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,
	2016			2015
	(In thousands)
Total minimum lease payments receivable	$	647,111		684,600
Less: Executory costs	(196,469		)	(205,865	)
Minimum lease payments receivable	450,642			478,735
Less: Allowance for uncollectibles	(248		)	(243	)
Net minimum lease payments receivable	450,394			478,492
Unguaranteed residuals	45,748			52,885
Less: Unearned income	(86,668		)	(93,619	)
Net investment in direct financing and sales-type leases	409,474			437,758
Current portion	(76,322		)	(90,055	)
Non-current portion	$	333,152		347,703

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 in, 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, 2016 and 2015:



	December 31,
	2016		2015
	(In thousands)
Very low risk to low risk	$	192,853	203,388
Moderate	194,234		197,484
Moderately high to high risk	63,555		77,863
	$	450,642	478,735

As of December 31, 2016 and 2015, 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 2016, 2015 and 2014, rent expense (including rent of facilities and contingent rentals) was $127 million, $132 million and $128 million, respectively.

Lease Payments

Future minimum payments for leases in effect at December 31, 2016 were as follows:



	As Lessor ⁽¹⁾			As Lessee
	Operating Leases		Direct Financing and Sales-Type Leases	Operating Leases
	(In thousands)
2017	$	1,093,917	97,877	73,064
2018	888,570		87,195	55,481
2019	601,994		71,547	37,697
2020	461,278		62,298	20,663
2021	285,233		49,515	13,111
Thereafter	227,563		82,210	22,276
Total	$	3,558,555	450,642	222,292

____________________

(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 $342 million in 2016 and $329 million in both 2015 and 2014. Contingent rentals from direct financing leases included in revenue were $12 million in 2016, $12 million in 2015 and $11 million in 2014 .

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.