Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 31, 2008 (Fiscal Q3 2009) and the nine months ended December 31, 2008, for AMERCO (U-Haul Holding Co). 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. The reporting period reflects the impact of the deconsolidation of SAC Holding II, which occurred in October 2007, and the effects of the 2008 economic downturn on moving volumes.
Key Financial Metrics
| Metric | Q3 2008 (Quarter) | Q3 2007 (Quarter) | 9 Months 2008 | 9 Months 2007 |
|---|---|---|---|---|
| Total Revenues | $442.6 million | $465.5 million | $1,576.9 million | $1,616.1 million |
| Net Earnings (Loss) | $(25.0) million | $(10.4) million | $48.7 million | $81.8 million |
| Loss to Common Shareholders | $(28.2) million | $(13.6) million | $39.0 million | $72.1 million |
| Diluted EPS (Loss) | $(1.46) | $(0.69) | $2.01 | $3.64 |
| Cash and Equivalents | $311.5 million | $206.6 million (Mar 31, 2008) | $311.5 million | $203.7 million (Dec 31, 2007) |
| Total Debt (Notes, Loans, Leases) | $1,560.6 million | $1,504.7 million (Mar 31, 2008) | $1,560.6 million | $1,504.7 million (Mar 31, 2008) |
| Operating Cash Flow (9 Mo) | N/A | N/A | $252.9 million | $302.9 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 4.9% in Q3 and 2.4% for the nine months compared to the prior year. The primary driver was a decrease in self-moving equipment rental revenues (down $15.3M in Q3 and $14.3M for nine months) attributed to inclement weather and reduced one-way rental transactions.
- Operating Loss in Q3: The company reported an operating loss of $14.0 million in Q3 2008, compared to operating earnings of $8.3 million in Q3 2007. This was driven by increased fleet-related costs, including a $10.8 million increase in lease expense and a $13.7 million increase in depreciation for the nine-month period.
- Deconsolidation Impact: The deconsolidation of SAC Holding II (effective Oct 2007) accounted for a significant portion of the revenue decline in self-storage and product sales compared to the prior year.
- Insurance Segment Performance: Life insurance premiums decreased due to lapses in Medicare supplement policies, while Property and Casualty premiums increased slightly due to U-Haul related business.
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 invest approximately $350 million in its truck and trailer fleet for fiscal 2009, with investments largely funded through external lease financing.
- Liquidity: As of December 31, 2008, the company held $311.5 million in cash and cash equivalents and had $42.7 million available under existing credit facilities. Management believes liquidity is sufficient for current and foreseeable needs.
- Risks and Contingencies:
- Legal Proceedings: Ongoing shareholder derivative litigation (Shoen v. SAC Holding Corp) regarding the sale of self-storage properties to SAC Holdings remains pending on appeal.
- Environmental: The company faces potential costs for remediation of hazardous substances at certain properties, estimated at approximately $2.8 million through 2011.
- Market Risk: Exposure to interest rate fluctuations on variable-rate debt is mitigated through interest rate swaps. Foreign currency risk related to Canadian operations is considered immaterial.
- Economic Conditions: Adverse economic conditions could continue to impact revenue in the U-Move program and self-storage occupancy.
Investor Verification Checklist
- Fleet Financing Strategy: Verify the shift from debt financing to operating leases for new truck acquisitions and its impact on future depreciation and lease expense.
- Residual Value Guarantees: Review the $181.7 million in residual value guarantees for rental equipment assets at the end of lease terms.
- Related Party Transactions: Confirm the terms and financial impact of transactions with SAC Holdings, including management fees ($20.1M for 9 months) and interest income on notes receivable ($13.8M for 9 months).
- Insurance Reserves: Assess the adequacy of insurance reserves for RepWest and Oxford, particularly regarding long-tailed claims and Medicare supplement lapses.
- Capital Expenditures: Monitor the execution of the $350 million fleet investment plan and the availability of external lease financing.