UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2010 (First Quarter of Fiscal 2011) for AMERCO, the holding company for U-Haul Holding Co. The company operates three primary segments: Moving and Storage (U-Haul), Property and Casualty Insurance, and Life Insurance. The Moving and Storage segment focuses on self-moving equipment rentals, self-storage, and related products. The insurance segments provide coverage for U-Haul operations and customers, as well as life and annuity products for the senior market.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by 12.5% ($65.3 million) year-over-year.
  • Self-moving equipment rentals: Increased $46.5 million (12.5%) due to higher transaction volumes and improved revenue per transaction.
  • Life insurance premiums: Increased $10.2 million (37.0%) driven by expansion in final expense and single premium whole life products.
  • Self-storage revenues: Increased $1.2 million (4.5%) due to an increase in the number of rooms rented.
• Profitability: Earnings from operations surged to $128.1 million from $59.2 million. This was driven by revenue growth and a $14.6 million decrease in depreciation expense due to a decline in new equipment additions and an aging fleet. Additionally, gains on the disposal of property, plant, and equipment improved by $9.7 million.
• Costs: Total costs and expenses decreased slightly by $3.6 million despite revenue growth, primarily due to lower depreciation and improved maintenance/repair costs.
• Interest Expense: Decreased to $21.5 million from $23.2 million.

Guidance, Outlook, and Risks

• Outlook: Management plans to focus on increasing transaction volume and improving pricing and utilization for self-moving equipment. The company intends to reinvest approximately $210 million in its truck and trailer fleet during fiscal 2011. The Life Insurance segment aims to expand its presence in the senior market through new product offerings and agency force growth.
• Liquidity: The company maintains strong liquidity with $288.1 million in cash and $173.5 million in available credit facilities. Management believes current resources are sufficient to meet operational plans and debt obligations.
• Risks and Contingencies:
  • Legal Proceedings: A shareholder derivative lawsuit (Shoen v. SAC Holding Corporation) regarding the sale of self-storage properties is pending before the Nevada Supreme Court.
  • Environmental: The company faces potential costs for hazardous substance remediation, estimated at $2.6 million through 2011.
  • Market Risk: The company is exposed to interest rate fluctuations on variable rate debt (approx. $641.7 million), though it utilizes interest rate swaps to hedge this risk. A 100 basis point increase in LIBOR would decrease future earnings by approximately $1.4 million annually.
  • Related Party Transactions: Significant transactions exist with entities controlled by major shareholders (SAC Holdings, Blackwater), including management fees, lease payments, and notes receivable totaling $196.7 million.

Investor Verification Checklist

• Depreciation Policy: Verify the impact of the accelerated depreciation method on rental trucks and the specific assumptions regarding residual values and useful lives.
• Related Party Exposure: Review the $196.7 million in notes receivable from SAC Holdings and the terms of the residual value guarantees ($174.6 million) for leased equipment.
• Insurance Reserves: Assess the adequacy of life and property/casualty insurance reserves, particularly given the long-tail nature of certain claims.
• Legal Resolution: Monitor the status of the Shoen derivative lawsuit pending with the Nevada Supreme Court.
• Capital Expenditures: Track the execution of the planned $210 million fleet reinvestment and its funding sources (debt vs. cash flow).