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,
	2017			2016
	(In thousands)
Total minimum lease payments receivable	$	713,857		647,111
Less: Executory costs	(216,754		)	(196,469	)
Minimum lease payments receivable	497,103			450,642
Less: Allowance for uncollectibles	(327		)	(248	)
Net minimum lease payments receivable	496,776			450,394
Unguaranteed residuals	41,937			45,748
Less: Unearned income	(91,870		)	(86,668	)
Net investment in direct financing and sales-type leases	446,843			409,474
Current portion	(81,996		)	(76,322	)
Non-current portion	$	364,847		333,152

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, 2017 and 2016:



	December 31,
	2017		2016
	(In thousands)
Very low risk to low risk	$	201,434	192,853
Moderate	198,464		194,234
Moderately high to high risk	97,205		63,555
	$	497,103	450,642

As of December 31, 2017 and 2016, the amount of direct financing lease receivables that 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 2017, 2016 and 2015, rent expense (including rent of facilities and contingent rentals) was $130 million, $127 million and $132 million, respectively.

Lease Payments

Future minimum payments for leases in effect at December 31, 2017 were as follows:



	As Lessor ⁽¹⁾			As Lessee
	Operating Leases		Direct Financing and Sales-Type Leases	Operating Leases
	(In thousands)
2018	$	1,139,552	110,692	84,824
2019	892,754		95,759	63,435
2020	649,096		99,470	41,034
2021	433,319		68,349	24,948
2022	258,381		54,603	18,495
Thereafter	210,213		68,230	38,288
Total	$	3,583,315	497,103	271,024

____________________

(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 $357 million in 2017 and $342 million in both 2016 and 2015. Contingent rentals from direct financing leases included in revenue were $15 million in 2017, $12 million in 2016 and $12 million in 2015 .

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.