General
We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") with the overall strategy of AMERCO, followed by a
description of and current strategy related to, our operating segments to give
the reader an overview of the goals of our businesses and the direction in which
our businesses and products are moving. We then discuss our critical accounting
policies and estimates that we believe are important to understanding the
assumptions and judgments incorporated in our reported financial results. Next,
we discuss our results of operations for the first quarter of fiscal 2013,
compared with the first quarter of fiscal 2012, which is followed by an analysis
of changes in our balance sheets and cash flows, and a discussion of our
financial commitments in the sections entitled Liquidity and Capital Resources
and Disclosures about Contractual Obligations and Commercial Commitments and a
discussion of off-balance sheet arrangements. We conclude this MD&A by
discussing our current outlook for the remainder of fiscal 2013.
This MD&A should be read in conjunction with the other sections of this
Quarterly Report, including the Notes to Condensed Consolidated Financial
Statements. The various sections of this MD&A contain a number of
forward-looking statements, as discussed under the caption, Cautionary
Statements Regarding Forward-Looking Statements, all of which are based on our
current expectations and could be affected by the uncertainties and risks
described throughout this filing or in our most recent Annual Report on Form
10-K for the fiscal year ended March 31, 2012. Many of these risks and
uncertainties are beyond our control and our actual results may differ
materially from these forward-looking statements.
AMERCO, a Nevada corporation ("AMERCO"), has a first fiscal quarter that ends on
the 30th of June for each year that is referenced. Our insurance company
subsidiaries have a first quarter that ends on the 31st of March for each year
that is referenced. They have been consolidated on that basis. Our insurance
companies' financial reporting processes conform to calendar year reporting as
required by state insurance departments. Management believes that consolidating
their calendar year into our fiscal year financial statements does not
materially affect the financial position or results of operations. The Company
discloses any material events occurring during the intervening period.
Consequently, all references to our insurance subsidiaries' years 2012 and 2011
correspond to fiscal 2013 and 2012 for AMERCO.
Overall Strategy
Our overall strategy is to maintain our leadership position in the North
American "do-it-yourself" moving and storage industry. We accomplish this by
providing a seamless and integrated supply chain to the "do-it-yourself" moving
and storage market. As part of executing this strategy, we leverage the brand
recognition of U-Haul with our full line of moving and self-storage related
products and services and the convenience of our broad geographic presence.
Our primary focus is to provide our customers with a wide selection of moving
rental equipment, convenient self-storage rental facilities and related moving
and self-storage products and services. We are able to expand our distribution
and improve customer service by increasing the amount of moving equipment,
storage rooms and portable storage boxes available for rent, expanding the
number of independent dealers in our network and expanding and taking advantage
of our growing eMove® capabilities.
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Our Property and Casualty Insurance operating segment is focused on providing
and administering property and casualty insurance to U-Haul and its customers,
its independent dealers and affiliates.
Our Life Insurance operating segment is focused on long-term capital growth
through direct writing and reinsuring of life, Medicare supplement and annuity
products in the senior marketplace.
Description of Operating Segments
AMERCO's three reportable segments are:
· Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the
subsidiaries of U-Haul and Real Estate,
· Property and Casualty Insurance, comprised of Repwest and its subsidiaries and
ARCOA, and
· Life Insurance, comprised of Oxford and its subsidiaries.
Moving and Storage Operating Segment
Our Moving and Storage operating segment consists of the rental of trucks,
trailers, portable storage boxes, specialty rental items and self-storage spaces
primarily to the household mover as well as sales of moving supplies, towing
accessories and propane. Operations are conducted under the registered trade
name U-Haul® throughout the United States and Canada.
With respect to our truck, trailer, specialty rental items and self-storage
rental business, we are focused on expanding our dealer network, which provides
added convenience for our customers and expanding the selection and availability
of rental equipment to satisfy the needs of our customers.
U-Haul brand self-moving related products and services, such as boxes, pads and
tape allow our customers to, among other things, protect their belongings from
potential damage during the moving process. We are committed to providing a
complete line of products selected with the "do-it-yourself" moving and storage
customer in mind.
eMove® is an online marketplace that connects consumers to independent Moving
Help® service providers and thousands of independent Self-Storage Affiliates.
Our network of customer rated affiliates and service providers furnish pack and
load help, cleaning help, self-storage and similar services, all over North
America. Our goal is to further utilize our web-based technology platform to
increase service to consumers and businesses in the moving and storage market.
Since 1945 U-Haul has incorporated sustainable practices into its everyday
operations. We believe that our basic business premise of equipment sharing
helps reduce greenhouse gas emissions and reduces the need for total large
capacity vehicles. We continue to look for ways to reduce waste within our
business and are dedicated to manufacturing reusable components and recyclable
products. We believe that our commitment to sustainability, through our products
and services and everyday operations has helped us to reduce our impact on the
environment.
Property and Casualty Insurance Operating Segment
Our Property and Casualty Insurance operating segment provides loss adjusting
and claims handling for U-Haul through regional offices across North America.
Property and Casualty Insurance also underwrites components of the Safemove,
Safetow, Super Safemove and Safestor protection packages to U-Haul customers. We
continue to focus on increasing the penetration of these products into the
moving and storage market. The business plan for our Property and Casualty
Insurance operating segment includes offering property and casualty products in
other U-Haul related programs.
Life Insurance Operating Segment
Our Life Insurance operating segment provides life and health insurance products
primarily to the senior market through the direct writing and reinsuring of life
insurance, Medicare supplement and annuity policies.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with the generally
accepted accounting principles ("GAAP") in the United States. The methods,
estimates and judgments we use in applying our accounting policies can have a
significant impact on the results we report in our financial statements. Certain
accounting policies require us to make difficult and subjective judgments and
assumptions, often as a result of the need to estimate matters that are
inherently uncertain.
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In the following pages we have set forth, with a detailed description, the
accounting policies that we deem most critical to us and that require
management's most difficult and subjective judgments. These estimates are based
on historical experience, observance of trends in particular areas, information
and valuations available from outside sources and on various other assumptions
that are believed to be reasonable under the circumstances and which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual amounts may differ from
these estimates under different assumptions and conditions; such differences may
be material.
We also have other policies that we consider key accounting policies, such as
revenue recognition; however, these policies do not meet the definition of
critical accounting estimates, because they do not generally require us to make
estimates or judgments that are difficult or subjective. The accounting policies
that we deem most critical to us, and involve the most difficult, subjective or
complex judgments include the following:
Principles of Consolidation
We apply ASC 810 in our principles of consolidation. ASC 810 addresses
arrangements where a company does not hold a majority of the voting or similar
interests of a VIE. A company is required to consolidate a VIE if it has
determined it is the primary beneficiary. ASC 810 also addresses the policy when
a company owns a majority of the voting or similar rights and exercises
effective control.
As promulgated by ASC 810, a VIE is not self-supportive due to having one or
both of the following conditions: (i) it has an insufficient amount of equity
for it to finance its activities without receiving additional subordinated
financial support or (ii) its owners do not hold the typical risks and rights of
equity owners. This determination is made upon the creation of a variable
interest and is re-assessed on an on-going basis should certain changes in the
operations of a VIE, or its relationship with the primary beneficiary trigger a
reconsideration under the provisions of ASC 810. After a triggering event occurs
the most recent facts and circumstances are utilized in determining whether or
not a company is a VIE, which other company(s) have a variable interest in the
entity, and whether or not the company's interest is such that it is the primary
beneficiary.
In fiscal 2003 and fiscal 2002, SAC Holdings were considered special purpose
entities and were consolidated based on the provisions of Emerging Issues Task
Force Issue 90-15, Impact of Nonsubstantive Lessors, Residual Value Guarantees
and Other Provisions in Leasing Transactions. In fiscal 2004, we evaluated our
interests in SAC Holdings and we concluded that SAC Holdings were VIE's and that
we were the primary beneficiary. Accordingly, we continued to include SAC
Holdings in our consolidated financial statements.
Triggering events in February and March of 2004 for SAC Holding Corporation
required AMERCO to reassess its involvement in specific SAC Holding Corporation
entities. During these reassessments it was concluded that AMERCO was no longer
the primary beneficiary, resulting in the deconsolidation of SAC Holding
Corporation in fiscal 2004.
In November 2007, Blackwater contributed additional capital to its wholly-owned
subsidiary, SAC Holding II. This contribution was determined by us to be
material with respect to the capitalization of SAC Holding II; therefore,
triggering a requirement under FASB Interpretation 46(R) for us to reassess our
involvement with those entities. This required reassessment led to the
conclusion that SAC Holding II had the ability to fund its own operations and
execute its business plan without any future subordinated financial support;
therefore, we were no longer the primary beneficiary of SAC Holding II as of the
date of Blackwater's contribution.
Accordingly, at the date AMERCO ceased to be considered the primary beneficiary
of SAC Holding II and its current subsidiaries, it deconsolidated these
entities. The deconsolidation was accounted for as a distribution of SAC Holding
II's interests to the sole shareholder of the SAC entities. Because of AMERCO's
continuing involvement with SAC Holding II and its subsidiaries, the
distribution does not qualify as discontinued operations.
It is possible that SAC Holdings could take actions that would require us to
re-determine whether SAC Holdings remains a VIE and we continually monitor
whether we have become the primary beneficiary of SAC Holdings.
During the first quarter of fiscal 2013 SAC Holding II fully repaid the $75.0
million outstanding principal balance on its junior note with AMERCO. Pursuant
to ASC 810-10-35-4, the Company considered this a redetermination event which
resulted in AMERCO no longer having a variable interest in SAC Holding
II. Further, the Company determined that the repayment of the junior note had no
impact on the existing individual operating entity management agreements thereby
affirming our finding that these agreements do no constitute variable interests
due to the presence of contractual 'kick-out' rights.
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Should we determine in the future that we are the primary beneficiary of SAC
Holding Corporation, we could be required to consolidate some or all of SAC
Holdings within our financial statements.
The condensed consolidated balance sheets as of June 30, 2012 and March 31, 2012
include the accounts of AMERCO and its wholly-owned subsidiaries. The June 30,
2012 and 2011 condensed consolidated statements of operations, comprehensive
income and cash flows include the accounts of AMERCO and its wholly-owned
subsidiaries.
Recoverability of Property, Plant and Equipment
Property, plant and equipment are stated at cost. Interest expense incurred
during the initial construction of buildings and rental equipment is considered
part of cost. Depreciation is computed for financial reporting purposes using
the straight-line or an accelerated method based on a declining balance formula
over the following estimated useful lives: rental equipment 2-20 years and
buildings and non-rental equipment 3-55 years. The Company follows the deferral
method of accounting based on ASC 908 - Airlines for major overhauls in which
engine and transmission overhauls are currently capitalized and amortized over
three years. Routine maintenance costs are charged to operating expense as they
are incurred. Gains and losses on dispositions of property, plant and equipment
are netted against depreciation expense when realized. Equipment depreciation is
recognized in amounts expected to result in the recovery of estimated residual
values upon disposal, i.e., minimize gains or losses. In determining the
depreciation rate, historical disposal experience, holding periods and trends in
the market for vehicles are reviewed.
We regularly perform reviews to determine whether facts and circumstances exist
which indicate that the carrying amount of assets, including estimates of
residual value, may not be recoverable or that the useful life of assets are
shorter or longer than originally estimated. Reductions in residual values
(i.e., the price at which we ultimately expect to dispose of revenue earning
equipment) or useful lives will result in an increase in depreciation expense
over the life of the equipment. Reviews are performed based on vehicle class,
generally subcategories of trucks and trailers. We assess the recoverability of
our assets by comparing the projected undiscounted net cash flows associated
with the related asset or group of assets over their estimated remaining lives
against their respective carrying amounts. We consider factors such as current
and expected future market price trends on used vehicles and the expected life
of vehicles included in the fleet. Impairment, if any, is based on the excess of
the carrying amount over the fair value of those assets. If asset residual
values are determined to be recoverable, but the useful lives are shorter or
longer than originally estimated, the net book value of the assets is
depreciated over the newly determined remaining useful lives.
In fiscal 2006, management performed an analysis of the expected economic value
of new rental trucks and determined that additions to the fleet resulting from
purchase should be depreciated on an accelerated method based upon a declining
formula. The salvage value and useful life assumptions of the rental truck fleet
remain unchanged. Under the declining balances method (2.4 times declining
balance), the book value of a rental truck is reduced approximately 16%, 13%,
11%, 9%, 8%, 7%, and 6% during years one through seven, respectively and then
reduced on a straight line basis an additional 10% by the end of year fifteen.
Whereas, a standard straight line approach would reduce the book value by
approximately 5.3% per year over the life of the truck. For the affected
equipment, the accelerated depreciation was $14.8 million and $13.0 million
greater than what it would have been if calculated under a straight line
approach for the first quarter of fiscal 2013 and 2012, respectively.
Although we intend to sell our used vehicles for prices approximating book
value, the extent to which we realize a gain or loss on the sale of used
vehicles is dependent upon various factors including but not limited to, the
general state of the used vehicle market, the age and condition of the vehicle
at the time of its disposal and the depreciation rates with respect to the
vehicle. We typically sell our used vehicles at our sales centers throughout
North America, on our web site at uhaul.com/trucksales or by phone at
1-866-404-0355. Additionally, we sell a large portion of our pickup and cargo
van fleet at automobile dealer auctions.
Insurance Reserves
Liabilities for life insurance and certain annuity and health policies are
established to meet the estimated future obligations of policies in force, and
are based on mortality, morbidity and withdrawal assumptions from recognized
actuarial tables which contain margins for adverse deviation. In addition,
liabilities for health, disability and other policies include estimates of
payments to be made on insurance claims for reported losses and estimates of
losses incurred, but not yet reported. Liabilities for deferred annuity
contracts consist of contract account balances that accrue to the benefit of the
policyholders.
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Insurance reserves for our Property and Casualty Insurance operating segment and
U-Haul take into account losses incurred based upon actuarial estimates and are
management's best approximation of future payments. These estimates are based
upon past claims experience and current claim trends as well as social and
economic conditions such as changes in legal theories and inflation. These
reserves consist of case reserves for reported losses and a provision for losses
incurred but not reported ("IBNR"), both reduced by applicable reinsurance
recoverables, resulting in a net liability.
Due to the nature of the underlying risks and high degree of uncertainty
associated with the determination of the liability for future policy benefits
and claims, the amounts to be ultimately paid to settle these liabilities cannot
be precisely determined and may vary significantly from the estimated liability,
especially for long-tailed casualty lines of business such as excess workers'
compensation. As a result of the long-tailed nature of the excess workers'
compensation policies written by Repwest during 1983 through 2002, and similar
policies assumed by Repwest during 2001 through 2003, it may take a number of
years for claims to be fully reported and finally settled.
On a regular basis insurance reserve adequacy is reviewed by management to
determine if existing assumptions need to be updated. While management is
continually monitoring the status of expected losses through a rolling review of
the claim inventory and regularly reviews the adequacy of the established
liability for unpaid claims and claims adjustment expense, there can be no
assurance that our loss reserves will not develop adversely and have a material
adverse effect on our results of operations
In determining the assumptions for calculating workers' compensation reserves,
management considers multiple factors including the following:
· Claimant longevity
· Cost trends associated with claimant treatments
· Changes in ceding entity and third party administrator reporting practices
· Changes in environmental factors including legal and regulatory
· Current conditions affecting claim settlements
· Future economic conditions including inflation
We have reserved each claim based upon the accumulation of current claim costs
projected through the claimants' life expectancy, then adjusted for applicable
reinsurance arrangements. Management reviews each claim bi-annually to determine
if the estimated life-time claim costs have increased and then adjusts the
reserve estimate accordingly at that time. We have factored in an estimate of
what the potential cost increases could be in our IBNR liability. We have not
assumed settlement of the existing claims in calculating the reserve amount,
unless it is in the final stages of completion.
Increases in claim costs, including medical inflation and new treatments and
medications could lead to future adverse development resulting in additional
reserve strengthening. Conversely, settlement of existing claims or if injured
workers return to work or expire prematurely, could lead to future positive
development.
Impairment of Investments
Investments are evaluated pursuant to guidance contained in ASC 320 -
Investments - Debt and Equity Securities to determine if and when a decline in
market value below amortized cost is other-than-temporary. Management makes
certain assumptions or judgments in its assessment including but not limited to:
ability and intent to hold the security, quoted market prices, dealer quotes or
discounted cash flows, industry factors, financial factors, and issuer specific
information such as credit strength. Other-than-temporary impairment in value is
recognized in the current period operating results. There were no write downs in
the first quarter of fiscal 2013 and 2012.
Income Taxes
Our tax returns are periodically reviewed by various taxing authorities. The
final outcome of these audits may cause changes that could materially impact our
financial results.
AMERCO files a consolidated tax return with all of its legal subsidiaries.
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Fair Values
Fair values of cash equivalents approximate carrying value due to the short
period of time to maturity. Fair values of short term investments, investments
available-for-sale, long term investments, mortgage loans and notes on real
estate, and interest rate swap contracts are based on quoted market prices,
dealer quotes or discounted cash flows. Fair values of trade receivables
approximate their recorded value.
Our financial instruments that are exposed to concentrations of credit risk
consist primarily of temporary cash investments, trade receivables, reinsurance
recoverables and notes receivable. Limited credit risk exists on trade
receivables due to the diversity of our customer base and their dispersion
across broad geographic markets. We place our temporary cash investments with
financial institutions and limit the amount of credit exposure to any one
financial institution.
We have mortgage receivables, which potentially expose us to credit risk. The
portfolio of notes is principally collateralized by self-storage facilities and
commercial properties. We have not experienced any material losses related to
the notes from individual or groups of notes in any particular industry or
geographic area. The estimated fair values were determined using the discounted
cash flow method and using interest rates currently offered for similar loans to
borrowers with similar credit ratings.
The carrying amount of long term debt and short term borrowings are estimated to
approximate fair value as the actual interest rate is consistent with the rate
estimated to be currently available for debt of similar term and remaining
maturity.
Other investments including short term investments are substantially current or
bear reasonable interest rates. As a result, the carrying values of these
financial instruments approximate fair value.
Subsequent Events
The Company's management has evaluated subsequent events occurring after June
30, 2012, the date of our most recent balance sheet, through the date our
financial statements were issued. We do not believe any subsequent events have
occurred that would require further disclosure or adjustment to our financial
statements.
Adoption of New Accounting Pronouncements
In October 2010, the FASB issued ASU 2010-26, Financial Services - Insurance
(Topic 944) ("ASU 2010-26") which amended FASB ASC 944-30 to provide further
guidance regarding the capitalization of costs relating to the acquisition or
renewal of insurance contracts. Specifically, only qualifying costs associated
with successful contract acquisitions are permitted to be deferred. The Company
adopted ASU 2010-26 in the first quarter of fiscal 2013 and it resulted in a
$1.7 million reduction in beginning retained earnings on our financial
statements.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and International
Financial Reporting Standards ("IFRS") ("ASU 2011-04"). This pronouncement was
issued to provide a consistent definition of fair value and ensure that the fair
value measurement and disclosure requirements are similar between U.S. GAAP and
IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances
the disclosure requirements particularly for Level 3 fair value measurements.
The Company adopted ASU 2011-04 in the first quarter of fiscal 2013 and it did
not have a material impact on our financial statements.
From time to time, new accounting pronouncements are issued by the FASB or the
SEC that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, these ASU's entail technical corrections to existing
guidance or affect guidance related to specialized industries or entities and
therefore will have minimal, if any, impact on our financial position or results
of operations upon adoption.
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Results of Operations
AMERCO and Consolidated Entities
Quarter Ended June 30, 2012 compared with the Quarter Ended June 30, 2011
Listed below on a consolidated basis are revenues for our major product lines
for the first quarter of fiscal 2013 and the first quarter of fiscal 2012:
Quarter Ended June 30,
2012 2011
(Unaudited)
(In thousands)
Self-moving equipment rentals $ 466,994 $ 446,548
Self-storage revenues 34,736
31,828
Self-moving and self-storage products and service sales 67,178 64,378
Property management fees 4,860 4,735
Life insurance premiums 46,426 50,999
Property and casualty insurance premiums 7,243
6,898
Net investment and interest income 12,257 17,263
Other revenue 25,722 20,316
Consolidated revenue $ 665,416 $ 642,965
Self-moving equipment rental revenues increased $20.4 million during the first
quarter of fiscal 2013, compared with the first quarter of fiscal 2012. Growth
in both In-Town and one-way moving transactions continued during the first
quarter of fiscal 2013. The year-over-year improvement in transactions was
supported by a 4% increase in the average number of rental trucks in the fleet
during the first quarter of fiscal 2013 compared with the same period last year.
Self-storage revenues increased $2.9 million during the first quarter of fiscal
2013, compared with the first quarter of fiscal 2012 due primarily to an
increase in the number of rooms rented. The average amount of occupied square
feet increased by nearly 11% during the first quarter of fiscal 2013 compared to
the same period last year. The growth in revenues and square feet rented comes
from a combination of improved occupancy at existing locations as well as the
addition of new facilities to the portfolio. Over the last twelve months we
have added approximately 1.4 million net rentable square feet to the
self-storage portfolio.
Sales of self-moving and self-storage products and services increased $2.8
million during the first quarter of fiscal 2013, compared with the first quarter
of fiscal 2012. Increases were recognized in the sales of moving supplies and
towing accessories and related installations.
Life insurance premiums decreased $4.6 million during the first quarter of
fiscal 2013, compared with the first quarter of fiscal 2012 due primarily to
reduced life and Medicare supplement premiums.
Property and casualty insurance premiums increased $0.3 million during the first
quarter of fiscal 2013, compared with the first quarter of fiscal 2012 due to an
increase in Safestor and Safetow sales which were a result of increased
equipment and storage rental transactions.
Net investment and interest income decreased $5.0 million during the first
quarter of fiscal 2013, compared with the first quarter of fiscal 2012 primarily
due to declines at the Moving and Storage operating segment. During the first
quarter of fiscal 2013 SAC Holdings repaid AMERCO$127.3 million for notes and
interest outstanding. These notes carried interest rates of 9%. This loss of
yield caused the majority of the decline in interest income for the first
quarter of fiscal 2013. The Life Insurance operating segment recognized fewer
realized gains from the sale of fixed maturities compared to the same period
last year.
Other revenue increased $5.4 million during the first quarter of fiscal 2013,
compared with the first quarter of fiscal 2012 primarily from the expansion of
new business initiatives including our U-BoxTM program.
As a result of the items mentioned above, revenues for AMERCO and its
consolidated entities were $665.4 million for the first quarter of fiscal 2013,
compared with $643.0 million for the first quarter of fiscal 2012.
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Listed below are revenues and earnings from operations at each of our operating
segments for the first quarter of fiscal 2013 and the first quarter of fiscal
2012. The insurance companies first quarters ended March 31, 2012 and 2011.
Quarter Ended June 30,
2012 2011
(Unaudited)
(In thousands)
Moving and storage
Revenues $ 602,849 $ 574,999
Earnings from operations before equity in earnings of
subsidiaries
146,959
144,670
Property and casualty insurance
Revenues 9,443 9,132
Earnings from operations 2,587 1,899
Life insurance
Revenues 53,882 59,999
Earnings from operations 1,404 2,035
Eliminations
Revenues (758 ) (1,165 )
Earnings from operations before equity in earnings of
subsidiaries (71 ) (241 )
Consolidated results
Revenues 665,416 642,965
Earnings from operations 150,879 148,363
Total costs and expenses increased $19.9 million during the first quarter of
fiscal 2013, compared with the first quarter of fiscal 2012. Operating expenses
for the Moving and Storage operating segment increased $11.9 million with a
significant portion of this coming from spending on personnel and operating
costs associated with the U-Box program, offset slightly by decreases in rental
equipment maintenance. Commission expenses increased in relation to the
associated revenues. Depreciation expense, net, increased $11.8 million while
lease expense decreased $1.4 million as a result of the Company's shift in
financing new equipment on the balance sheet versus through operating leases.
As a result of the above mentioned changes in revenues and expenses, earnings
from operations increased to $150.9 million for the first quarter of fiscal
2013, compared with $148.4 million for the first quarter of fiscal 2012.
Interest expense for the first quarter of fiscal 2013 was $23.5 million,
compared with $22.6 million for the first quarter of fiscal 2012 due to an
increase in average borrowings partially offset by a decrease in average
borrowing costs.
Income tax expense was $46.8 million for the first quarter of fiscal 2013,
compared with $47.5 million for the first quarter of fiscal 2012.
Dividends paid or accrued on our Series A Preferred were $3.1 million for the
first quarter of fiscal 2012. There were no payments made or accrued in fiscal
2013. All of our Series A Preferred stock was redeemed on June 1, 2011. The
first quarter of fiscal 2012 included a $5.9 million non-recurring charge
related to the redemption of the Series A Preferred Stock.
As a result of the above mentioned items, earnings available to common
shareholders were $80.6 million for the first quarter of fiscal 2013, compared
with $69.2 million for the first quarter of fiscal 2012.
Basic and diluted earnings per share for the first quarter of fiscal 2013 were
$4.13, compared with $3.56 for the first quarter of fiscal 2012.
The weighted average common shares outstanding basic and diluted were 19,502,369
for the first quarter of fiscal 2013, compared with 19,460,126 for the first
quarter of fiscal 2012.
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Moving and Storage
Quarter Ended June 30, 2012 compared with the Quarter Ended June 30, 2011
Listed below are revenues for the major product lines at our Moving and Storage
operating segment for the first quarter of fiscal 2013 and the first quarter of
fiscal 2012:
Quarter Ended June 30,
2012 2011
(Unaudited)
(In thousands)
Self-moving equipment rentals $ 467,315 $ 446,885
Self-storage revenues 34,736
31,828
Self-moving and self-storage products and service sales 67,178
64,378
Property management fees 4,860
4,735
Net investment and interest income 3,135 7,029
Other revenue 25,625 20,144
Moving and Storage revenue $ 602,849 $ 574,999
Self-moving equipment rental revenues increased $20.4 million during the first
quarter of fiscal 2013, compared with the first quarter of fiscal 2012. Growth
in both In-Town and one-way moving transactions continued during the first
quarter of fiscal 2013. The year-over-year improvement in transactions was
supported by a 4% increase in the average number of rental trucks in the fleet
during the first quarter of fiscal 2013 compared with the same period last year.
Self-storage revenues increased $2.9 million during the first quarter of fiscal
2013, compared with the first quarter of fiscal 2012 due primarily to an
increase in the number of rooms rented. The average amount of occupied square
feet increased by nearly 11% during the first quarter of fiscal 2013 compared to
the same period last year. The growth in revenues and occupancy comes from a
combination of improved occupancy at existing locations as well as the addition
of new facilities to the portfolio. Over the last twelve months we have added
approximately 1.4 million net rentable square feet to the self-storage
portfolio.
Sales of self-moving and self-storage products and services increased $2.8
million during the first quarter of fiscal 2013, compared with the first quarter
of fiscal 2012. Increases were recognized in the sales of moving supplies and
towing accessories and related installations.
Net investment and interest income decreased $3.9 million during the first
quarter of fiscal 2013, compared with the first quarter of fiscal 2012 primarily
due to declines at the Moving and Storage operating segment. During the quarter
SAC Holdings repaid AMERCO$127.3 million for notes and interest
outstanding. These notes carried interest rates of 9%. This loss of yield caused
the majority of the decline in interest income for the quarter.
Other revenue increased $5.5 million during the first quarter of fiscal 2013,
compared with the first quarter of fiscal 2012 primarily from the expansion of
new business initiatives including our U-BoxTM program.
The Company owns and manages self-storage facilities. Self-storage revenues
reported in the consolidated financial statements represent Company-owned
locations only. Self-storage data for our owned storage locations follows:
Quarter Ended June 30,
2012 2011
(Unaudited)
(In thousands, except occupancy rate)
Room count as of June 30 170 157
Square footage as of June 30 14,308 12,932
Average number of rooms occupied 131 120
Average occupancy rate based on room count 78.0 % 76.9 %
Average square footage occupied 11,119 10,046
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Total costs and expenses increased $25.6 million during the first quarter of
fiscal 2013, compared with the first quarter of fiscal 2012. Operating expenses
increased $11.9 million with a significant portion of this coming from spending
on personnel and operating costs associated with the U-Box program. Commission
expenses increased in relation to the associated revenues. Depreciation expense,
before gains on the disposal of equipment, increased $9.6 million while the
gains on the disposals decreased by $2.2 million. Lease expense decreased $1.7
million.
As a result of the above mentioned changes in revenues and expenses, earnings
from operations for the Moving and Storage operating segment before
consolidation of the equity in the earnings of the insurance subsidiaries,
increased to $147.0 million for the first quarter of fiscal 2013, compared with
$144.7 million for the first quarter of fiscal 2012.
Equity in the earnings of AMERCO's insurance subsidiaries was $2.6 million for
both the first quarter of fiscal 2013 and 2012.
As a result of the above mentioned changes in revenues and expenses, earnings
from operations increased to $149.5 million for the first quarter of fiscal
2013, compared with $147.3 million for the first quarter of fiscal 2012.
Property and Casualty Insurance
Quarter Ended March 31, 2012 compared with the Quarter Ended March 31, 2011
Net premiums were $7.2 million and $6.9 million for the quarters ended March 31,
2012 and 2011, respectively. A significant portion of Repwest's premiums are
from policies sold in conjunction with U-Haul rental transactions. The premium
increase corresponded with the increased moving and storage transactions at
U-Haul during the same time period.
Net investment income was $2.2 million for the quarters ended March 31, 2012 and
2011, respectively.
Net operating expenses were $3.3 million and $2.8 million for the quarters ended
March 31, 2012 and 2011, respectively. The increase was due to $0.3 million
increase in administrative overhead along with a $0.2 million increase in
commissions.
Benefits and losses incurred were $3.6 million and $4.5 million for the quarters
ended March 31, 2012 and 2011, respectively primarily due to decreases in
reserves.
As a result of the above mentioned changes in revenues and expenses, pretax
earnings from operations were $2.6 million and $1.9 million for the quarters
ended March 31, 2012 and 2011, respectively.
Life Insurance
Quarter Ended March 31, 2012 compared with the Quarter Ended March 31, 2011
Net premiums were $46.4 million and $51.0 million for the quarters ended March
31, 2012 and 2011, respectively. Medicare supplement premiums decreased by $2.3
million due to policy terminations which exceeded rate increases on existing
business. Premiums from life insurance sales also declined as new business
shifted more towards annuity products; sales of these products are accounted for
as deposits on the balance sheet instead of premium income. Annuity deposits
increased $26.6 million for the quarter, compared with the same period last
year.
Net investment income was $7.0 million and $8.5 million for the quarters ended
March 31, 2012 and 2011, respectively. A larger invested asset based led to an
increase of $1.6 million of investment income, and this was offset by a decrease
in realized gains of $3.1 million compared to the same period last year.
Net operating expenses were $7.2 million and $8.1 million for the quarters ended
March 31, 2012 and 2011, respectively. The decrease was primarily a result of
reduced administrative expenses of $0.3 million and a reduction of $0.7 in
commission expense due to decreased life insurance sales.
Benefits and losses incurred were $42.5 million and $45.5 million for the
quarter ended March 31, 2012 and 2011, respectively as a result of reduced life
insurance sales and from the Medicare supplement business.
Amortization of deferred acquisition costs ("DAC") and the value of business
acquired was $2.8 million and $4.4 million for the quarters ended March 31, 2012
and 2011, respectively. The majority of the decrease was due to the decrease in
realized capital gains in the first quarter of fiscal 2013, compared with the
same period in fiscal 2012. In most cases, realized investment gains result in
additional amortization of DAC.
41
--------------------------------------------------------------------------------As a result of the above mentioned changes in revenues and expenses, pretax
earnings from operations were $1.4 million and $2.0 million for the quarters
ended March 31, 2012 and 2011, respectively.
Liquidity and Capital Resources
We believe our current capital structure is a positive factor that will enable
us to pursue our operational plans and goals, and provide us with sufficient
liquidity for the foreseeable future. The majority of our obligations currently
in place mature at the end of fiscal years 2016 or 2019. However, since there
are many factors which could affect our liquidity, including some which are
beyond our control, there is no assurance that future cash flows will be
sufficient to meet our outstanding debt obligations and our other future capital
needs.
At June 30, 2012, cash and cash equivalents totaled $566.2 million, compared
with $350.1 million on March 31, 2012. The assets of our insurance subsidiaries
are generally unavailable to fulfill the obligations of non-insurance operations
(AMERCO, U-Haul and Real Estate). As of June 30, 2012 (or as otherwise
indicated), cash and cash equivalents, other financial assets (receivables,
short-term investments, other investments, fixed maturities, and related party
assets) and debt obligations of each operating segment were:
Property and Life
Moving & Casualty Insurance
Storage Insurance (a) (a)
(Unaudited)
(In thousands)
Cash and cash equivalents $ 519,692 $ 13,089 $ 33,458
Other financial assets 291,604 416,847 801,865
Debt obligations 1,540,538 - -
(a) As of March 31, 2012
At June 30, 2012, our Moving and Storage operating segment had additional
cash available under existing credit facilities of $299.9 million.
Net cash provided by operating activities increased $194.2 million in the first
quarter of fiscal 2013 compared with fiscal 2012 primarily due to repayments of
$127.3 million of the notes and interest receivables with SAC Holdings and from
increased revenues.
Net cash used in investing activities decreased $61.5 million in the first
quarter of fiscal 2013, compared with fiscal 2012. Purchases of property, plant
and equipment, which are reported net of cash from leases, decreased $58.0
million. Cash from the sales of property, plant and equipment increased $7.4
million largely due to an increase in pickup and cargo van sales. Cash used for
investing activities at the insurance companies increased $19.8 million
primarily due to investments in their fixed maturity portfolio stemming from
increased annuity sales.
Net cash used by financing activities decreased $92.7 million in the first
quarter of fiscal 2013, as compared with fiscal 2012. Fiscal 2012 included
$152.0 million of cash used to redeem our preferred stock. Additionally net
annuity deposits at the Life insurance segment increased $26.6 million in the
first quarter of fiscal 2013 compared to the same period last year.
Liquidity and Capital Resources and Requirements of Our Operating Segments
Moving and Storage
To meet the needs of our customers, U-Haul maintains a large fleet of rental
equipment. Capital expenditures have primarily reflected new rental equipment
acquisitions and the buyouts of existing fleet from leases. The capital to fund
these expenditures has historically been obtained internally from operations and
the sale of used equipment and externally from debt and lease financing. In the
future, we anticipate that our internally generated funds will be used to
service the existing debt and fund operations. U-Haul estimates that during
fiscal 2013, we will reinvest in our truck and trailer rental fleet
approximately $325 million, net of equipment sales excluding any lease buyouts.
Through the first quarter of fiscal 2013 we have reinvested $134.3 million of
this projected amount. Fleet investments in fiscal 2013 and beyond will be
dependent upon several factors including availability of capital, the truck
rental environment and the used-truck sales market. We anticipate that the
fiscal 2013 investments will be funded largely through debt financing, external
lease financing
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and cash from operations. Management considers several factors including cost
and tax consequences when selecting a method to fund capital expenditures. Our
allocation between debt and lease financing can change from year to year based
upon financial market conditions which may alter the cost or availability of
financing options.
Real Estate has traditionally financed the acquisition of self-storage
properties to support U-Haul's growth through debt financing and funds from
operations and sales. Our plan for the expansion of owned storage properties
includes the acquisition of existing self-storage locations from third parties,
the acquisition and development of bare land, and the acquisition and
redevelopment of existing buildings not currently used for self-storage. We are
funding these development projects through construction loans and internally
generated funds. For the first quarter of fiscal 2013, we invested $36.4 million
in real estate acquisitions, new construction and renovation and repair. For
fiscal 2013, the timing of new projects will be dependent upon several factors
including the entitlement process, availability of capital, weather, and the
identification and successful acquisition of target properties. U-Haul's growth
plan in self-storage also includes the expansion of the eMove program, which
does not require significant capital.
Net capital expenditures (purchases of property, plant and equipment less
proceeds from the sale of property, plant and equipment and lease proceeds) were
$95.4 million and $160.8 million for the first quarter of fiscal 2013 and 2012,
respectively. We entered into new equipment leases of $108.4 million and $8.8
million, during the first quarter of fiscal 2013 and 2012, respectively.
Spending on gross capital expenditures before any netting was $266.2 million
during the first quarter of fiscal 2013 compared with $224.6 million during the
first quarter of fiscal 2012.
The Moving and Storage operating segment continues to hold significant cash and
has access to additional liquidity. Management may invest these funds in our
existing operations, expand our product lines or pursue external opportunities
in the self-moving and storage market place or reduce existing indebtedness
where possible.
Property and Casualty Insurance
State insurance regulations restrict the amount of dividends that can be paid to
stockholders of insurance companies. As a result, Property and Casualty
Insurance's assets are generally not available to satisfy the claims of AMERCO
or its legal subsidiaries.
Stockholder's equity was $127.1 million and $123.8 million at March 31, 2012 and
December 31, 2011, respectively. The increase resulted from net earnings of $1.7
million and an increase in other comprehensive income of $1.6 million. Property
and Casualty Insurance does not use debt or equity issues to increase capital
and therefore has no direct exposure to capital market conditions other than
through its investment portfolio.
Life Insurance
The Life Insurance operating segment manages its financial assets to meet
policyholder and other obligations including investment contract withdrawals and
deposits. Life Insurance's net deposits for the quarter ended March 31, 2012
were $21.0 million. State insurance regulations restrict the amount of dividends
that can be paid to stockholders of insurance companies. As a result, Life
Insurance's funds are generally not available to satisfy the claims of AMERCO or
its legal subsidiaries.
Life Insurance's stockholder's equity was $216.3 million and $215.8 million at
March 31, 2012 and December 31, 2011, respectively. The increase resulted from
net earnings of $0.9 million and an increase in other comprehensive income of
$1.3 million and a decrease to beginning retained earnings of $1.7 million in
relation to the adoption of ASU 2010-26. Life Insurance does not use debt or
equity issues to increase capital and therefore has no direct exposure to
capital market conditions other than through its investment portfolio.
Cash Provided (Used) from Operating Activities by Operating Segments
Moving and Storage
Net cash provided from operating activities were $349.3 million and $155.9
million for the first quarter of fiscal 2013 and 2012, respectively primarily
due to repayments of $127.3 million of the notes and interest receivables with
SAC Holdings and from increased revenue.
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Property and Casualty Insurance
Net cash provided (used) by operating activities were ($2.8) million and $1.9
million for the first quarter ended March 31, 2012 and 2011, respectively. The
decrease was primarily due to cash payments made in relation to the commutation
of some reinsurance business.
Property and Casualty Insurance's cash and cash equivalents and short-term
investment portfolio amounted to $44.4 million and $44.1 million at March 31,
2012 and December 31, 2011, respectively. This balance reflects funds in
transition from maturity proceeds to long term investments. Management believes
this level of liquid assets, combined with budgeted cash flow, is adequate to
meet foreseeable cash needs. Capital and operating budgets allow Property and
Casualty Insurance to schedule cash needs in accordance with investment and
underwriting proceeds.
Life Insurance
Net cash provided by operating activities were $6.4 million and $3.4 million for
the first quarter ended March 31, 2012 and 2011, respectively. A decrease of
$3.0 million in the gains resulting for the sales of investments was the primary
reason for the increase in operating activities cash flow.
In addition to cash flows from operating activities and financing activities, a
substantial amount of liquid funds are available through Life Insurance's
short-term portfolio. At March 31, 2012 and December 31, 2011, cash and cash
equivalents and short-term investments amounted to $53.2 million and $54.1
million, respectively. Management believes that the overall sources of liquidity
are adequate to meet foreseeable cash needs.
Liquidity and Capital Resources - Summary
We believe we have the financial resources needed to meet our business plans
including our working capital needs. The Company continues to hold significant
cash and has access to existing credit facilities and additional liquidity to
meet our anticipated capital expenditure requirements for investment in our
rental fleet, rental equipment and storage acquisitions and build outs.
Our borrowing strategy is primarily focused on asset-backed financing and rental
equipment leases. As part of this strategy, we seek to ladder maturities and
hedge floating rate loans through the use of interest rate swaps. While each of
these loans typically contains provisions governing the amount that can be
borrowed in relation to specific assets, the overall structure is flexible with
no limits on overall Company borrowings. Management feels it has adequate
liquidity between cash and cash equivalents and unused borrowing capacity in
existing credit facilities to meet the current and expected needs of the Company
over the next several years. At June 30, 2012, we had cash availability under
existing credit facilities of $299.9 million. It is possible that circumstances
beyond our control could alter the ability of the financial institutions to lend
us the unused lines of credit. We believe that there are additional
opportunities for leverage in our existing capital structure. For a more
detailed discussion of our long-term debt and borrowing capacity, please see
Note 4, Borrowings of the Notes to Condensed Consolidated Financial Statements.
Fair Value of Financial Instruments
Assets and liabilities recorded at fair value on the condensed consolidated
balance sheets and are measured and classified based upon a three tiered
approach to valuation. ASC 820 requires that financial assets and liabilities
recorded at fair value be classified and disclosed in a Level 1, Level 2 or
Level 3 category. For more information, please see Note 14, Fair Value
Measurements of the Notes to Condensed Consolidated Financial Statements.
The available-for-sale securities held by the Company are recorded at fair
value. These values are determined primarily from actively traded markets where
prices are based either on direct market quotes or observed transactions.
Liquidity is a factor considered during the determination of the fair value of
these securities. Market price quotes may not be readily available for certain
securities or the market for them has slowed or ceased. In situations where the
market is determined to be illiquid, fair value is determined based upon limited
available information and other factors including expected cash flows. At June
30, 2012, we had $1.2 million of available-for-sale assets classified in Level
3.
The interest rate swaps held by the Company as hedges against interest rate risk
for our variable rate debt are recorded at fair value. These values are
determined using pricing valuation models which include broker quotes for which
significant inputs are observable. They include adjustments for counterparty
credit quality and other deal-specific factors, where appropriate and are
classified as Level 2.
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Disclosures about Contractual Obligations and Commercial Commitments
Our estimates as to future contractual obligations have not materially changed
from the disclosure included under the subheading Contractual Obligations in
Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, of our Annual Report on Form 10-K for the fiscal year
ended March 31, 2012.
Off-Balance Sheet Arrangements
The Company uses off-balance sheet arrangements in situations where management
believes that the economics and sound business principles warrant their use.
We utilize operating leases for certain rental equipment and facilities with
terms expiring substantially through 2019. In the event of a shortfall in
proceeds from the sales of the underlying rental equipment assets, we have
guaranteed $132.4 million of residual values at June 30, 2012 for these assets
at the end of their respective lease terms. We have been leasing rental
equipment since 1987. To date, we have not experienced residual value shortfalls
related to these leasing arrangements. Using the average cost of fleet related
debt as the discount rate, the present value of our minimum lease payments and
residual value guarantees were $367.1 million at June 30, 2012.
Historically, we have used off-balance sheet arrangements in connection with the
expansion of our self-storage business. For more information please see Note 10,
Related Party Transactions of the Notes to Condensed Consolidated Financial
Statements. These arrangements were primarily used when the Company's overall
borrowing structure was more limited. The Company does not face similar
limitations currently and off-balance sheet arrangements have not been utilized
in our self-storage expansion in recent years. In the future, we will continue
to identify and consider off-balance sheet opportunities to the extent such
arrangements would be economically advantageous to us and our stockholders.
We currently manage the self-storage properties owned or leased by SAC Holdings,
Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini pursuant to a standard form of
management agreement, under which we receive a management fee of between 4% and
10% of the gross receipts plus reimbursement for certain expenses. We received
management fees, exclusive of reimbursed expenses, of $9.4 million and $8.6
million from the above mentioned entities during the first quarter of fiscal
2013 and 2012, respectively. This management fee is consistent with the fee
received for other properties we previously managed for third parties. SAC
Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by
Blackwater. Blackwater is wholly-owned by Mark V. Shoen, a significant
shareholder of AMERCO. Mercury is substantially controlled by Mark V. Shoen.
James P. Shoen, a significant shareholder and director of AMERCO, has an
interest in Mercury.
We lease space for marketing company offices, vehicle repair shops and hitch
installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. Total
lease payments pursuant to such leases were $0.7 million and $0.6 million in the
first quarters of fiscal 2013 and 2012, respectively. The terms of the leases
are similar to the terms of leases for other properties owned by unrelated
parties that are leased to us.
At June 30, 2012, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private
Mini acted as U-Haul independent dealers. The financial and other terms of the
dealership contracts with the aforementioned companies and their subsidiaries
are substantially identical to the terms of those with our other independent
dealers whereby commissions are paid by us based on equipment rental revenues.
We paid the above mentioned entities $11.6 million and $10.6 million in
commissions pursuant to such dealership contracts during the first quarter of
fiscal 2013 and 2012, respectively.
During the first quarter of fiscal 2013, subsidiaries of the Company held
various junior unsecured notes of SAC Holdings. Substantially all of the equity
interest of SAC Holdings is controlled by Blackwater. The Company does not have
an equity ownership interest in SAC Holdings. The Company recorded interest
income of $2.5 million and $4.8 million, and received cash interest payments of
$7.2 million and $4.3 million, from SAC Holdings during the first quarter of
fiscal 2013 and 2012, respectively. The largest aggregate amount of notes
receivable outstanding during the first quarter of fiscal 2013 was $195.4
million and the aggregate notes receivable balance at June 30, 2012 was $73.1
million. In accordance with the terms of these notes, SAC Holdings may prepay
the notes without penalty or premium at any time. The scheduled maturities of
these notes are between 2019 and 2024. During the first quarter we received
$127.3 million in repayments on the notes and interest receivables.
45
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These agreements along with notes with subsidiaries of SAC Holdings, 4 SAC, 5
SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of
$8.2 million, expenses of $0.7 million and cash flows of $138.4 million during
the first quarter of fiscal 2013. Revenues and commission expenses related to
the Dealer Agreements were $53.1 million and $11.6 million, respectively during
the first quarter of fiscal 2013.
Fiscal 2013 Outlook
We will continue to focus our attention on increasing transaction volume and
improving pricing, product and utilization for self-moving equipment rentals.
Maintaining an adequate level of new investment in our truck fleet is an
important component of our plan to meet our operational goals. Revenue in the
U-Move program could be adversely impacted should we fail to execute in any of
these areas. Even if we execute our plans, we could see declines in revenues
primarily due to the continuing adverse economic conditions that are beyond our
control.
We have added new storage locations and expanded at existing locations. In
fiscal 2013, we are looking to continue to acquire new locations, complete
current projects and increase occupancy in our existing portfolio of locations.
New projects and acquisitions will be considered and pursued if they fit our
long-term plans and meet our financial objectives. In the current environment we
have focused fewer resources on new construction than in recent history. We will
continue to invest capital and resources in the U-BoxTM storage container
program throughout fiscal 2013.
Our Property and Casualty Insurance operating segment will continue to provide
loss adjusting and claims handling for U-Haul and underwrite components of the
Safemove, Safetow, Super Safemove and Safestor protection packages to U-Haul
customers.
Our Life Insurance operating segment is pursuing its goal of expanding its
presence in the senior market through the sales of its Medicare supplement, life
and annuity policies. This strategy includes growing its agency force, expanding
its new product offerings, and pursuing business acquisition opportunities.
Cautionary Statements Regarding Forward-Looking Statements
This Quarterly Report contains "forward-looking statements" regarding future
events and our future results of operations. We may make additional written or
oral forward-looking statements from time to time in filings with the SEC or
otherwise. We believe such forward-looking statements are within the meaning of
the safe-harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements may include, but are not limited to,
projections of revenues, earnings or loss, estimates of capital expenditures,
plans for future operations, products or services, financing needs and plans,
our perceptions of our legal positions and anticipated outcomes of government
investigations and pending litigation against us, liquidity, goals and
strategies, plans for new business, storage occupancy, growth rate assumptions,
pricing, costs, and access to capital and leasing markets as well as assumptions
relating to the foregoing. The words "believe," "expect," "anticipate,"
"estimate," "project" and similar expressions identify forward-looking
statements, which speak only as of the date the statement was made.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Factors that could
significantly affect results include, without limitation, the risk factors set
forth in the section entitled Item 1A. Risk Factors contained in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2012, as well as the
following: our ability to operate pursuant to the terms of its credit
facilities; our ability to maintain contracts that are critical to our
operations; the costs and availability of financing; our ability to execute our
business plan; our ability to attract, motivate and retain key employees;
general economic conditions; fluctuations in our costs to maintain and update
our fleet and facilities; our ability to refinance our debt; changes in
government regulations, particularly environmental regulations; our credit
ratings; the availability of credit; changes in demand for our products; changes
in the general domestic economy; the degree and nature of our competition; the
resolution of pending litigation against us; changes in accounting standards and
other factors described in this Quarterly Report or the other documents we file
with the SEC. The above factors, the following disclosures, as well as other
statements in this Quarterly Report and in the Notes to Condensed Consolidated
Financial Statements, could contribute to or cause such risks or uncertainties,
or could cause our stock price to fluctuate dramatically. Consequently, the
forward-looking statements should not be regarded as representations or
warranties by us that such matters will be realized. We assume no obligation to
update or revise any of the forward-looking statements, whether in response to
new information, unforeseen events, changed circumstances or otherwise.
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