REVENUE EARNING EQUIPMENT, NET

9 Months Ended

Sep. 30, 2021

Revenue Earning Equipment [Abstract]


	Estimated Useful Lives	September 30, 2021						December 31, 2020
		Cost		Accumulated Depreciation		Net		Cost		Accumulated Depreciation		Net
	(In years)	(In thousands)
Held for use:
Trucks	3 — 7	$	5,151,634	$	(1,993,329)	$	3,158,305	$	5,061,266	$	(1,818,594)	$	3,242,672
Tractors	4 — 7.5	7,266,726		(3,032,901)		4,233,825		7,013,595		(2,853,591)		4,160,004
Trailers and other	9.5 — 12	1,816,896		(839,048)		977,848		2,046,768		(804,006)		1,242,762
Held for sale		304,079		(239,026)		65,053		644,132		(512,555)		131,577
Total		$	14,539,335	$	(6,104,304)	$	8,435,031	$	14,765,761	$	(5,988,746)	$	8,777,015

Policy and Accelerated Depreciation

We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense. A reduction in estimated residual values or useful lives will result in an increase in depreciation expense over the remaining life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is established with a long-term view, which we refer to as "policy depreciation." Our policy depreciation is based on a variety of factors, including vehicle class, generally subcategories of trucks, tractors and trailers, by weight, usage and other factors; historical, current, and internal and third-party expected future market prices; expected lives of vehicles; and expected sales of used vehicles in the wholesale and retail markets. Factors that could cause actual results to materially differ from estimates, include changes in technology; changes in supply and demand; competitor pricing; regulatory requirements; driver shortages, requirements and preferences; and changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to manage the risk associated with the residual values of our revenue earning equipment.

We also assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) based on near-term market rates and conditions and may adjust estimates of residual values for these vehicles, which we refer to as "accelerated depreciation."

During the second quarter of 2021, we completed a review of the residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we primarily adjusted our residual value estimates for certain tractors and useful lives of certain classes of our revenue earning equipment, which impacted approximately 15% of our total fleet. The increase in depreciation expense in the third quarter of 2021 was not material to our results of operations.

The following table provides a summary of amounts that have been recorded for accelerated and policy depreciation related to our residual value and useful life estimate changes since 2019, as well as used vehicle sales results (rounded to the closest million):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	(In thousands)
Accelerated depreciation	$	10,000	$	46,000	$	52,000	$	202,000
Policy depreciation	66,000		67,000		187,000		186,000
Used vehicle sales, net	(69,000)		(13,000)		(150,000)		17,000

Used Vehicle Sales and Valuation Adjustments

Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value, which we refer to as "valuation adjustments," are recognized at the time they are deemed to meet the held for sale criteria and are presented within “Used vehicle sales, net” in the Condensed Consolidated Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as the forecasted sales channel mix (retail/wholesale).

The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:



					Valuation Adjustments
					Three months ended September 30,				Nine months ended September 30,
	September 30, 2021		December 31, 2020 (2)		2021		2020		2021		2020
	(In thousands)
Revenue earning equipment held for sale (1):

Trucks	$	1,140	$	3,848	$	1,224	$	511	$	2,798	$	16,962
Tractors	446		2,211		2,177		603		2,836		12,091
Trailers and other	560		4,092		1,161		819		5,036		5,404
Total assets at fair value	$	2,146	$	10,151	$	4,562	$	1,933	$	10,670	$	34,457

————————————

(1)Reflects only the portion where net book values exceeded fair values and valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was $63 million and $121 million as of September 30, 2021 and December 31, 2020, respectively.

(2)Adjusted the presentation of the vehicles held for sale that were recorded to fair value to now exclude vehicles that previously recognized accumulated accelerated depreciation.

The components of used vehicle sales, net were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	(In thousands)
Gains on vehicle sales, net	$	(73,865)	$	(14,852)	$	(160,458)	$	(17,204)
Losses from valuation adjustments	4,562		1,933		10,670		34,457
Used vehicle sales, net	$	(69,303)	$	(12,919)	$	(149,788)	$	17,253