REVENUE EARNING EQUIPMENT



	September 30, 2017					December 31, 2016
	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾
	(In thousands)
Held for use:
ChoiceLease	$	9,799,028	(3,284,267	)	6,514,761	$	9,486,977	(3,031,937	)	6,455,040
Commercial rental	2,599,043		(973,126	)	1,625,917	2,499,010		(935,346	)	1,563,664
Held for sale	417,771		(309,132	)	108,639	494,355		(365,337	)	129,018
Total	$	12,815,842	(4,566,525	)	8,249,317	$	12,480,342	(4,332,620	)	8,147,722

————————————


(1)	Revenue earning equipment, net includes vehicles acquired under capital leases of $29 million, less accumulated depreciation of $14 million, at September 30, 2017, and $43 million, less accumulated depreciation of $22 million, at December 31, 2016.

We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. 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. As of September 30, 2017 and December 31, 2016, the net investment in direct financing and sales-type leases was $439 million and $409 million, respectively. 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 prior to signing a ChoiceLease contract. For those customers who are designated as high risk, we typically require security deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicles, which further mitigates our credit risk.

As of September 30, 2017 and December 31, 2016, the amount of direct financing lease receivables past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables.

Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value are recognized at the time they arrive at our used truck sales centers and are presented within “Used vehicle sales, net” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For a certain population of our revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. These vehicles held for sale were classified within Level 3 of the fair value hierarchy.

The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:



				Total Losses ⁽²⁾
	September 30,			Three months ended September 30,			Nine months ended September 30,
	2017		2016	2017		2016	2017		2016
	(In thousands)
Assets held for sale:
Revenue earning equipment ⁽¹⁾:
Trucks	$	14,081	17,091	$	6,215	2,528	$	22,942	6,842
Tractors	15,448		61,480	1,127		7,985	18,444		22,073
Trailers	2,279		2,563	1,871		1,152	5,044		2,589

Total assets at fair value	$	31,808	81,134	$	9,213	11,665	$	46,430	31,504

————————————


(1)	Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value adjustments were recorded. The net book value of assets held for sale which were less than fair value was $77 million and $76 million as of September 30, 2017 and 2016, respectively.


(2)	Total losses represent fair value adjustments for all vehicles reclassified to held for sale throughout the period for which fair value was less than net book value.

For the three and nine months ended September 30, 2017 and 2016, the components of gains on used vehicles, net were as follows:



	Three months ended September 30,					Nine months ended September 30,
	2017			2016		2017			2016
	(In thousands)
Gains on vehicle sales, net	$	(11,940	)	(13,538	)	$	(34,615	)	(64,506	)
Losses from fair value adjustments	9,213			11,665		46,430			31,504
Used vehicle sales, net	$	(2,727	)	(1,873	)	$	11,815		(33,002	)