,	2012		2011		2010
Pretax income	$	30	$	61	$	74
Income tax expense		12		24		32

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 expected receipts relating to operating leases for the periods shown at December 31, 2012, are as follows:

	(dollars in millions)
Years	Capital Leases		Operating Leases
2013	$	123	$	184
2014		45		162
2015		52		139
2016		122		114
2017		38		89
Thereafter		931		90
Total	$	1,311	$	778

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 2012, 2011 and 2010, 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,	2012		2011
Capital leases	$	358	$	362
Less accumulated amortization		158		132
Total	$	200	$	230

The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2012, are as follows:

	(dollars in millions)
Years	Capital Leases		Operating Leases
2013	$	86	$	2,038
2014		67		1,840
2015		57		1,572
2016		54		1,280
2017		44		992
Thereafter		99		4,119
Total minimum rental commitments		407	$	11,841
Less interest and executory costs		109
Present value of minimum lease payments		298
Less current installments		64
Long-term obligation at December 31, 2012	$	234