U-Haul 2007 Annual Report Download - page 26

In February 2004, SAC Holding Corporation restructured the indebtedness of three subsidiaries and then
distributed its interest in those subsidiaries to its sole shareholder. This triggered a requirement to reassess
AMERCO’ s involvement with those subsidiaries, which led to the conclusion that based on current contractual and
ownership interests between
20
AMERCO and this entity, AMERCO ceased to have a variable interest in those three
su
’ s ability to fund its own operations and execute its business
pl
nt
an
ccur, we could be required to consolidate some or all of SAC Holding Corporation with
ou
be required to deconsolidate some or all of our variable interest in SAC Holding II
R
preciation rate, historical disposal experience, holding periods and
tr
iginally estimated, the net book value of the assets is depreciated over the newly determined
re
toric cost. The adjustment reflects management’ s best estimate of the estimated residual
value of the rental trucks.
bsidiaries at that date.
Separately, in March 2004, SAC Holding Corporation restructured its indebtedness, triggering a similar
reassessment of SAC Holding Corporation that led to the conclusion that SAC Holding Corporation was not a VIE
and that AMERCO ceased to be the primary beneficiary of SAC Holding Corporation and its remaining subsidiaries.
This conclusion was based on SAC Holding Corporation
an without any future subordinated financial support.
Accordingly, at the dates AMERCO ceased to have a variable interest and ceased to be the primary beneficiary of
SAC Holding Corporation and its current or former subsidiaries, it deconsolidated those entities. The
deconsolidation was accounted for as a distribution of SAC Holding Corporations interests to the sole shareholder of
the SAC entities. Because of AMERCO’ s continuing involvement with SAC Holding Corporation and its curre
d former subsidiaries, the distributions do not qualify as discontinued operations as defined by SFAS No. 144.
It is possible that SAC Holding Corporation could take actions that would require us to re-determine whether SAC
Holding Corporation has become a VIE or whether we have become the primary beneficiary of SAC Holding
Corporation. Should this o
r financial statements.
Similarly, SAC Holding II could take actions that would require us to re-determine whether it is a VIE or whether
we continue to be the primary beneficiary of our variable interest in SAC Holding II. Should we cease to be the
primary beneficiary, we would
from our financial statements.
ecoverability of Property, Plant and Equipment
Property, plant and equipment are stated at cost. Interest expense incurred during the initial construction of
buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes
using the straight-line or an accelerated method based on a declining balance formula over the following estimated
useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. The Company follows
the deferral method of accounting based in the AICPA’ s Airline Guide for major overhauls in which engine
overhauls are capitalized and amortized over five years and transmission overhauls are capitalized and amortized
over three years. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses
on dispositions of property, plant and equipment are netted against depreciation expense when realized. Equipment
depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal,
i.e., no gains or losses. In determining the de
ends in the market for vehicles are reviewed.
We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying
amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets is
shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately
expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense
over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and
trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows
associated with the related asset or group of assets over their estimated remaining lives against their respective
carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and
the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount
over the fair value of those assets. If asset residual values are determined to be recoverable, but the useful lives are
shorter or longer than or
maining useful lives.
During the fourth quarter of fiscal 2007, based on economic market analysis, the Company decreased the
estimated residual value of certain rental trucks. The effect of the change decreased pre-tax earnings for fiscal 2007
by $2.0 million. The in-house analysis of truck sales compared such factors as the truck model, size, age and average
residual value of units sold. Based on the analysis, the estimated residual values of these vehicles were decreased to
approximately 20% of his