U-Haul 2009 Annual Report Download - page 24

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The consolidated balance sheets as of March 31, 2009 and 2008 include the accounts of AMERCO and its wholly-
owned subsidiaries. The March 31, 2009 statements of operations and cash flows include AMERCO and its wholly-
owned subsidiaries. The March 31, 2008 statements of operations and cash flows include AMERCO and its wholly-
owned subsidiaries for the entire year, and reflect SAC Holding II for the seven months ended October 31, 2007.
The March 31, 2007 statements of operations and cash flows include the accounts of AMERCO and its wholly-
owned subsidiaries and SAC Holding II.
Recoverability 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., 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 are
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. 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.
Insurance Reserves
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, morbidity and withdrawal assumptions from recognized
actuarial tables which contain margins for adverse deviation. In addition, liabilities for health, disability and other
policies include estimates of payments to be made on insurance claims for reported losses and estimates of losses
incurred, but not yet reported. Liabilities for annuity contracts consist of contract account balances that accrue to the
benefit of the policyholders.