Operating Leases as Lessor. One of the Company's major product lines is full-service leasing of commercial trucks, tractors and trailers. These lease agreements provide for a fixed time charge plus a fixed per-mile charge. A portion of these charges is often adjusted in accordance with changes in the Consumer Price Index. Contingent rentals included in income during 1999, 1998 and 1997 were $263 million, $243 million and $235 million, respectively.
Direct Financing Leases. The Company also leases revenue-earning equipment to clients as direct financing leases. The net investment in direct financing leases consisted of:
Contingent rentals included in income were $26 million in 1999, 1998 and 1997.
Operating Leases as Lessee. The Company leases vehicles, facilities and office equipment under operating lease agreements. The majority of these agreements are vehicle leases which specify that rental payments be adjusted periodically based on changes in interest rates and provide for early termination at stipulated values.
During 1999 and 1998, the Company entered into several agreements for the sale and operating leaseback of revenue-earning equipment. The leases contain purchase and renewal options as well as limited guarantees of the lessor's residual value. Proceeds from these transactions totaled $594 million in 1999 and $312 million in 1998.
The Company's sale-leaseback transactions include vehicle securitizations in which the Company sold a beneficial interest in certain revenue-earning equipment to separately rated and unconsolidated vehicle lease trusts. Such securitizations generated cash proceeds of $294 million in 1999 and $73 million in 1998. The vehicles were sold for their carrying value and the Company retained an interest in the form of a subordinated note issued at the date of each sale. The Company is obligated to make lease payments only to the extent of collections on the related vehicle leases and vehicle sales. The Company has provided credit enhancement in the form of cash reserve funds and a pledge of the subordinated notes as additional security for the trusts to the extent that delinquencies and losses on the truck leases and related vehicle sales are incurred. As of December 31, 1999 and 1998, credit enhancements maintained by the Company totaled $29 million and $7 million, respectively, and are included in "Direct Financing Leases and Other Assets" in the accompanying balance sheets.
During 1999, 1998 and 1997, rent expense was $285 million, $242 million and $220 million, respectively. Contingent rentals paid on securitized vehicles were $23 million in 1999 and $10 million in 1998.
Lease Payments.
Future minimum payments for leases in effect at December 31, 1999 were as follows:
The amounts in the previous table are based upon the assumption that revenue-earning equipment will remain on lease for the length of time specified by the respective lease agreements. This is not a projection of future lease revenue or expense; no effect has been given to renewals, new business, cancellations, contingent rentals or future rate changes.
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