UHAL

Business Context and Reporting Period

Company: AMERCO (Parent of U-Haul International, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: March 31, 2009
Business Overview: AMERCO operates as North America's largest "do-it-yourself" moving and storage operator through its subsidiary U-Haul. The company rents trucks, trailers, and self-storage space, and sells moving supplies. It also operates Property and Casualty Insurance (RepWest) and Life Insurance (Oxford) segments. The company is controlled by the Shoen family, who own approximately 47.7% of the outstanding common stock.

Key Financial Metrics (Fiscal Year 2009)

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by $56.9 million. The primary drivers were a $28.3 million decrease in self-moving equipment rentals and an $11.7 million decrease in self-storage revenues. The self-storage decline was largely due to the deconsolidation of SAC Holding II (accounting for $11.5 million of the decrease) and a 5% drop in occupancy rates at company-owned locations.
• Profitability Collapse: Earnings from operations dropped significantly due to increased equipment-related costs. Depreciation increased by $18.2 million, lease costs by $17.8 million, and losses on equipment disposal by $12.1 million. A reduction in estimated residual values for rental trucks reduced earnings by $19.8 million.
• Deconsolidation Impact: SAC Holding II was deconsolidated effective October 31, 2007. While it contributed to 2008 results, its absence in 2009 impacted comparative revenue and expense figures.
• Stock Performance: The company's stock price declined significantly, trading as low as $21.89 in the fourth quarter of fiscal 2009, compared to a high of $83.87 in the first quarter of fiscal 2008.

Guidance, Outlook, and Risks

• Economic Outlook: Management acknowledges the U.S. economy is in a recession with unprecedented volatility. They anticipate reduced consumer spending and potential further declines in rental volume and pricing power.
• Fiscal 2010 Strategy: The company plans to focus on increasing transaction volume and improving pricing. Capital expenditures for the fleet are expected to decrease relative to recent years due to the aggressive fleet rotation completed over the last four years. The company will continue to invest in the "U-Box" storage container program.
• Liquidity: Management believes current capital resources are sufficient for the next three to five years. However, they note that if operating results worsen significantly or credit markets tighten further, they could face liquidity problems.
• Key Risks:
  • High Leverage: Total debt of $1.55 billion requires significant cash flow allocation for debt service.
  • Competition: Aggressive pricing by competitors (Avis Budget Group, Penske, Public Storage) could force price reductions.
  • Supplier Concentration: Reliance on Ford and GM for truck chassis creates supply chain risks.
  • Legal Proceedings: A shareholder derivative lawsuit regarding the sale of properties to SAC Holdings is pending appeal before the Nevada Supreme Court.

Investor Verification Checklist

• Residual Value Assumptions: Verify the impact of the $19.8 million charge related to the reduction in estimated residual values of rental trucks and whether this trend will continue.
• Debt Maturities: Review the schedule of debt maturities, noting that a significant portion matures in 2014, 2015, and 2018, and assess refinancing risks in a tight credit market.
• SAC Holdings Exposure: Confirm the status of the $197.6 million in junior unsecured notes receivable from SAC Holdings and the risk of default given SAC's high leverage.
• Occupancy Trends: Monitor the 5% decline in self-storage occupancy rates and the company's ability to offset this with rate increases in a recessionary environment.
• Legal Contingencies: Track the outcome of the pending appeal in the Shoen v. SAC Holding Corporation derivative lawsuit.