U-Haul 2008 Annual Report Download - page 69

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 ($5.9) million, $3.5 million and $9.2 million during fiscal 2008, 2007 and 2006, 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.
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 originally estimated, the net book value of the assets is
depreciated over the newly determined remaining useful lives.
Since fiscal 2006, the Company has been acquiring a significant number of moving 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 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 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 $56.7 million, $33.2 million and $4.0 million greater
than what it would have been if calculated under a straight line approach for fiscal 2008, 2007 and 2006, respectively.
We typically sell our used vehicles at our sales centers throughout North America, on our web site at
trucksales.uhaul.com or by phone at 1-866-404-0355. 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 $10.3 million
and $10.8 million for fiscal 2008 and 2007, 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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