UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2008, for AMERCO (U-Haul Holding Co), a Nevada corporation. The company operates primarily in the "do-it-yourself" moving and storage industry through its U-Haul brand, alongside property and casualty insurance (RepWest) and life insurance (Oxford) segments. Notably, the company deconsolidated SAC Holding II in November 2007, which significantly impacts year-over-year comparisons for self-storage revenues.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Consolidated revenues decreased slightly in both the quarter and six-month periods. The primary driver was the deconsolidation of SAC Holding II, which reduced self-storage revenues by approximately $4.8 million (quarter) and $9.8 million (six months). Company-owned self-storage occupancy rates also declined to 81.8% (quarter) and 81.3% (six months) compared to 86.5% and 86.0% in the prior year.
• Increased Expenses: Total costs and expenses increased due to higher depreciation and lease expenses associated with new truck additions to the fleet. The company shifted from purchasing trucks to leasing them, impacting cash flow but increasing operating expenses.
• Profitability: Earnings from operations decreased to $95.5 million (quarter) and $167.2 million (six months) compared to $109.1 million and $201.1 million in the prior year, respectively. This was driven by the revenue declines and increased fleet-related costs.
• Interest Expense: Interest expense decreased to $24.9 million (quarter) and $48.8 million (six months) due to lower LIBOR rates and the deconsolidation of SAC Holding II.

Guidance, Outlook, and Risks

• Outlook: Management expects to reinvest approximately $350 million in the truck and trailer fleet during fiscal 2009, funded largely by external lease financing. The company aims to increase transaction volume and improve pricing for self-moving equipment rentals. Storage occupancy gains are expected in fiscal 2009.
• Risk Factors:
  • Economic Conditions: The company faces risks from a slowing U.S. economy and unprecedented volatility in credit markets, which could reduce consumer spending and limit access to financing.
  • Supply Chain: The company relies on a limited number of manufacturers (Ford and GM) for rental trucks. Supply chain disruptions or supplier financial difficulties could negatively impact fleet rotation.
  • Used Vehicle Market: Fleet rotation depends on the resale value of used equipment. A decline in resale values could increase depreciation expenses and reduce cash flows.
• Legal Proceedings: The company is involved in a shareholder derivative lawsuit (Shoen v. SAC Holding Corp) regarding the sale of self-storage properties to SAC Holdings. The case was dismissed in April 2008, but plaintiffs have appealed to the Nevada Supreme Court.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of debt maturities, noting that significant portions mature in 2014, 2015, and 2018, and assess refinancing risks given current credit market conditions.
• Lease vs. Debt Strategy: Confirm the shift from debt-financed purchases to operating leases for new trucks and its impact on future cash flows and balance sheet leverage.
• Self-Storage Occupancy: Monitor occupancy rates for company-owned facilities, which have declined, and assess the impact of the deconsolidation of SAC Holding II on long-term revenue growth.
• Related Party Transactions: Review the ongoing financial relationships with SAC Holdings, including management fees, interest income on notes receivable, and dealership commissions.
• Insurance Reserves: Evaluate the adequacy of insurance reserves for RepWest and Oxford, particularly regarding discontinued lines and long-tail claims.