U-Haul 2005 Annual Report Download - page 57

56 I AMERCO ANNUAL REPORT
Major฀ overhauls฀ to฀ rental฀ equipment฀ are฀ capitalized฀
and฀ are฀ amortized฀ over฀ the฀ estimated฀ period฀ benefited.฀
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฀ (gain)฀ or฀ loss฀ netted฀ against฀ depreciation฀ expense฀
amounted฀ to฀ $3.0฀ million,฀ $3.9฀ million฀ and฀ ($10.5)฀
million฀during฀fiscal฀2005,฀2004฀and฀2003,฀respectively.฀
Depreciation฀is฀recognized฀in฀amounts฀expected฀to฀result฀
in฀the฀recovery฀of฀estimated฀residual฀values฀upon฀disposal,฀
i.e.,฀no฀gains฀or฀losses.฀During฀the฀first฀quarter฀of฀fiscal฀
2005,฀ the฀ Company฀ lowered฀ its฀ estimates฀ for฀ residual฀
values฀on฀new฀rental฀trucks฀and฀rental฀trucks฀purchased฀
off฀ TRAC฀ (Terminal฀ Rental฀ Adjustment฀ Clause)฀ leases฀
from฀ 25%฀ of฀ the฀ original฀ cost฀ to฀ 20%.฀ In฀ determining฀
the฀ depreciation฀ rate,฀ historical฀ disposal฀ experience,฀
holding฀ periods฀ and฀ trends฀ in฀ the฀ market฀ for฀ vehicles฀
were฀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.฀
We฀assess฀the฀recoverability฀of฀the฀cost฀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.฀ Impairment,฀ if฀ any,฀ is฀ based฀ on฀ the฀
excess฀of฀the฀carrying฀amount฀over฀the฀fair฀value฀of฀those฀
assets.฀If฀the฀remaining฀cost฀of฀assets฀is฀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.฀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.
The฀carrying฀value฀of฀surplus฀real฀estate,฀which฀is฀lower฀
than฀ market฀ value฀ at฀ the฀ balance฀ sheet฀ date,฀ was฀ $9.0฀
million฀ and฀ $1.5฀ million฀ for฀ fiscal฀ 2005฀ and฀ 2004,฀
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฀commissions฀
payable.฀A฀commission฀payable฀is฀recorded฀as฀a฀separate฀
liability฀for฀those฀premiums฀that฀are฀billed฀direct.
Reinsurance฀ recoverable฀ 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฀ reinsurer.฀The฀ reinsurance฀
recoverable฀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฀
reinsurer฀ if฀ the฀ carrier฀ is฀ deemed฀ financially฀ unable฀ to฀
perform฀ on฀ the฀ contract.฀ Also,฀ reinsurance฀ recoverable฀
includes฀insurance฀ceded฀to฀ other฀insurance฀companies.฀
The฀ amount฀ outstanding฀ increased฀ in฀ 2004฀ as฀ a฀ result฀
of฀ additional฀ ceding฀ on฀ the฀ transportaion฀ and฀ excess฀
workers฀compensation฀programs.
The฀ receivable฀ for฀ premiums฀ and฀ agent฀ balances฀
decreased฀by฀77%฀in฀2004,฀compared฀to฀2003,฀as฀a฀result฀
of฀RepWest฀exiting฀all฀lines฀not฀affiliated฀with฀the฀sefl-
moving฀and฀self-storage฀industries.
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฀ liability฀ for฀ life฀ insurance฀ and฀ certain฀ annuity฀
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฀ liability฀ for฀ annuity฀ contracts฀ consist฀ of฀ contract฀
account฀ balances฀ that฀ accrue฀ to฀ the฀ benefit฀ of฀ the฀
policyholders,฀ excluding฀ surrender฀ values.฀ 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.
RepWest’s฀ liability฀ for฀ reported฀ and฀ unreported฀ losses฀
are฀based฀on฀RepWest’s฀historical฀and฀industry฀averages.฀
The฀liability฀for฀unpaid฀loss฀adjustment฀expenses฀is฀based฀
on฀ historical฀ ratios฀ of฀ loss฀ adjustment฀ expenses฀ paid฀ to฀
losses฀ paid.฀ Amounts฀ recoverable฀ from฀ re-insurers฀ on฀
unpaid฀losses฀are฀estimated฀in฀a฀manner฀consistent฀with฀
the฀ claim฀ liability฀ associated฀ with฀ the฀ reinsured฀ policy.฀
Adjustments฀ to฀ the฀ liability฀ for฀ unpaid฀ losses฀ and฀ loss฀
Amerco and Consolidated Entities
Notes to Consolidated Financial Statements, continued