LEASES

Leases as Lessor

We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. From time to time, we may also lease facilities to third parties. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. The net investment in direct financing and sales-type leases consisted of:



	December 31,
	2015			2014
	(In thousands)
Total minimum lease payments receivable	$	684,600		659,551
Less: Executory costs	(205,865		)	(210,241	)
Minimum lease payments receivable	478,735			449,310
Less: Allowance for uncollectibles	(243		)	(288	)
Net minimum lease payments receivable	478,492			449,022
Unguaranteed residuals	52,885			55,992
Less: Unearned income	(93,619		)	(88,003	)
Net investment in direct financing and sales-type leases	437,758			417,011
Current portion	(90,055		)	(85,946	)
Non-current portion	$	347,703		331,065

Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases. Credit risk is assessed using an internally developed model, which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry that the customer operates, company size, years in business and other credit-related indicators (i.e., profitability, cash flow, liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) history of late payments; ii) open lawsuits, liens or judgments; iii) in business less than three years; and iv) operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.

The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables at December 31, 2015:



	December 31,
	2015		2014
	(In thousands)
Very low risk to low risk	$	203,388	198,496
Moderate	197,484		158,790
Moderately high to high risk	77,863		92,024
	$	478,735	449,310

As of December 31, 2015 and 2014, the amount of direct financing lease receivables which were past due was not significant and there were no impaired receivables. Accordingly, there was no material risk of default with respect to these receivables.

Leases as Lessee

We lease facilities and office equipment. None of our leasing arrangements contain restrictive financial covenants.

During 2015, 2014 and 2013, rent expense (including rent of facilities and contingent rentals) was $132 million, $128 million and $123 million, respectively.

Lease Payments

Future minimum payments for leases in effect at December 31, 2015 were as follows:



	As Lessor ⁽¹⁾			As Lessee
	Operating Leases		Direct Financing Leases	Operating Leases
	(In thousands)
2016	$	1,049,766	111,116	74,103
2017	857,397		93,215	39,265
2018	678,150		76,073	21,675
2019	481,790		60,062	14,066
2020	298,659		50,402	6,896
Thereafter	241,589		87,867	17,420
Total	$	3,607,351	478,735	173,425

____________________

(1)

Amounts do not include contingent rentals, which may be received under certain leases on the basis of miles or changes in the Consumer Price Index. Contingent rentals from operating leases included in revenue were $329 million in 2015 and $318 million in both 2014 and 2013. Contingent rentals from direct financing leases included in revenue were $12 million in 2015 and $11 million in each of 2014 and 2013 .

The amounts in the previous table related to the lease of revenue earning equipment are based upon the general assumption that revenue earning equipment will remain on lease for the length of time specified by the respective lease agreements. The future minimum payments presented above related to the lease of revenue earning equipment are not a projection of future lease revenue or expense and no effect has been given to renewals, new business, cancellations, contingent rentals or future rate changes.