Business Context and Reporting Period
Company: AMERCO (Parent of U-Haul International, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: March 31, 2008
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 and trailers, offers self-storage rooms, and sells moving supplies through a network of nearly 1,450 company-operated centers and approximately 14,200 independent dealers. The company also operates two insurance subsidiaries: Republic Western Insurance Company (property and casualty) and Oxford Life Insurance Company (life and health insurance).
Significant Event: In November 2007, the company deconsolidated SAC Holding II Corporation following a capital contribution by Blackwater Investments Inc. (controlled by a significant shareholder). This change affects the comparability of financial data between fiscal 2007 and 2008.
Key Financial Metrics (Fiscal Year 2008)
| Metric | 2008 (in millions) | 2007 (in millions) |
|---|---|---|
| Total Revenues | $2,049.2 | $2,069.3 |
| Earnings from Operations | $203.7 | $235.2 |
| Net Earnings | $67.8 | $90.6 |
| Earnings Available to Common Shareholders | $54.8 | $77.6 |
| Diluted EPS | $2.78 | $3.72 |
| Total Assets | $3,832.5 | $3,523.0 |
| Total Debt (Notes and Loans Payable) | $1,504.7 | $1,181.2 |
| Cash and Cash Equivalents | $206.6 | $75.3 |
| Operating Cash Flow | $329.3 | $350.7 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by approximately 1.0% ($20.1 million) compared to fiscal 2007. This was primarily driven by a decrease in self-moving equipment rental revenues ($11.2 million) due to negative trends in average one-way revenue per transaction, partially offset by a marginal increase in total moving transactions. Self-storage revenues also declined ($4.2 million), largely due to the deconsolidation of SAC Holding II, which accounted for an $8.5 million decrease.
- Operating Expenses: Total costs and expenses increased by $11.4 million. The largest increase was in depreciation expense ($32.3 million increase) associated with the rotation of the rental truck fleet. Conversely, lease expense decreased ($13.7 million) as the company shifted focus from operating leases to purchasing new trucks.
- Profitability: Earnings from operations decreased by $31.5 million (13.4%) to $203.7 million. Net earnings available to common shareholders decreased by $22.8 million (29.4%) to $54.8 million.
- Debt Levels: Total debt increased significantly by $323.5 million to $1.505 billion, reflecting increased borrowing to fund the fleet rotation program.
- Deconsolidation Impact: The deconsolidation of SAC Holding II effective October 31, 2007, removed its assets, liabilities, and revenues from the consolidated balance sheet and income statement for the full fiscal year 2008, though it was included for the first seven months of the year.
Guidance, Outlook, and Risks
- Fiscal 2009 Outlook: Management plans to invest approximately $350 million in the truck and trailer rental fleet (net of equipment sales) and approximately $140 million in new self-storage projects. The focus is on increasing transaction volume, improving pricing, and optimizing product mix and utilization.
- Capital Resources: The company believes it has sufficient liquidity for the next three to five years, with $164.2 million available under existing credit facilities as of March 31, 2008.
- Key Risks:
- Competition: Highly competitive markets in truck rental and self-storage could lead to price wars and reduced margins.
- Seasonality: Results fluctuate significantly by quarter, with the first and second fiscal quarters typically being the strongest.
- Debt and Liquidity: The company is highly leveraged. Its ability to service debt depends on maintaining operating performance and generating cash flow.
- Environmental Liability: Compliance with environmental regulations regarding hazardous substances and underground storage tanks could result in significant costs.
- Related Party Transactions: The company has significant ongoing transactions with SAC Holdings and other entities controlled by major shareholders, including management fees, dealership commissions, and notes receivable.
Important Facts for Investor Verification
- Deconsolidation of SAC Holding II: Verify the impact of the November 2007 deconsolidation on year-over-year comparisons, particularly regarding self-storage revenues and related party receivables.
- Fleet Rotation Strategy: Confirm the shift from leasing to purchasing trucks and the associated increase in depreciation expense versus the reduction in lease expense.
- Related Party Exposure: Review the $198.1 million in notes receivable from SAC Holdings and the nature of the ongoing management and dealership agreements with entities controlled by the Shoen family.
- Insurance Reserves: Assess the adequacy of insurance reserves for RepWest and Oxford, given the long-tailed nature of certain claims and the reliance on actuarial estimates.
- Stock Repurchases: Note the active stock repurchase program, with $57.5 million spent on treasury stock in fiscal 2008.