UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2008 (First Quarter of Fiscal 2009) for AMERCO (U-Haul Holding Co). The company operates primarily through four segments: Moving and Storage (U-Haul), Property and Casualty Insurance (RepWest), Life Insurance (Oxford), and SAC Holding II (deconsolidated as of November 2007). The Moving and Storage segment focuses on self-moving equipment rentals, self-storage, and related product sales across the U.S. and Canada.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased by $11.5 million (2.1%). This was driven by a $4.5 million drop in self-storage revenues and a $6.1 million drop in product sales, largely due to the deconsolidation of SAC Holding II effective October 2007. Self-moving equipment rentals declined slightly ($2.5 million) due to a smaller average fleet size during a rotation period.
• Profitability Compression: Earnings from operations fell $20.3 million (22.1%). While revenues declined, total costs and expenses increased by $8.9 million. The primary driver was a significant increase in depreciation expense ($64.9 million vs. $44.3 million) associated with the acquisition of new trucks. This was partially offset by a $10.0 million gain on the sale of real estate included in the prior year's depreciation line item.
• Cash Flow Improvement: Net cash provided by operating activities increased by $14.5 million, primarily due to improved cash flows from insurance subsidiaries and reduced tax payments.
• Investing Activity: Net cash used in investing activities decreased significantly ($99.1 million) compared to the prior year, reflecting a strategic shift from debt-financed purchases to operating leases for new truck acquisitions.

Guidance, Outlook, and Risks

• Outlook: Management plans 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, improve pricing, and expand storage occupancy. Oxford Life Insurance is pursuing growth in the senior market through Medicare supplement and annuity sales.
• Liquidity: The company maintains $239.8 million in cash and cash equivalents and has $187.7 million in available borrowing capacity under existing credit facilities. Management believes liquidity is sufficient for the next 3-5 years.
• Legal Contingencies: A shareholder derivative lawsuit (Shoen v. SAC Holding Corp.) regarding the sale of self-storage properties to SAC Holdings remains on appeal to the Nevada Supreme Court. Management believes the outcome will not have a material adverse effect.
• Market Risks: The company is exposed to interest rate risk on approximately $687.8 million of variable-rate debt, mitigated by interest rate swaps. A 100 basis point increase in LIBOR would decrease future earnings by approximately $1.3 million annually. Foreign currency exposure (Canada) is approximately 6.3% of revenue and is not hedged.

Investor Verification Checklist

• Fleet Rotation Impact: Verify the timeline for the completion of the truck fleet rotation and the expected stabilization of depreciation expenses.
• SAC Holding II Deconsolidation: Confirm the ongoing financial relationship and revenue recognition from management fees and interest income related to SAC Holdings, which are now off-balance sheet.
• Self-Storage Occupancy: Monitor occupancy rates, which declined to 80.8% in Q1 2009 from 85.5% in the prior year, particularly in isolated markets like Florida.
• Legal Proceedings: Track the status of the Shoen derivative lawsuit appeal and any potential financial implications.
• Debt Maturities: Review the annual maturities of long-term debt, with significant portions due in 2014, 2015, and 2018, to assess refinancing risks.