REVENUE EARNING EQUIPMENT, NET

12 Months Ended

Dec. 31, 2022

Revenue Earning Equipment [Abstract]



(In millions)	Estimated Useful Lives	December 31, 2022						December 31, 2021
		Cost		Accumulated Depreciation		Net		Cost		Accumulated Depreciation		Net
Held for use:	(In years)
Trucks	3 — 7	$	5,282	$	(2,114)	$	3,168	$	5,223	$	(2,055)	$	3,168
Tractors	4 — 7.5	7,153		(3,153)		4,000		7,256		(3,059)		4,197
Trailers and other	9.5 — 12	1,610		(690)		920		1,780		(869)		911
Held for sale		388		(286)		102		210		(163)		47
Total		$	14,433	$	(6,243)	$	8,190	$	14,469	$	(6,146)	$	8,323

Total depreciation expense related to revenue earning equipment primarily used in our FMS segment was $1.5 billion, $1.7 billion and $1.9 billion in 2022, 2021 and 2020, respectively.

Residual Value Estimate Changes

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. Reductions in estimated residual values or useful lives will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual values or useful lives will decrease depreciation expense over the remaining useful life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is based on vehicle class, (i.e., generally subcategories of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer 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.

The following table provides a summary of incremental depreciation expense that has been recorded related to our residual value estimate changes since 2019, as well as used vehicle sales results (rounded to the closest million):


	Years ended December31,
(In millions)	2022		2021		2020


Depreciation expense related to estimate changes	$	193	$	309	$	491
Used vehicle sales, net	(450)		(257)		—

In 2022, we performed a review of the residual values and useful lives of our revenue earning equipment. Based on the results of our analysis, we made adjustments to residual values, which impacted approximately 5% of our total fleet. The increase in depreciation expense in 2022 as a result of our residual value estimate changes was not material to our results of operations.

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 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 2021 as a result of residual value estimate changes was not material to our results of operations.

In 2020, we performed a review of the estimated residual values of our revenue earning equipment primarily due to the COVID-19 pandemic and its impact on current and expected used vehicle market conditions. In evaluating our residual value estimates, we reviewed recent multi-year trends; management and third-party outlook for the used vehicle market, including impacts of COVID-19 and the demand and pricing of our used vehicles; expected sales volumes through our retail and wholesale channels; inventory levels; and other factors that management deemed necessary to appropriately reflect our expected sales proceeds. Based on our review, we reduced our estimated residual values primarily for our truck fleet, and to a lesser extent, our tractor fleet, which resulted in additional depreciation expense of $197 million. This resulted in a decrease to our net earnings of $146 million and diluted earnings per share of $2.78 in 2020. In 2020, the depreciation expense also included $294 million related to the residual value changes that occurred in the second half of 2019.

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 exceed 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 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 if available or third-party market pricing. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as forecasted sales channel mix (retail/wholesale).

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


					Losses from Valuation Adjustments
	December 31,				Years ended December 31,
(In millions)	2022		2021		2022		2021		2020
Revenue earning equipment held for sale (1):
Trucks	$	1	$	1	$	3	$	4	$	18
Tractors	2		2		5		4		12
Trailers and other	—		1		1		6		7
Total assets at fair value	$	3	$	4	$	9	$	14	$	37

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(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 $99 million and $43 million as of December 31, 2022 and 2021, respectively.

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


	Years ended December 31,
(In millions)	2022		2021		2020
Gains on vehicle sales, net (1)	$	(459)	$	(271)	$	(37)
Losses from valuation adjustments	9		14		37
Used vehicle sales, net	$	(450)	$	(257)	$	—

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(1) In 2022, Gains on vehicle sales, net includes $49 million related to the exit of the FMS U.K.business.