UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2007 (First Quarter of Fiscal 2008) for AMERCO and its consolidated entities, including U-Haul International, Inc. The company operates four reportable segments: Moving and Storage, Property and Casualty Insurance, Life Insurance, and SAC Holding II. The Moving and Storage segment, conducted under the U-Haul brand, focuses on self-moving equipment rentals, self-storage, and related product sales across the United States and Canada.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by $8.5 million (1.5%) primarily due to an $11.1 million drop in self-moving equipment rentals. This was driven by lower average one-way revenue per transaction and utilization rates, despite an increase in fleet size and transaction volume.
• Profitability Compression: Earnings from operations fell $18.1 million (16.4%) to $92.1 million. This decline was caused by the revenue decrease and a $9.6 million increase in total costs and expenses, largely attributed to higher depreciation from new truck acquisitions.
• Segment Performance:
  • Moving and Storage: Revenues decreased $8.4 million; operating earnings dropped $18.4 million.
  • Self-Storage: Revenues increased $1.6 million due to pricing increases and expanded square footage.
  • Insurance: Life insurance premiums decreased $1.7 million due to reduced credit premiums, while Property and Casualty premiums increased $0.5 million.
• Debt Expansion: Total AMERCO notes and loans payable increased by approximately $401 million to $1.58 billion. This increase funded fleet expansion, including new securitization facilities for box trucks and cargo vans.
• Stock Repurchases: The company repurchased 485,999 shares of common stock for approximately $34.0 million during the quarter.

Guidance, Outlook, and Risks

• Outlook: Management plans to increase transaction volume and improve pricing and utilization for self-moving equipment in Fiscal 2008. The company intends to continue investing in its truck fleet (adding over 9,000 new trucks in Q1) and expanding self-storage capacity through build-outs and new locations.
• Liquidity: The company maintains $161.6 million in cash and cash equivalents. Available liquidity includes $238.3 million under existing credit facilities and $196.3 million in purchase accounts related to fleet securitization.
• Capital Expenditures: U-Haul estimates reinvesting up to $400 million annually in its truck and trailer fleet over the next three years. Real Estate expects to invest approximately $80 million in new storage development over the next 12-18 months.
• Risks and Contingencies:
  • Legal Proceedings: Ongoing derivative litigation (Shoen et al.) regarding the sale of self-storage properties to SAC Holdings remains pending, though the court previously dismissed claims based on board independence.
  • Environmental: The company faces costs related to the remediation of underground fuel storage tanks, estimated at $7.7 million through 2011.
  • Interest Rate Risk: The company has approximately $759.6 million in variable rate debt. A 100 basis point increase in LIBOR would increase annual interest expense by approximately $0.8 million after hedging.

Investor Verification Checklist

• Verify the impact of the $10.0 million gain on the sale of real estate included in depreciation expenses, which partially offset the reported depreciation increase.
• Confirm the utilization rates and average revenue per transaction for the self-moving equipment fleet, as these are key drivers of the revenue decline.
• Review the terms of the new $303.6 million fleet securitization notes issued in June 2007 and their impact on future cash flows.
• Monitor the status of the derivative litigation against the Board of Directors and potential financial exposure.
• Assess the progress of the $80 million self-storage development plan and its effect on occupancy rates and revenue.