U-Haul Holding Co (UHAL) 2004 Q4 法說會逐字稿

Good afternoon. My name is Hazel and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AMERCO fiscal year end 2004 investor conference call. (OPERATOR INSTRUCTIONS). Mr. Shoen, you may begin your conference.

Hello, and welcome to AMERCO's fiscal year 2004 investor conference call. This is AMERCO Chairman, Joe Shoen, speaking to you from Phoenix, Arizona. I have Gary Horton, AMERCO Treasurer; Rocky Wardrip, AMERCO Assistant Treasurer; Gary Klinefelter, General Counsel; and Jack Peterson, AMERCO Chief Financial Officer on this call with me. As in past calls, I will begin with an overview of operations. Jack Peterson will then address the SAC entities deconsolidation and Rocky Wardrip will address performance for fiscal year 2004. We will follow with a question-and-answer session. Jack Peterson has assumed the title of AMERCO's Chief Financial Officer as of June 9th. Jack is a graduate from the University of Illinois, with a Master's Degree in accounting. He spent more than 23 years at Kraft Foods with experience in their corporate finance department, their North American manufacturing operations and their Consumer Products marketing division. His last position at Kraft was Chief Financial Officer of their 6.5 billion food service distribution business. In 1995, Kraft sold this business in a private transaction and Jack continued as their CFO. The business was subsequently renamed Alliant. Jack is concentrating his efforts on ensuring that AMERCO's public filings are timely, correct and transparent. Since I spoke to you last, in mid-March, AMERCO has closed the books on fiscal year 2004. Additionally, for the first time in 18 months, management has been allowed to focus on running the business. I have seen many positive developments since March 15. As I told you in March, U-Haul builds cash through the spring. AMERCO's debt level is at 760 million today and will finish the quarter around 770 million. This is the lowest debt level since 1995. We have paid off the Citibank and Bank of Montreal synthetic leases. This was done by a sale of these assets to WP Carey. The April 30 escrow close is pro formaed in the 10-K. The Company has seen good acceptance of its re-entry into operating lease markets. As you know, U-Haul uses lessors to finance rental equipment additions and replacements. These leases are just now starting to fund. From an accounting transparency perspective, the majority of SAT holding entities are deconsolidated as of March 31, 2004. I see this as extremely positive for investors. Through this same time, the cash positions at our two subsidiaries have remained strong. With Public Western and subsidiaries currently have a cash and cash equivalent position of 45 million. Oxford Life Insurance and its subsidiaries have a cash and cash equivalent position of 90 million. AMERCO and its noninsurance subsidiaries currently have cash and credit availability in excess of 143 million. Both insurance companies forecast sufficient cash availability on existing investments and operations.

Operationally, U-Haul has introduced 750 new trucks, since March 15, with more in the supply line. At the same time, U-Haul has paid off 29 million in equipment lease residuals, bringing about 5000 more trucks on our books. U-Haul continues to see and realize opportunities in both truck and trailer rentals and revenue. As you will recall in the self storage industry, U-Haul has shifted it's strategy to growth via independent self-storage affiliates. This strategy leverages off of U-Haul's existing infrastructure and requires minimal capital commitments. Presently, U-Haul has over 1000 EMU self storage affiliates. Today, U-Haul has about 25,000 unrented owned or managed self-storage rentals. Since March 15, when we last spoke, we have netted 20,879 occupied storage rooms. We will continue to work to exploit this operational leverage inherent in our self-storage inventory. With 25,000 rentable rooms and approximately $100 a month, this inventory figures prominently in our self-storage strategy. The Republic Western insurance continues to progress in actually non-U-Haul-related lines of business. Policy counts continue to drop-off, as business runs off. This lowers premiums and is proceeding according to plan. The Republic Western continues to commute our SEED (ph) business, as it makes sense to do so. As I have told you before, what we have here is the ultimate test of reserving. If the reserves have been set correctly -- and we believe they are -- the run-up of the business should be uneventful. As time passes, reserves become more statistically predictable. August 2004 will be a significant date, as then there will be essentially no active non-U-Haul policies at Republic Western.

Oxford life insurance continues with its business plan of conserving existing business while it seeks additional ratings improvements from AM Best. Recently, Oxford received a reprieve, when an Appeals Court upheld 5 million and remanded 34 million of an adverse jury award to the Trial Court for a re-trial. The Company considers the 5 million award excessive and is evaluating its alternatives. There has been significant progress since March 15, 2004 when we last spoke. Our management teams are getting back to focusing on operations. The self-moving and self-storage markets remain favorable. Jack Peterson will now address the deconsolidation of certain SAC Holding entities, followed by Rocky Wardrip with a financial review. At that time, we will address your questions. Jack?

Thanks Joe. It's my pleasure to have the opportunity to be part of this terrific organization and to participate in the first of many investor communications meetings. Since joining the Company, I have spent a comfortable amount of my time analyzing the effects of implementing a new accounting rule, as it relates to the accounting for our interest in SAC Holdings. This new rule governs the accounting for variable interest entities which are also known as special-purpose entities. Based on a combination of refinancing activity at SAC during our fourth quarter and the application of this new accounting rule, our conclusion is that 281 of the 343 SAC properties are no longer eligible to be consolidated with the results of AMERCO. We reviewed our analysis and our conclusion with our auditors and with our audit committee and they concurred with our evaluation. At year-end, this deconsolidation had the effect of reversing our earlier consolidation accounting by reducing assets and liabilities approximately 472 million and 629 million, respectively. Also, shareholders equity increased approximately 157 million, reflecting the inclusion of deferred gains and the elimination of retained earnings associated with SAC Holdings.

Operationally, U-Haul continues to manage all 343 of these SAC-owned properties, under the same terms and conditions as in the past. Going forward, and for comparative purposes, we included, net of intercompany eliminations, approximately 102 million of revenue, 27 million of earnings from operations, 37 million of interest expense and 9 million of net losses related these now deconsolidated SAC properties. The results of the 281 properties being deconsolidated will no longer be included with the financial statements of AMERCO in the future. I will now turn the meeting over to Rocky Wardrip, who will take us through our business and financial results for fiscal 2004.

Thank you Jack. The loss per share for the current year is 76 cents, versus a loss of $1.82 per share last year. Included in the current year EPS calculation are $1.32 in restructuring charges, a 45-cent loss per share from SAC entities that will no longer be consolidated with AMERCO, a 23 cents per share nonrecurring tax accrual, and $1.13 per share loss at Republic Western. Total revenues for the year increased by 1.6 percent to 2.17 billion, as compared to 2.13 billion last year. U-Haul's rental revenue increased by 8 percent or 115 million, reflecting strong revenue growth within our core moving and storage segments. Premiums decreased by -- or decreased to 237.1 million from 314 million in the prior year, reflecting a 39 percent decline at Republic Western, due to their exit from non U-Haul lines of business. For the year, COGS and expenses increased by .8 percent to 2.04 billion -- increased restructuring charges and commission expenses were responsible. The increase in commission expense is attributable to revenue growth within the moving segment. Earnings from operations were 121.9 million, up from 109.2 million in the prior year. U-Haul's operating earnings improved from 71 million to 140.4 million in the current year. Revenues increased by 115 million, reflecting improvements in pricing per transaction, product mix, and utilization. The improvement in operating earnings reflects the significant operating leverage within both the moving and storage businesses and a continuation of cost control programs which helped keep increases in costs to 45 million for the year.

Oxford's operating earnings improved to 11.3 million, as compared to an operating loss of 1.4 million in the prior year. Improved results within the med-sup (ph) line and the absence of portfolio write-downs from telecommunications estimates in the current year led to the improvement. RepWest had an operating loss of 35.9 million in the current year, as compared to an operating loss of 8 million in the prior year. RepWest results were negatively impacted by their exit from non-U-Haul lines of business. Unadjusted EBITDA was 275.7 million in fiscal 2004, versus 246.6 million last year. Our adjusted EBITDA plus rent expense was 436.4 million in the current year. Interest expense was unchanged, at 121.6 million. The net loss for the year was 2.9 million as compared to a loss of 25.0 million in the prior year. I will now turn it back to Joe.

Thanks Rocky. We are going to go ahead and go to questions and answers now. So, as the moderator queue them up, if you can tell who you want to address the question to great. If not, we will just have a most appropriate person respond.

(OPERATOR INSTRUCTIONS). Ian Gilston (ph).

Thank you very much. I have a few questions here, some of which relate to the accounting procedures and some of which relate to the operations. So first of all, on the impact of SAC, was there any deconsolidation for the fourth quarter? Or is it only effective at the end of the current -- or the last fiscal year?

The deconsolidation took effect March 31. For the majority of the properties, there were a couple that were deconsolidation February 1st.

Okay. That leads me to the next question that, on the basis of the revenue of moving and storage in the fourth quarter, it was somewhat below that reported for the third quarter. Now, historically, those two quarters had been quite close. Is the business decelerating? Or why is that the case?

Three of the subsidiaries, as I mentioned, were deconsolidated.

I am talking about moving and storage now and you are talking about taking SAC out.

Yeah -- Ian? Joe here. There is a small affect in the income statement, which is what you're talking about, for the year-end. And it's largely attributable to self-storage revenues. The way this all shakes out -- SAC self-storage revenues are excluded from AMERCO's moving and storage revenues. So I think that I can address with you the base moving and storage business is up, okay? And it's running up now.

No, that is good, that's good.

I believe that is the accounting for the smaller amount of that that got excluded, compared to the prior year.

Okay, maybe we can discuss that later, offline. On the RepWest, you said that August '04 you will have no current non-U-Haul policies in RepWest?

Yes, and that is kind of a mouth-full. And I want to make sure I say it in a way the makes sense. We will have no more new risk. We still have reserves and claims. And it takes a period of years to pay them out. But there are no coverages out there, where people are incurring new accidents or new casualty events and new things spring up. So after August, give it four or five months and pretty much everyone who's going to file a claim will have filed, Ian. And so at that point, this becomes a pretty straightforward matter of reserving, because you know what the claims are. You know what coverages you wrote. And in fact, through this year as policy count has dropped so dramatically, statistically our reserves have gotten much, much more solid and certainly this August is a big thing for me, because now I don't have to worry if some unusual claim just jumped up -- because this can happen in the property and casualty business. In other words, there's not going to be a windstorm or something happen. And now all of a sudden, I have to tell you we had a hurricane and, therefore, we had a bunch of losses. We just don't have that kind of exposure, unless the hurricane comes before August.

Okay. So, does that mean then that once you have a better estimate of risk and liabilities going forward, that you can then adjust the capitalization of RepWest and maybe reverse the cash-in and declare dividends out?

That would be, of course, my fond hope. We have two things that happened. First of all, we have to get the Arizona department of Insurance to go along with that. And RepWest is still a little bit in an uncomfortable situation, because they are still under what is called supervision by the department. And the department -- I don't want to speak for them. But they are not going to be too thrilled if we suggest taking money out. But, what happens is, is yes -- as this becomes statistically clearer, we will make a measured evaluation and do whatever is the smartest thing, Ian. And I am not -- I don't want to sit here today and predict it. But, as soon as you have economic certainty as to what's happening, well now everybody can say, okay what is the risk? What is the required capital? The one thing that is very clear, no capital will be going into Republic Western. When and how much capital can come out of Republic Western -- I am not ready to commit to that. But I can say unequivocally, no more capital will go into Republic Western.

So on the basis of non-U-Haul-related business, you are not writing any new policies at all, correct?

That's correct -- in fact we have not essentially written a new policy since last August. And since most policies are for a one-year term, that's why I say that August, pretty much -- the curtain drops.

Okay, that's fine on that. Are you going to basically move RepWest, U-Haul-related business into the moving and storage revenue line? Or still break it out separately?

We are moving more and more of it. And I cannot give you a percentage. But I would say it's more than half-moved now. So that -- what happens is that whatever is on their books right now, we're not literally moving to U-Haul's books. But we are not putting any on their books. So time is moving it, if the makes sense. Every week or every month, more of it is on U-Haul and less of it's on Republic Western. And my guess is we are somewheres around 50 percent or maybe even further than that, right now, as far as moving that to U-Haul's books and away from RepWest, which ultimately should make our financial statement more transparent to investors.

Okay. If I may make a suggestion, looking forward -- that you give us more revenue detail out of U-Haul -- rather than calling it moving and storage and insurance -- we break those three lines out on a consistent basis. That is just a suggestion. Now I do have one more question that relates essentially to the statement you have made on the storage business -- the self-storage business. Am I reading correctly that the utilization rate is moving up and your thrust will be basically in building non-U-Haul relationships and gathering a fee, rather than building more physical facilities and putting rental units on there?

Yes. And when we spoke last, in March, I indicated we had about an inventory of 40,000-plus to rent into. Well, we rented into the that very solidly -- we have had a net gain since March 15 of over 25 rented rooms, which leaves me, in rough numbers, about 25,000 rooms that I know I can rent. Now that would have me operating at a 90 percent utilization factor, Ian. I am, today, of the essentially 1000 storage locations we have, I have probably 350 running at above 90 percent. My objective when I use this number of 25,000 or more rooms to rent, would put me system-wide at 90 percent. I believe we can operate at that level. Now, of course, as soon as we get to that level, I'll try to push it up again, okay? But I have got to first get there. But I feel we're making very solid progress toward that, and that we're having a very good reception from our customer and from our marketing force in the field to get these rooms rented out.

Okay and then one comment from my perspective -- in the 10-K, you announced a number of events that have happened, prior to the filing of the 10-K, like the appointment of a Chief Financial Officer. Is that not an event that is material and, therefore, should have been announced at the time of the appointment? If it was, I did not see it.

I believe we made an 8-K filing. But, you know, Gary Klinefelter, you are on the phone. Do you know?

It's not a reportable event, in terms of an 8-K event.

It's not -- okay, I am mistaken. So we did not, I guess, is the answer. You are saying you would have liked to have seen something?

That's correct. It saves me calling up Gary. And I would like to have basically come out and chatted with Jack, which I will probably do anyway.

Okay, point well-taken. Thank you.

Thank you.

Julia Gert (ph).

Just a couple of questions. Out of the rooms that you are talking about -- the unrented self-storage rooms, what proportion of those are U-Haul-owned properties, versus the ones that you manage?

I don't have that number. Even, if I wanted to do it real quick in my head, I would say 50-50. But, you know, that is just kind of saying they're probably sprinkled like fairy dust where it'll be -- I am going to be roughly correct. But that's not -- I can't tell you with that much specificity. I apologize. That makes sense that you would ask that question. And if I can get that piece of information, I will try to get it transmitted to you. As you might imagine, to net 20,000 rooms, we probably rented -- I'm going to guess 70,000 rooms. So we had move-ins, move-outs -- you know, just like a hotel does. And so, to get a freeze point of occupancy -- it's kind of a little bit of an arbitrary thing. But I will ask and see if my information people can take a day and say, okay, of the unrented rooms, how many of them are owned by whom?

Okay, fair enough. What is your strategy about your truck fleet? What are you thinking of doing? Are you thinking of growing it this year? And if so, what will you be spending in CapEx?

The CapEx number is one of these awkward numbers. Because, as you recall, we bring most trucks in originally via a lease. Then it does not actually get reported as CapEx, either under our loan agreement or under GAAP. So, as I indicated since March 1st, we've put in 750 new trucks. That does not necessarily mean that those who will all flow through CapEx. What flows through CapEx -- I mentioned we did about 29 million of lease residual buyouts. That number is the number the actually flows through, in what the accountants call CapEx. So I'll give you are strategy. And then, you will see. Our strategy is to continue to buy lease buyouts as they mature, because it's in our best interest, financially, to do so. The -- we think that there's value for us there, obviously. Additionally, our strategy is to bring in new trucks, basically for the last 18 months, we were only able to bring in about 9000 new trucks. We would like to have brought in a lot more. So, it's my intent to bring in a lot more than that. And we will do that primarily through lease markets. And I was very pleased here in the last 60 days to see the positive reception we have gotten by lease markets. When we spoke in March, I indicated I did not really know how that reception would be, because we had been out of the marketplace for 18 months. But we are back in the marketplace. It's a vibrant marketplace. Everybody is jostling each other, to get people competitive. But we are getting there and I think that there's plenty of capital available. And I look forward to executing our plan.

So, what do you think that will do then to your lease expense number?

Well, Rocky, you may have to answer the question. Because there's leases going on and off at the same time, Julia. So, Rocky, can you answer that question?

Yeah, Julia, I think short-term here, that the lease number will actually be fairly stable, and may actually decrease slightly in the current year.

Okay great, thank you. And just a couple of other things. Could you give us an update on the SEC investigation?

Sure, Gary Klinefelter, why don't you grab that?

Sure, there's nothing really new to report, other than we continue to provide documents. But we have completed, I think, as of this date, the production of all current documents that have been requested by the SEC. So that portion of it is included. They are continuing to ask questions of us. And we continue to answer them. And we have had at least one meeting in the last month and a half with them, where we exchanged information and organizational ideas, so they can go about getting all the information that they need. It's very much an investigation that is not very specific, in terms of its intent. It is a general review of documents and asking questions of individuals, just to have some -- gather information. So it continues to be an information gathering process. But, we are getting along with them in doing that. And we don't know when it will conclude. But we will continue to cooperate.

Okay, so they're no longer pursuing the subpoena enforcement action against you?

No, I best describe that as some sort miscommunication or misunderstanding. We provided documents as rapidly as we could. We had a computer conversion issue that was been handled by a third party computer company. And they apparently weren't getting the conversion done as rapidly as the SEC wanted. And they brought that enforcement. The judge ruled on that, actually, I believe in May, and said we were in compliance.

Okay great. And my last question is, about the SAC entities and when we could expect to see statements for SAC?

I believe, Julia, that the note provides for 120 days after year-end. So it will be by the 119th. Now, if we can get a little earlier than that, obviously, we are going to do it. Because of the -- I'll say -- the technicalities, this whole interpretation -- we may go as long as 119 days. But, it's well in-progress. And there's no -- there should be no event there. It should be a very uneventful process.

All right. And their year-end will also be March 30th?

Yes, that's correct.

Okay great. Thank you very much.

Robert Feingen (ph).

Hey, good afternoon. I was wondering if there was an update for AMERCO investors who received the SAC 8.5 percent notes in the restructuring, as to the planned refinancing of re-SAC?

Gary Horton, why don't you take that?

Yes, Robert. Again, this is Gary. That is in process. We are hoping to close that next week. Again, we will calculate the amount of fees that go against it and everything else. And then, we will be issuing information to the trustee, as required under the indenture. But it should be concluded this next week.

SAC has already notified the trustee that it expects to do something. And until the actual amount is calculated -- but for those of you who aren't as familiar as Robert, obviously, is that any excess proceeds out of that refinancing under the indenture will be paid -- reused 100 percent to redeem outstanding notes. There will be excess proceeds, Robert, and they will be applied to that.

Okay. SAC had some thoughts on how that was shaping up a couple months back, when it did that mini roadshow. Has its expectations changed meaningfully since then?

As far as the amount?

Yeah.

No.

Okay. And then, in terms of the debt and the cash position, the figure from the balance sheet for what you have come to call the obligated group total debt, was 880 million as of March 31st and 65 million of cash. I just wanted to make sure I had it right from the script -- that you had 760 million of debt today, in that same group, and 770 million was your expectation for the end of the quarter. Do you have a corresponding -- first of all, I think there was some reserve for a write -- but if you could confirm that. Do you have a corresponding cash balance, either for today or your expectation at quarter-end?

The 880 and 760 are comparable numbers. The $65 million number for March -- at June, that number should be less. It's difficult for me to give you a real accurate number, because you've got some stuff that's in float -- basically, depository transit-type stuff. But my guess would be is that number is probably maybe in the $30 million range at June.

Okay and, again, in terms of comparability, I think the number cited the cash balance you cited for RepWest and Oxford were 45 and 90 million, respectively? On the March balance sheet, I see a zero cash balance and 15 million for those two -- for RepWest and Oxford, as of March 31st.

Robert, let me clarify that. What I was quoting there, and what I believe is comparable to what we talked about in the last call, was what they call cash and cash equivalent. Both of them are very liquid. This is money that is invested at some God-awful rate, like 1 percent. They probably are holding -- the cash is probably very comparable to what they report as cash. But cash and cash equivalents are liquid funds -- is the term. And I would say -- what I was trying to do is give you a view as to their liquidity and the fact that they are plenty liquid for the foreseeable future.

Okay. Fair enough. And then, in terms of management's comfort with the balance sheet as it is -- the existing capital structure -- S&P came out and put a rating on the Company's securities. And some of the notes are callable -- some are not, until next spring. I don't know if you have any general thoughts on your balance sheet strategy, going forward.

We are evaluating that on a regular basis. And even with S&P, they are kind of trying to hit a moving target, because there are so many things that have happened in the last 75 days. And so, obviously, I think we have a stronger rating they gave the Company. That's shared by my finance department. But of course, they're from Missouri a little bit. And that is as it should be. We will keep evaluating that. And as we get here towards the end of the second quarter, we will have real firm opinions as to where we want to be and a better idea of what the receptivity of capital markets is, because that's always a critical factor.

Right, right. Your 9 percent notes are noncallable for the first year -- is that right?

That's correct.

Okay. And then, in terms of -- this may be a little bit repetitive. But I think it's important. I calculate the core moving and storage business -- U-Haul moving and storage. If I try to isolate just from the math -- subtract the nine months from the full year, I show all moving and storage revenue as 367 in the March quarter '04 versus 328 in the March quarter '03. So a nice pick up there. But then I show operating income actually declining to a loss of 13.3, from a gain of 8, in March of '03 -- in that quarter. So that is just at-odds with the revenue trend and everything else that we know about (Multiple Speakers).

Let me address that, Robert. What happened is -- with the very significant restructuring -- I will call it events that we have never accounted for before, there is allocations that had to be made. And they were made as accurately as people could at the time. But I think that you should expect to see more normal relationships in the June 30 quarter and in the September 30 quarter. In other words, there's been no fundamental shift in the business. That is kind of what I think you are addressing.

So the revenue comparison -- do you think that is up 10, 11 percent? Don't you think that is a fair barometer of the health of the underlying business?

Yes, I believe that is a very good one. I would say 7, 8 percent -- you know, it's money in the bank. And beyond that, it's ours to go out and determine.

Right, right. I guess that pretty much covers it for now. Thanks.

Ian Gilston.

The comment was made that the SEC investigation has ended. And yet I understood that last week, the SEC re-filed. Is that an error on my part?

Two things -- there was an enforcement action on a subpoena that Gary Klinefelter, Ian, termed a kind of colossal miscommunication.

That was the one that the bankruptcy court said that they, in fact, had jurisdiction, and the SEC came second, correct?

(Multiple Speakers) the SEC did, but that another Federal court came second. And so, the choice of court should be the Federal Bankruptcy Court in Reno, Nevada. And, he then ruled on the substance of the motion and said that AMERCO had, in fact, complied with the subpoena. And I would say basically encouraged AMERCO and the SEC to sit down and not bring this stuff to his door again. And, as Gary Klinefelter indicated, since that time, we have had at least one planning session with the SEC, to try to get everybody on the same sheet of paper, as to how fast can we get them what it is that they want. And maybe even better, in our mind was, could we help them refine what they want? Because just the sheer volume of it just slows us down enormously in producing it. It is a huge volume of information, because their direction is purely fact-finding -- there is not a focus on a person or something that (Multiple Speakers) --

Was there an SEC filing last week or not?

Gary Klinefelter?

Not that I am aware of.

Somebody told me Gary -- and if you cannot confirm this, would you follow up with me? Somebody told me that the SEC appealed the judge's holding, as far as jurisdiction. Is that true?

That's true.

Well, Ian, it's possible what you're mentioning is correct, in that the SEC did not like the judge's ruling, that he had jurisdiction. And so they are disputing his claim of jurisdiction.

There's no new filing, Ian, with us. There is an investigation that's going on. And all that that means is, they filed subpoenas and request documents and request to talk to people. That's all the filing that can occur, with respect to the Company. So there's no new subpoenas or new depositions or anything like that, that are on record. So it must be a reference to the notice of appeal that they took. They're not used to being in the bankruptcy court. But that's where they belong, in this instance.

Fine. Thank you very much.

Ross Eberman (ph).

Maybe a question for Jack -- Jack could you talk just about -- a little more about RepWest? Could we expect to see this type of write-down in the next, I guess, quarter, up until August that we saw this past couple of quarters? And did I understand you correctly -- after August you'll know basically all of your liabilities and from what you can see (indiscernible), what is your thought on earnings or reserves for the next six or nine months there?

The short answer is, we believe we are adequately reserved at this point in time. There are no new policies being written. We are only experiencing claims under previously-written policies that will expire in August, coming in. We don't believe we will have any kind of material impact on our financial position or financial statements, as a result of changing our actuarial estimates of reserves and liabilities. We do continue to monitor -- and as Joe mentioned, it is a bit of a moving set of pieces. Some claims go up higher than we expected. Others come in lower than we expected. And we believe that we are, right now, adequately reserved -- there's no material negative impact from RepWest in 2004.

Just two further questions -- realistically, in terms of your capital structure, when can you begin to refinance the bulk of the bank debt, without incurring a huge penalty?

Rocky, do you want to grab that one?

Yeah, basically with the structures, as mentioned earlier, the 9 percent -- there's no refi there -- or there are no prepays within the first year. But most of the prepayment penalties drop off fairly significantly after the second year beyond issuance. And the reduction in prepayment penalties can be as much as $20 million within an annual period, once you get there. And, obviously, it's just a matter of considering what options are available to us -- the receptivity of the financial markets as well. And they just have to be taken as a whole, and see whether it makes sense to pursue, with the new transaction. But definitely the third year would probably be the most viable time.

And just one final question for Mr. Shoen. I know you have discussed the deferred in the past. What's your plan, in terms of making up the arrearages there, and what kind of time-frame you have in mind?

There's no change from when we last discussed this, which is, under our existing indentures, we can't even do the calculation until the end of the second quarter, which really means probably early November, where we can -- you know, the numbers are all very firmed up and we can do the calculation. At that time, what I think is a reasonable expectation is, we will act like we have in the past which is, to the extent we can, we will catch up. And my statement is, is that the Company does not view the unpaid preferred dividends as an interest-free loan that it wants to take advantage of. It views it as something that the Company -- an obligation the Company wants to step up to, not step away from. I can't be more specific, because the numbers have to come in and the calculations have to be done. But when we originally negotiated for our lender package, it was with the expectation that these amounts would be paid down, given reasonable performance. I would say we are at least on track for reasonable performance. And I would expect that we will take prompt and fair action on that. But, I would not expect anything before mid-November, because it just -- that is what the indenture provides. And I believe that's public -- I can't quote you the terms there. But I am sure it's -- Company's -- our filings and a person could read it. Is that straightforward enough for you?

Yes. Okay, thank you.

Feldon Goldman (ph).

You just addressed the arrearage and that was my question, thank you.

Gideon Bernstein (ph).

My question has been answered too, thank you.

Robert Ryan (ph).

Yes, thank you. This is an area we have focused on in the past. But, I just wanted to tighten this up a little bit. If I look at the consolidating financial statements in the AMERCO entity, its revenue account is diminimous and its operating expenses historically had been low. In fiscal 2002, they were 9.4 million. In fiscal 2003, those operating expenses increased to 44.4 million, 6.6 of which for accounting purposes were classified as restructuring expenses. And then, in the most recent fiscal year, the figure was 80.5 million of AMERCO operating expenses, 44.1 million of which were classified as restructuring expenses. Could you comment on that trend generally -- and I was interested in the balance of the operating expenses at AMERCO -- the 80.5, less the 44.1. Does that include some costs associated with the reorganization and restructuring as a whole, which for accounting purposes, can't necessarily be classified as capital R, capital E, restructuring expenses?

Yes, Robert, this is Jack. You hit the nail right on the head. That's exactly the case, that for GAAP reporting purposes, the definition of restructuring costs is fairly limited and restrictive. That's what represents the 44.1 million. The remainder includes other professional fees -- and then, others may be associated with the financial restructuring or other activities of the Corporation. That's just the restructuring component, Rob. It's nonrecurring and will not be there during 2005.

I'm not sure if I'm listening to the (indiscernible) through here, probably as eagerly as Robert is. But, does that mean we've returned to 9 or returned to 40?

We've returned closer to 9.

Is that closer to the answer you needed Robert?

He is not in queue at this time. Your next question comes from Jonathan Feldman (ph).

A question just about realizing greater shareholder value -- the feeling from these quarters is that investors think of AMERCO as a moving company and aren't aware of its significance self-storage business. And I think disclosure, respective moving and self-storage cash flows would be a positive for the stock, as those companies trade at significantly different earnings multiples and have significantly different capital requirements. I know one of the investors talked about potential tracking stock or spin-off. What kind of alternatives are you considering, to help unlock the value of the self-storage business?

We're certainly looking at different ways of reporting and analyzing the business. And to the extent it makes a lot of sense and we are able to separate out the moving and the storage business, we will take a look into that. There's nothing imminent on the horizon that it would happen over the next 12 months or so. But it's certainly something that we can look into.

Okay. And I expect that you certainly understand, looking at the self-storage multiples, that those companies trade at significantly higher multiples, than the market gives you guys? In terms of looking at Public Storage or Sovereign or Shurguard, trading at 14 to 17 times FSO multiples. And you can back into a cap rate and a P multiple as well?

We understand that there's different valuations and investor groups looking at self-storage compared to moving. And it's something that we will look into and we will respond back to you on it.

I appreciate that. Thank you very much. That's all.

Robert Ryan.

I am sorry, I just got cut off in my earlier line of questioning. But, I think the answer was, ultimately, you hope that cost line item operating expenses at the AMERCO level trend back closer to 9, and that you would expect that fiscal 2005, I imagine, to be a transitionary year, in terms of what that expense looks like?

Yeah, you said it better than we did, Robert.

Okay, thank you. And then, I don't know if the 10-K has a 2005 outlook section. But if I am looking at the operating income for moving and storage and AREC combined, the number I see for fiscal '04 is 202 million. (Multiple Speakers) Can you hear me?

Would you say that again? Something interrupted.

Clutter, yeah. Now, if I look at the operating income for U-Haul moving and storage and AREC for fiscal '04 -- 140.5 plus 61 in a combined 202 -- if I am building a model for '05, it sounds like with the underlying trends in the business, it would be fair to expect a reasonable improvement in that line item.

I would concur with that. Rocky is really my model-building person -- Rocky, do you have a further comment on that?

Yeah, I would agree. I think with the management focus being back on the business and some of the ancillary expenses we incurred in the restructuring process, that the outlook will be positive for both entities.

And the underlying business environment is still available?

Yes. In both the self-storage and the self-move business, it is.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. Mr. Shoen, are there any closing remarks?

Well, certainly. As you're all aware, certain of the statements we have made, during this call, regarding general revenues, income, and general growth of our business constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to differ materially from those projected. For a brief discussion of risks and uncertainties that may affect AMERCO's business and future operating results, please refer to Form 10-K for the year ended March 31, 2004, on file with the SEC. In closing, I thank you for your continued support. I look forward to speaking with you again in August, as we report first quarter results for fiscal '05.

This concludes today's U-Haul conference call. You may now disconnect.