U-Haul 2006 Annual Report Download - page 20

AMERCO AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fourth quarter of fiscal 2005, based on an economic market analysis, the Company decreased the estimated
residual value of certain rental trucks. The effect of the change decreased earnings from operations for fiscal 2005 by $2.1
million or $0.10 per share before taxes, in which the tax effect was approximately $0.04 per share. The in-house analysis of
sales of trucks compared the truck model, size, age and average residual value of units sold. Based on the analysis, the
estimated residual values are being decreased to approximately 20% of historic cost. The adjustment reflects
management’ s best estimate, based on information available, of the estimated residual value of these rental trucks.
Fiscal 2006 marked the first time in ten years that the Company has acquired a significant number of new trucks via
purchase rather than lease. Management performed an analysis of the expected economic value of new rental trucks and
determined that additions to the fleet resulting from purchases should be depreciated on an accelerated method based upon
a declining formula. The salvage value and useful life assumptions of the rental truck fleet remain unchanged. This
represents management’ s best estimate based on information available, of the appropriate method of depreciation for trucks
purchased new.
The Company had previously used the straight-line method for new truck purchases. Under the new declining balances
method (2.4 times declining balance) the book value of a rental truck is reduced 16% at the end of its first year, 70% by the
end of its seventh year, and 80% at the end of year fifteen. Under the straight-line method the book value of a rental truck
is reduced 5% at the end of its first year, 37% by the end of its seventh year, and 80% at the end of year fifteen.
The effect of the change in depreciation for trucks purchased in the current fiscal year decreased earnings from
operations for fiscal 2006 by $4.0 million or $0.20 per share before taxes, in which the tax effect was approximately $0.08
per share.
We typically sell our used vehicles at one of our sales centers throughout North America, on our web site at
trucksales.uhaul.com or by calling 1-866-404-0355. Although we typically sell our used vehicles for prices approximating
book value, the extent to which we are able to realize a gain on the sale of used vehicles is dependent upon various factors
including the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and
depreciation rates with respect to the vehicle.
The carrying value of surplus real estate, which is lower than market value at the balance sheet date, was $7.9 million
and $9.0 million for fiscal 2006 and 2005, respectively, and is included in Investments, other.
Receivables
Accounts receivable include trade accounts from moving and self-storage customers and dealers, insurance premiums
and amounts due from ceding re-insurers, less management’ s estimate of uncollectible accounts.
Insurance premiums receivable for policies that are billed through contracted agents are recorded net of commission’ s
payable. A commission payable is recorded as a separate liability for those premiums that are billed direct.
Reinsurance recoverables includes case reserves and actuarial estimates of claims incurred but not reported (“IBNR”).
These receivables are not expected to be collected until after the associated claim has been adjudicated and billed to the re-
insurer. The reinsurance recoverables may have little or no allowance for doubtful accounts due to the fact that reinsurance
is typically procured from carriers with strong credit ratings. Furthermore, the Company does not cede losses to a re-insurer
if the carrier is deemed financially unable to perform on the contract. Also, reinsurance recoverables includes insurance
ceded to other insurance companies.
Notes and mortgage receivables include accrued interest and are reduced by discounts and amounts considered by
management to be uncollectible.
Policy Benefits and Losses, Claims and Loss Expenses Payable
Oxford’ s liabilities for life insurance and certain annuity and health policies are established to meet the estimated future
obligations of policies in force, and are based on mortality and withdrawal assumptions from recognized actuarial tables
which contain margins for adverse deviation. Oxford’ s liabilities for deferred annuity contracts consist of contract account
balances. Liabilities for health, disability and other policies represents estimates of payments to be made on insurance
claims for reported losses and estimates of losses incurred, but not yet reported.
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