U-Haul 2009 Annual Report Download - page 67

AMERCO AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 balances 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 Audit 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. The amount of (gains) or losses netted against
depreciation expense were $16.6 million, ($5.9) million and $3.5 million during fiscal 2009, 2008 and 2007, respectively.
Equipment depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon
disposal, i.e., minimize gains or losses. In determining the depreciation rate, historical disposal experience, holding periods
and trends 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. During fiscal 2009, 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 2009 by $19.8 million or $1.02 per share before taxes, in which the
tax effect was approximately $0.38 per share and will continue to affect future periods. 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 originally estimated, the net book value of the assets is
depreciated over the newly determined remaining useful lives.
In fiscal 2006, management performed an analysis of the expected economic value of new rental trucks and determined
that additions to the fleet resulting from purchase 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. Under the declining
balances method (2.4 times declining balance) the book value of a rental truck is reduced approximately 16%, 13%, 11%,
9%, 8%, 7%, and 6% during years one through seven, respectively and then reduced on a straight line basis an additional
10% by the end of year fifteen. Whereas, a standard straight line approach would reduce the book value by approximately
5.3% per year over the life of the truck. For the affected equipment, the accelerated depreciation was $56.0 million, $56.7
million and $33.2 million greater than what it would have been if calculated under a straight line approach for fiscal 2009,
2008 and 2007, respectively.
We typically sell our used vehicles at our sales centers throughout North America, on our web site at
uhaul.com/trucksales or by phone at 1-866-404-0355. Additionally, we sell a large portion of our pick-up and cargo van
fleet at automobile dealer auctions. Although we intend to sell our used vehicles for prices approximating book value, the
extent to which we realize a gain or loss 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 $10.5 million
and $10.3 million for fiscal 2009 and 2008, 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.
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