Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from Jim Barrett with CL King & Associates.
Jim Barrett - CL King & Associates
Good morning, everyone.
Joe Shoen
Good morning, Jim.
Jim Barrett - CL King & Associates
Joe, this is an accounting question. Your use of accelerated depreciation, can you give us any thought as to at what point does that catch up with straight-line depreciation? In other words, at what point does it stop penalizing your GAAP earnings?
Jason Berg
Jim, hi, this is Jason. We start to reach that point at about year five on that. I would also like to point out that we have changed our allocation this year of how we are funding new fleet acquisitions. We have gone more towards operating leases versus fleet loans. So we are going to see the lease expense number begin to go up, which goes up at a slower rate than if we were to buy the equipment and depreciate it. So there may be a moderation of the depreciation expense over the course of this year as compared to the increases that you have seen in that line in the last two years.
Jim Barrett - CL King & Associates
I see. Year five break even, what fiscal year would you estimate that to be?
Jason Berg
Well, we started this depreciation method in the third quarter of fiscal '06. We have really been adding quite a few trucks, so we're going to continue to, you if you're compare with what it would have been under straight line, I do not have that specific date, but we're still quite a few years out from that just because of how much we have put on.
Joe Shoen
Jason, I'm going to butt in here, at the risk of destroying it totally. I shouldn't normally comment on accounting. I think that there is two places where these become equal, one is where accumulated depreciation in the fleet becomes the same under both methods, and the other is where annual depreciation crosses over, and I think Jim is looking, I think, Jim, at the point when annual depreciation crosses over.
Jason Berg
That's correct.
Joe Shoen
I think Jason answered, when accumulated depreciation crosses over. I believe annual depreciation is going to cross over in the third year.
Jim Barrett - CL King & Associates
I see.
Joe Shoen
I am doing this from memory, Jim, but I mean, I am very much interested in the subject, okay. So my memory is not totally bad. Because, I believe Jason what actually happens is, the last two years you have less depreciation than you would under a lease. In the first, two, and almost three years you have substantially more. And, so, it's a--
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