UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2010, and the nine-month period ended on the same date for AMERCO (U-Haul Holding Co). AMERCO operates three reportable segments: Moving and Storage (U-Haul truck/trailer rentals, self-storage, and related products), Property and Casualty Insurance (Repwest), and Life Insurance (Oxford). The company's fiscal year ends March 31; therefore, this report represents the third quarter of fiscal 2011.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 14.3% for the quarter and 12.5% for the nine-month period compared to the prior year.
  • Moving & Storage: Self-moving equipment rental revenues rose $21.7 million (quarter) and $108.1 million (nine months) due to increased transaction volume and higher revenue per transaction. Self-storage revenues grew due to increased occupancy and square footage.
  • Life Insurance: Premiums surged $35.3 million (quarter) and $56.8 million (nine months), primarily driven by a new reinsurance contract assuming a block of final expense life insurance policies and the acquisition of Medicare supplement policies.
• Profitability: Earnings from operations increased significantly to $51.3 million for the quarter (from $28.6 million) and $337.5 million for the nine months (from $183.6 million).
  • Costs: Total costs increased due to higher benefit costs from reinsurance transactions and increased operating expenses in Moving & Storage (maintenance/repairs). However, depreciation expense decreased by $6.2 million (quarter) and $33.5 million (nine months), aided by gains on the disposal of property, plant, and equipment.
• EPS: Diluted earnings per share improved dramatically from $0.02 to $0.80 for the quarter and from $3.17 to $8.28 for the nine-month period.

Guidance, Outlook, and Risks

• Outlook: Management plans to focus on increasing transaction volume and pricing for self-moving equipment rentals. Capital expenditures for fiscal 2011 are estimated at $210 million for the truck and trailer fleet (net of sales). The company intends to fund fleet investments through debt financing, external leases, and cash from operations.
• Liquidity: As of December 31, 2010, the company held $405.3 million in cash and cash equivalents. It also had $233.7 million available under existing credit facilities and $87.7 million available from a securitized fleet loan.
• Risks and Contingencies:
  • Legal Proceedings: A shareholder derivative lawsuit (Shoen v. SAC Holding Corporation) regarding the sale of self-storage properties is pending before the Nevada Supreme Court. Management believes the outcome will not have a material adverse effect.
  • Environmental: The company faces potential costs for hazardous substance remediation, estimated at approximately $2.6 million through fiscal 2011.
  • Market Risk: The company is exposed to interest rate risk on variable rate debt, mitigated by interest rate swaps. A 100 basis point increase in LIBOR would decrease future earnings by approximately $0.9 million annually.

Investor Verification Checklist

• Reinsurance Impact: Verify the long-term profitability and reserve adequacy of the new life insurance reinsurance contracts that drove the significant premium increase.
• Fleet Depreciation: Confirm the sustainability of the reduced depreciation expense and the gains on disposal of rental equipment, which significantly boosted operating income.
• Debt Maturities: Review the annual maturities of the $1.42 billion in debt obligations, noting significant payments due in fiscal 2011 and 2012.
• Related Party Transactions: Examine the $32.8 million in revenues and $1.9 million in expenses derived from transactions with SAC Holdings and other related entities controlled by major shareholders.
• Legal Resolution: Monitor the status of the Shoen derivative lawsuit pending at the Nevada Supreme Court.