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:

At December 31,	2007									2006
(dollars in millions)
	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:

Years Ended December 31,	2007		2006		2005
(dollars in millions)
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:

Years	Capital Leases		Operating Leases
(dollars in millions)
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:

At December 31,	2007			2006
(dollars in millions)
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:

Years	Capital Leases			Operating Leases
(dollars in millions)
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.

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