U-Haul Holding Co (UHAL) 2009 Q4 法說會逐字稿

Good morning. My name is Justin, and I'll be your conference operator today. At this time, I would like to welcome everyone to the AMERCO fourth-quarter fiscal 2009 investor call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Ms. Flachman, you may begin your conference.

Take you for joining us today, and welcome to the fourth quarter of fiscal 2009 year-end investor call. Before we begin, I would like to remind everyone that certain of the statements during this call regarding general revenue, income and general of our business constitute forward-looking statements [concentrated] under the Private Securities Litigation Reform Act of 1995. And certain factors could cause actual results to differ materially from those projected.

For a brief discussion of the 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, 2009, which is on file with the Securities and Exchange Commission.

Participating in the call today will be Joe Shoen, AMERCO's Chairman and CEO, and I will now turn the call over to Joe.

Good morning. I am speaking to you from the Phoenix, Arizona. In the room with me is Gary Horton and Jason Berg. We have Rocky Wardrip participating from Reno.

Of course, we just reported lousy results for the year ended March 31, 2009. All year, we worked to increase the top line but also know that we lost more revenue than we gained. April and May have continued this trend.

We have several strong programs in place on truck and trailer rentals, but it is kind of like one of those pop-up games at the arcade; if you smack it down here, it pops up somewhere else. And this has kind of been our experience throughout the last many months, is that we'll get a revenue gain, but then we have a revenue loss in another segment or another region of the country.

Self storage finished ahead of last year, but likewise has been a year-long struggle. I think that my emphasis to the field force all year on the EMove transaction no doubt has resulted in some lack of emphasis on the self storage programs. It's just how many balls can any one person juggle. So I have driven very, very hard and I think I've probably got right up or maybe even crossed the line to driven too hard on the EMove, and need to balance it a little better with some self storage to work the bottom line to a more advantageous position.

We invested heavily in rental fleet all last year, and we've tapered that off in the first quarter and did a slight tapering in the fourth quarter. So you are going to see some reduction of that, and Jason will probably get more specific on the numbers.

As I mentioned, we experienced gains in several markets, but then lost that much or more in others. Of course, I am working to get that revenue gain. I believe there is still business out there, but it's getting harder and harder to earn.

The market for truck rentals is very regional and remains highly competitive. We have many bright spots. We are more than halfway through installing a Voice over Internet Protocol, or VoIP, phone system. This is kind of what Vonage sells, and we are installing that in all of our Company-run operations, so offices, 1-800, and our Company-operated stores. We are well over half way installed on that, and I think that speaks well for both cost and increased customer satisfaction.

We have a truck rental fleet that is in good condition. I believe it could have been positioned better going into the summer, but to a certain extent, I am going to believe that always, because we always know a little bit more than we are able to get done.

We have made -- over the last six months, we've made some modest gains on expanding our retail location base. This would be the dealers. Here, the down economy is kind of playing to us, because we are a more attractive option to a small business because now they are seeing the value of something that isn't a gold mine, but it's a decent addition to their existing business, which is pretty much the characteristics of a U-Haul dealership.

Additionally, the resale market for pickup trucks has shown some signs of life since Christmas. It was pretty grim, and I think I told you that or we talked about it in our last conference call. But we saw some life in that since Christmas, and that's very positive, because as you may know, our plan is to regularly sell fair quantities of that unit so we have the potential of making a better gain on that.

And then finally, our rental customer satisfaction is up. That's a very difficult number to get an absolute measurement on, but we've clearly been trending up for at least six months. I have had -- I've always had customer satisfaction initiatives, but we have been just driving relentlessly on this for 24 months, and we are now seeing some definite improvements. And I believe that overall, that will drive top-line revenue because overall, people do business with you because someone else gave them a reference to you. In other words, someone had a good experience.

I'm glad to be done with fiscal year '09. It has been a struggle most of the year. At the same time, however, fiscal '10 is shaping up as it is going to be a tough year. With that, I will turn it over to Jason. He'll walk through some of the specific numbers.

Thank you, Joe. Good morning, everyone. Yesterday, we reported a fourth-quarter loss of $1.99 per share compared with an $0.85 per share loss for the same period in fiscal 2008. For the full year of fiscal 2009, we reported net earnings of $0.02 per share compared with $2.78 per share in fiscal 2008.

eMove revenues for the quarter decreased $14 million, and we finished the full year of fiscal 2009 down $28 million or nearly 2%. On a comparative basis, total equipment transactions decreased during the second half of fiscal 2009 compared with the same period in fiscal 2008. The overall decrease for equipment rental transactions for the full year was just under 1%.

Foreign currency exchange rates between the United States and Canada positively affected our reported revenues during the first half of fiscal 2009 as compared with the previous year, but then reversed course during the second half of fiscal 2009 and ended the year negative.

Our revenue per transaction improved for our one-way transactions; conversely, our revenue per transaction for in-town rentals decrease compared with fiscal 2008.

During fiscal 2009, we operated with fewer trucks on average than the previous year, primarily during our busiest summer months. However, by the time we ended the fiscal year, we were up approximately 5000 units compared with March 31, 2008. This positions the fleet relatively well going into the busy summer months.

The economy continue to be a negative factor, affecting our ability to improve results. During fiscal 2009, we rotated nearly 22,000 new rental trucks into the fleet, with over 13 of those being our box truck models. Additionally, we added over 5200 trailers and towing devices.

For fiscal 2009, we invested approximately $516 million in new rental equipment compared with approximately $525 million in fiscal 2008. These amounts are gross before netting equipment sales and the effects of operating lease fundings or lease buyouts.

Regarding the financing of this new equipment, we increased our allocation to operating leases in fiscal 2009, funding approximately $285 million compared with nearly $130 million in fiscal 2008. Our current projections for fiscal 2010 indicate we may reduce our capital expenditures on new rental equipment to approximately $250 million. Again, this is before netting equipment sales and the effects of operating lease fundings or any buyouts.

Speaking of equipment sales, we finished 2009 with proceeds from the disposal of rental equipment of approximately $123 million compared to approximately $138 million in fiscal 2008, with the majority of the decline coming from pickup sales.

The loss on the disposal of rental equipment increased approximately $12 million in fiscal 2009 compared to fiscal '08. We did see some improvement in the fourth quarter of fiscal '09, as our loss decreased approximately $2 million compared with the same period last year. A portion of this improvement is related to some price recovery taking place in the resale market, with the remaining balance due to a lower cost basis resulting from additional depreciation that we've been taking throughout this year to reflect lower expected residual values on certain of our older model trucks.

Revenues for our storage program were down $230,000 for all of fiscal 2009 compared with fiscal 2008 for the AMERCO-owned Moving and Storage segment. For the fourth quarter of fiscal 2009, we saw a $205,000 increase compared with the fourth quarter of fiscal 2008.

Our occupancy rates are down 5% for the year and for the fourth quarter. We ended fiscal 2009 with an average occupancy rate of 79%. The variance is arrived at through two factors. First, we have fewer rooms rented this year than last. Our average number of rooms occupied has decreased 2% for the year and for the fourth quarter.

Second, our average number of available rooms has increased 4% compared with fiscal 2008. We have completed several new projects over the last year. These have added large groups of new rooms to the portfolio and are still in the rent-up phase, leading to some dilution of our occupancy rate.

In fiscal 2009, we invested nearly $82 million in real estate acquisitions, new construction and the renovation and repair of existing facilities. Projected real estate related capital expenditures for fiscal 2010 will vary depending upon market conditions and the opportunities available to us.

Looking at operating expenses for the quarter and for the full year, we are recognizing positive prior-year loss experience on our portion of the self-insured liability risk related to the rental fleet. As previous years' incurred loss experience develops over time, we are able to improve our estimates of what the ultimate costs will be for these previous periods. The resulting refinements we made in these estimates of these liabilities were recorded into our income statement, and resulted in a $2 million decrease in the fourth quarter of fiscal 2009 and a $12 million decrease for all of fiscal 2009.

The decrease in operating expenses for the Moving and Storage segment was largely the result of these improvements. We may not experience similar gains going into fiscal 2010.

It is also worth noting that our fiscal 2008 results included nearly $13 million in gains from the sale or condemnation of real estate compared to just over $2 million in fiscal 2009.

Losses from operations for the fourth quarter of fiscal 2009 were $32 million compared with nearly $6 million for the same period last year.

For fiscal 2009, we reported earnings from operations of $121 million compared with nearly $204 million in fiscal 2008. The most significant drivers of this decrease continue to be equipment-related costs, including depreciation, lease expense and the loss on the disposal of equipment, combined with the decline in eMove revenue.

Net cash provided by operating activities for the fourth quarter of fiscal 2009 was $22 million compared with $26 million in the fourth quarter of fiscal '08. For the full year of fiscal 2009, net cash provided from operating activities was $275 million compared with $329 million in the previous year. Fiscal 2008 operating cash flows did include a $20 million note payment received from SAC Holdings. Fiscal '09's operating cash flows do not include a similar amount.

Cash and short-term investments excluding our insurance subsidiaries was $213 million at March 31, 2009. We had additional cash availability from existing borrowing facilities of just over $42 million.

The operating earnings at our insurance subsidiaries were down just over $2 million for the fourth quarter of fiscal 2009 as compared with the same period in fiscal 2008. For the full year, they finished down just over $1 million.

For the fourth quarter, Oxford recorded additional amortization of deferred acquisition costs related to its annuity lines that are unlikely to continue at that rate in the future.

In May, it was announced that Republic Western was upgraded by A.M. Best insurance rating agency to a B+, a secure rating, with a stable outlook. Oxford's B++ rating was affirmed by A.M. best in March of this year.

With that, I would like to hand the call back to Joe.

Thanks very much, Jason. Well go to questions and answers now. Again, we have Gary Horton, Rocky, Jason and myself here.

(Operator Instructions) Ian Gilson.

Good morning, guys, and Jennifer. I have a question on the operating expenses. At basically 252.5 last year fourth quarter, 254.4 fourth quarter of this year. Or as a percentage of rental revenue, 84.6 last year and 90.2 this year. Could you go through in a little more detail why, despite declining revenue, you had flat operating expenses? Because that is a big difference, given the fewer shares that are out.

I'll start on that, and then while I'm talking, maybe Jason or Gary can find some numbers. But of course, the real question is what expenses do you cut. We were -- as I think Jason indicated, we were adding fleet in the last six months of the year, at the same time we were seeing declining revenues. And a fair amount -- there is just a fair amount of expenses associated with the that.

And I think also, Ian, we haven't gone through and decimated the work force. I still very strongly believe that they are part of the solution, not part of the problem. So we haven't decimated. We have been on essentially a hiring freeze since probably last -- I'll say October, maybe. But that tapers people off. That doesn't run them off a bridge or anything.

A tremendous amount of our costs are fixed. And I think finally, we had some amount of money -- I am going to guess at a couple million dollars in the phone system, that actually we were paying both AT&T and for the new VoIP system simultaneously. And I don't know exactly how much that was. Jason will know how that got booked.

But I will turn it over to Jason to see if he can put some -- a little more specific (multiple speakers).

There is one large number that is a variance between fourth quarter of last year and this year, and that is in the workers' comp insurance programs that we have for our employees, we are in a situation with our carrier where we get experience refunds based upon prior-year experience. And those come into us at various times.

Last year, we received an experience refund of approximately $5 million in the fourth quarter. That served to reduce expenses. This year, we recognized about that same amount, but we recognized it in the third quarter. So if you were to exchange those two numbers, the expenses would be down just a little bit. As Joe said, most of our other expenses have been relatively flat year-over-year. It's just that we have the declining revenue, which increases it on a ratio basis.

Well, I'll be then looking at this $250 million operating expense as a base number despite what happens?

No, I don't think so, Ian. Of course, right now, it is probably up a little bit because we are in the summer. In other words, business is up over what you saw in the fourth quarter. But it's going to have to shrink in the fall. It's undoubtedly going to have to shrink more than it shrank last fall.

All right. Thank you.

Jim Barrett.

Good morning, everyone. I wanted to -- I'm not sure whether this is a question for Joe or Jason -- but I wanted to get at your CapEx. I think, Joe, you mentioned you are going to spend 250 on trucks this year, and I believe you said last year it was 516 prior to any lease financing. First of all, is that number -- are we comparing apples with apples in this regard?

It is more than trucks, but let me let Jason give you the exact number.

It was $516 million last year, and that is trucks and trailers. And this year, the equivalent number is approximately $250 million. And that is a gross number. That is the cost of the trucks essentially year-over-year.

Jim, this is Gary. The thing that -- one of the big netting things is you have the sale of pickups and vans, which, I think, Jason -- what was the number that we had? Our trucks last year -- we had 100 and --

[$123] million.

So that would actually leave you with somewhere around $125 million that would either be financed out of the cash, additional borrowings, leases, etc.

All right. And if the Company were to spend no more on real estate in 2010 than they did in 2009, wouldn't that effectively suggest that if, in addition, your leasing, financing of trucks and trailers does not increase, as well, you're going to be sitting -- you're going to be generating a couple hundred million dollars worth of extra cash in 2010, if the business otherwise stays even? In other words, your CapEx is coming down $250 million.

That is what would basically happen. You know, we do have maturities. We do have lease buy-outs. But again, all things considered equal, you would actually be building more cash.

Gary, I don't think it is -- I think we have about $125 million of maturities and lease buyouts forward-looking 12 months. So we will burn some of that up. But Jim, what you are hearing is we are fairly -- I don't know what to say -- gun shy, and we are a little apprehensive of where all this is going to go in the credit market. And so we are trying to keep ourselves where we are not going to be in some need to close a particular financing.

So -- now, on the other hand, we are having some modest success in equipment financing, and we hope we would continue to do that, because I think it is a good proposition for all people involved. But on the other hand, it is a tight market for financing anything right now, and so -- and our business is off. So I think it pretty much should fall out that we are going to cut back a little bit on what we are investing. I think it is just common sense.

Joe, in round numbers, how big do you think your truck fleet will be a year from now?

I'm going to guess minus 3500, but it gets really complicated because of the way the accountants count it. It's kind of like how they count floating shares and all that; it's -- they have a particular discipline. So my -- I think this time next year, the number-to-number will likely be down about 3500 trucks. But how that will get reported quarter to quarter, I don't want to predict, because it gets very specific and they have their rules.

But we -- as Jason indicated, we started last year and finished at about 5000 more units roughly, 4 or 5000 more units. And we will eat some of that back down. And a little bit depends on how good the resale market is. And also, of course, if I start getting some revenue, I'm going to slow down sales. Because if I got revenue and I need the units, I'll just postpone sales for a few months. So I can adjust pretty quickly on sales. It's harder to adjust on purchases. That is a six-month order lead. But on sales, I could slow down sales. But my guess is that we will see it down 3500 trucks.

Okay. And Joe, in your K, the average revenues per one-way transactions improved in 2009. Should I extrapolate from that that competitive pricing in one-way moves has at least stabilized and possibly has improved?

I don't know what to say from that. There are so darn many moving parts there, it has got us -- I think -- I mean, we have a lot of specific analysis that we won't share. But there is not a clear pattern at all. So that is my fond dream -- what you expressed is my fond dream that we see something there.

But my actual experience is no. And -- but I've got a team of people, and they are dedicated to see if they can't get a percent or two or three of prices. And I don't know -- I'm pretty frustrated on the subject, to tell you the truth. So I don't know a clear answer to it, and I don't want to get into a jillion specifics because it will just confuse things.

But I don't think prices have particularly stabilized. I don't know what our competitors' fleet plans are at this time. So I don't know. But what has happened is with so many people underemployed right now, there is just a plethora of people who want to help you move. They have a truck or they have this or that. And here in town, we have somebody called, I think, apartment movers.com or something. But they have trailers, and if you have a pickup truck, you all of a sudden become an instant mover. Now, you're not really a mover; you are a person that is underemployed who needs some income and owns a pickup truck. But they put their big red trailer behind your truck and make you a mover.

Well, at our level, those are all competitors. So there is just a lot of moving parts right now, and I don't have a good answer to it.

We were thrilled to see we got a little bit more on our one-way transaction. But if you go through it, we got a little bit less on our in-town transaction. And there is trades back and forth in there on how we price a move.

So I don't know the -- other than to say that is of course the most active part of the business, is trying to figure that out constantly, is get the fleet positioned. If it was positioned better, I would get a percent overall or something. In other words, I've got some trucks stuck in backlog because we had a real busy weekend, of course, the end of the month there in May. But nevertheless, I had trucks that didn't rent because they were in the wrong doggone place.

And if they're in the wrong place, there just aren't going to rent, and that's all there is to it. So I was very -- I spent the last seven days going through literally every single one of those trucks, because I'm very frustrated. Because on the one hand, I turned down business and on the other hand, I had equipment sitting idle. Now you always have that, and I don't have an absolute measurement as I do a little bit better or a little bit worse. But our intent, of course, is to do a little bit better, and if you looked at a 10-year trend, we've consistently done a little bit better with equipment utilization.

But I can't -- I don't want to tell you that I'm trending better right now for the last, say, 90 days or something. I don't have that clear of a picture.

Finally, your mileage on the local moves was down. I can understand the economy might reduce the number of local moves. I am a little bit less clear why the mileage on local moves that you did transact would be down. Any thoughts on that?

Yes, we probably traded off some long roundtrips for some one-way -- to some short one-ways. It is, again, that gets a little murky. But probably we did. That would be my guess.

At the same time, though, we don't have a strategy of doing long in-town moves. In other words, if you said, I want to go from Albany to Boston and back, we would say why don't you just go from Albany to Boston and leave the truck there. We would try to talk you out of it, rather than into it, just because it is not our business plan. But -- and I think that we maybe did a little better job of that in how the numbers report through to you in the last several months.

Okay. Thank you very much.

[Austin Root.]

Depreciation and leasing costs were both up this year. Do you -- I heard the forecast for the CapEx. Is leasing cost also forecasted -- will leasing costs continue to increase next year?

It will continue to increase as we add additional leases through this year, but it will not go up as much because you had a big switch in the last year. So I think you are going to see marginally up on the lease.

And Jason, are we actually going to stay the same or actually go down on depreciation?

Based upon the facts that we have today, which is the lease plan and assuming there aren't any more adjustments on some of our older vehicles, our depreciation, I would expect to flatten out this year.

Okay, but so those two numbers as a total, you would project to be higher next year versus this year?

I would say yes, because what you have is you have -- they go forward for seven years. And you basically as -- if you are putting more leases in than you are actually taking out, you will have a higher one for a period of time.

Okay.

And seven years ago, we didn't have a lot of new leases coming in. So there won't be so much going out. So we've built up to this proportion. It is one of the things I always tell people to look at, is look at the combination of operating income and add back those two. Because I can go through and change because of either better rates in one or the other, or tax position. There are several components in there that will actually switch from -- buying it equipment and depreciating it or leasing it and paying the lease expense.

Right. But I think just in terms of thinking about the truck costs, it is helpful for me to think about both of them.

When you think about kind of the business -- and this is, I guess, maybe for Joe, but anyone is fine -- on kind of a same-store basis, and the revenues were down for the trucks for the year, was it more a function of price declines or utilization declines?

There's one other piece in there, and I think Jason has gone through and kind of explained that. The three things are probably price, utilization and then miles traveled. And I think, Joe, you just mentioned that the miles were down not only on the round-trip rentals, but also on the one-way.

Yes, we don't publish a same-store number. I see some same-store numbers, Austin, and we probably had a third of our stores for the fiscal year finish up over prior period, and probably two-thirds finished down. At the same time, half of our truck rental business is done at our dealers, and our dealers finished real close to flat. I'm not -- I don't have that -- not recalling that number exactly. But there is always a little bit of interplay between the self-move rental at the dealer and at our Company locations.

Our Company locations suffered from a decline in our hitch sales and also in moving supplies. So moving supplies kind of follows transactions, and with transactions being down, moving supply sales were down. Hitch sales, which varies with a lot of things, but one of the things it varies with is new car sales, and as we all know new car sales have been fairly spotty for the last year.

So we had a -- I think -- did we publish a number on that, Jason --? Do we publish hitch sales?

No.

Okay. Well, hitch sales were down. I'll just put it that way. I don't want to cause our new disclosure item here right now. But hitch sales were down. But you could kind of figure if -- you know, auto sales were off. And a good hunk of trailer hitches go on recent auto purchases. So our stores were down more than our dealers were down because they do business lines that the dealers don't, if that makes sense.

And then you saw our self storage. Our self storage, we traded. But of course, some stores traded up, but some traded down. So that kind of worked -- I think there is -- as I indicated in my prepared comments, I think there is a little bit of room still in the self storage and I'm going to try to see if I can't manage us to earn that revenue over the next six months. I think there's a little more room there than there is on the truck rental right now, and I'll try to have a more balanced approach.

Well, that actually leads into my last question. And guys, I ask it not at all to be antagonistic. But Joe, you guys have all been straight shooters, so I do ask it just to get your view on it. As I look out over the last five years, free cash has been negative, on average, by $70 million or $3.50 a share. And yet revenues are down over that period and the fleet is not materially larger.

So it begs the question as to whether the return on invested capital is anywhere high enough to justify growing the equipment rental business. So perhaps in light of that free cash destruction, maybe the better move is to shrink the equipment rental business and focus it more on driving storage utilization.

I don't think that that -- I'm not going to -- I don't have a free cash number in my head over five years, and maybe Jason will comment on it. But without commenting on that your number is correct, I don't think that's a bad analysis at all. There is a little bit of -- you are in process of one thing and they don't transfer as quickly and as smoothly as you like. But we put considerable emphasis into the self storage.

And another part of this business that you don't see as clearly, but has -- we've made -- I believe we've explained it is a long-term strategy of ours -- it's what we call our eMove affiliate program. And we are progressing very nicely across the whole self storage front, and I'm relatively pleased, although the revenue was nothing to write home about over the last 12 months. But we have a whole program of dealing with what we call storage affiliates that is, I think, key to a 10-year look or something or a five-year look at the Company to how successful we are going to be.

And ultimately, I am a little more -- I'm going to say -- gritty, maybe, than most. But openly, the question is will you survive at all. Okay? It's great talking about how we are going to split the pie up, but you have to actually be there at that point.

So I think that our self-storage strategy is a great strategy that will ensure that we will be here and we will be alive and kicking and there will be -- we will be splitting up a piece of pie, rather than all in some other situation.

So yes, we have -- you could've probably had this same discussion 15 years ago. And then we found some -- I don't know what you want to call it -- we found some more markets in the truck rental business. And you'd think, well, how in the heck have you missed markets after being in the business for 50 years. Well, just the truth is you miss them. There are these little submarkets or something and all of a sudden you find it, and boom, it runs away with you for a little bit. And so I am eternally optimistic on that.

So we have probes going all the time, and if one of those probes starts to show some signs of life, then we will divert fleet. We don't publish detailed enough information on our fleet sizes for you to see that, but there is -- if you looked at 10 years, the composition of our fleet has changed. So to some extent, we have to change to stand still.

And I think really over the last 12 months, we danced and we ended up going backwards. So I can't -- if you -- we don't have an absolute measure of demand or market potential; there is no agreed-upon method. And we've wasted some amount of money trying to determine such a thing, only there is not yet a good major measure of it.

But this last year, every time we took a step forward, we took a step and a half backwards, is what it felt like. So I could go through, and I have with, of course, my team one, two or three places where we made advances. But unfortunately, we saw declines. And to say that those are certain market trends or a certainty, I don't accept that they are a certainty, but I think we need a more cautious approach, and that probably relates back to the fleet numbers that I talked a little bit with Jim over. Yes, you probably see us, in all likelihood, we are going to constrict the fleet over the next 12 months just a little bit. And we could do more or less if the market demands it, but that is the way we see it developing at this time.

Okay. Thanks, guys.

(Operator Instructions) Gary Lenhoff.

Jason, can you review for me one more time, if you spend $250 million in CapEx on equipment this year, what are you expecting the cash proceeds from sales of equipment will be?

The cash proceeds last year were approximately $123 million. I think our goal this year would be to come in very close to that same number.

Okay. So doesn't that imply that the fleet would have to shrink by more than 3500 trucks, Joe, if you sell about the same amount as you did last year?

No, I've got some for-sale inventory, and no, it is not going to be a problem.

Okay.

I mean, I could, but no.

One of the things where a lot of the gross sales comes is from pickups and vans, that basically go in and out each year, And that's pretty much included in the amount of units you are going to have, so you have a lot of sales coming from there. And --.

And Gary, this is Jason. One other point to make is that the fleet number that we reported is the active fleet. So the units that have been pulled out for sale aren't included in that number. So there is an inventory of trucks out there that are for sale, but aren't included in that active fleet number.

Okay. Thanks. Can you give us a range, at least, of what you think CapEx might be in the storage side?

I'll do that, okay, which is Gary wants it to be zero. He says -- he's denying that, but that's what he really tells me. He wants it to be zero. And I am hoping we come across a heck of a deal, and I have to go get him to stretch and find some financing.

Now, I've looked and looked and looked for a heckuva deal. I haven't seen a heckuva deal yet. But I really like the storage business, and I am out there looking for a heckuva deal. If I put a project in the ground, Gary is going to drive a nail through my hands.

Actually, I will drive it before.

So we have kind of a little give and take there, because, of course, anything we put in the ground is going to be negative to earnings for at least a year, or maybe as long as three years. That is just where this business is right now.

But on the other hand, if something becomes available that looks advantageous -- and we have sorted through a pile of properties over the last eight months and found very little, because the market has not seen -- it has not gone soft as far as sellers are concerned. So the sellers are still pretty proud of what they got, and those numbers aren't going to allow me to see where I could make any advantage for the Company.

But if -- everybody keeps talking about the commercial real estate is going to stumble real hard and everything, and surely I am out there looking. And if it does, I am going to try to see what we can finance. On the other hand, so far, we've sorted through way more than a thousand properties in the last eight months, and I think we bought three or two.

So we are picky, picky, picky. And I think that's good. But I would hope that we might see an opportunity to get a larger group of properties. And if we do, of course, we will make some sort of a release, however that is done -- Jason. But right now, Gary has us pretty tightened down.

One of the things I want -- because it sounds like we aren't doing any financing. We are doing financing as we go forward. And we've got several things that are in various stages of being funded and various stages in negotiation, and we are trying to make sure that everything is covered.

So we've funded things just recently. Just to pass on is that we funded something right at the end of the fiscal year which was a seven-year financing at 4.86. But I'm not going to say -- we haven't moved away from what we are trying to do, which is to get a very good-termed loan or a lease. And as we go forward, that just aids to the value of what we buy.

And I am not against buying storage, okay? I'm definitely not. But I am very cautious as we go forward in trying to maintain a very, very high degree of liquidity. Because if we go through and we find something that is just we can't pass up, I want to make sure that we are in the position that we could go out and buy that.

Okay that's helpful. Joe, your product revenue was down more than 8% in the last two quarters, which are the seasonally weak quarters, I recognize. But year-over-year, it was down 8% or so, which was more than I would have expected. Is that just do-it-yourselfers simply buying fewer boxes, tape etc., or is there something else that we should be thinking about there?

It's exactly that, and less hitches. Our two primary items in there are boxes and hitches. The third one is propane. Propane, the price fell in the last six months. So that (multiple speakers) sales. But then of course, the acquisition costs went down, so margin didn't suffer terribly. In the other two, it's actual sales are down. They are down more than our eMove product, which means that -- and I'll take the hitches. The hitches have something to do with car sales.

On the boxes, it has varied more than our truck rentals. And so that may be what you alluded to, which is people are coming in, they are just a little bit tighter with their dollar. And I don't have an absolute answer to that, and I have several programs trying to push on that.

Of course, everybody is competing now. Now Home Depot is selling boxes, Wal-Mart is selling boxes. And interestingly, I sell boxes cheaper than Home Depot does and cheaper than the rest of those people because of course we buy very few SKUs, but we buy a hell of a bunch of them. So I'm able to be competitive. But as these people all -- they are all casting about for a way to make a living. So I was in a Walgreens the other day and they had a moving box center and I go, good Lord. Should I sell Tylenol?

But they are all trying to get us -- they think there is a little bit of margin there. I think most of those people will be disappointed with the turns and they will slow down their interests. But they've all got program managers like I do, and they are all casting about for something. So maybe, maybe the consumer went to some alternate deals. We thought that last fall when we did a bunch of focus groups to try to ascertain are we losing customers to another retailer. And we came up with some point-of-purchase signage that compares our price to everybody else -- all the major retailers' price. And we are below them all on most of them by a substantial amount. And the focus group information indicated that would reassure the customer that they were making the right decision, buying whatever their budget allowed from us. So maybe their budget is just down, and I think there is -- undoubtedly that is a contributor.

Okay. That's helpful. Jason, last question is if FASB goes forth with their proposal -- and I don't know what the timeframe is -- to require companies to capitalize operating leases, have you looked at that? Can you give us a sense of what impact that would have on the balance sheet? And are there debt agreements that would have to be modified or changed to reflect that?

I'll answer that in a couple parts. First, covering the debt agreements, we don't have any real issues with those as far as a GAAP earnings number. So I don't think it will impact that too much.

We've been looking at this for quite a while, so for the last several years, I do a disclosure in the K, which it may not be exactly the way that the FASB will prescribe the accounting for it, but we do give an amount which is the present value of all the future minimum lease payments, along with any residual value guarantees, to give you a flavor of what that balance sheet number might look like. And at March 31, that number was just under $680 million.

Okay. And you mentioned GAAP earnings. There is no debt covenants or anything that would have to be changed to reflect putting that on the balance sheet?

We have no covenants in our agreements to speak of. We have gone through -- and that's one of the things that I have been pushing, that we have no of the old financial (technical difficulty) minimum net worth debt equity and none of those. We have some reporting requirements. We do have some fixed charge coverage triggering things, which basically would just increase a little bit more rapid amortization or substitutions, so on and so forth.

But there is nothing that is there in our agreements that would cause us headaches because of GAAP changes. And the reason why I've been going through and trying to get that that way is because there is a lot of times GAAP goes through and changes things, does not change a damn thing economically, but it did cause problems. And a lot of the people out there are having to go through those. I just figured out it was better not to have to do it, and we've been fairly -- very successful in doing that.

For 15 years, Gary has presented to his debt lenders his lease commitments upfront. Because, again, he in fact preaches that everybody look at EBITDAR. So he says, everybody, look at both of them, and you are seeing what we are seeing. And he has been singing that song for a long time.

So Jason, as he said, he is seeing this coming, so he is trying to disclose it. And then however they get the final rule, if they make a rule, we'll comply. But we don't see it other than it's going to be a little headache for a few months, until everything is a certainty. But we will get it and explain it.

There will be a lot of people that will have that problem, that they will end up having a greater debt equity ratio, and then they are going to have to go back and get covenant relief. And thank God we won't be one of them.

Great.

This is Rocky Wardrip. I just wanted to add, too, most of our debt agreements, basically, the language relative to accounting changes are that if there is a change in GAAP or SEC that it cannot trigger a default, that the lender and the borrower will work together to resolve the issue in a manner that maintains the original spirit of the covenant.

Sounds like you've got it covered. Thanks, guys.

Jim Barrett.

Just a follow-up or two. Jason, the Q4 operating expenses in Moving and Storage, I think you mentioned that last year you had a $5 million refund in Q4.

That's right.

That depressed that number. So if that wasn't there, I would take it -- is that the way to look at your trend in terms of operating expenses within Moving and Storage, that it would have been, on a pro forma basis, for lack of a better word, would have been improved going forward by about that amount?

You can do it either -- because it has shown up in the third quarter of this year, so you could either move those around to make it apples-to-apples. It was just a matter of when we were notified and when we actually received the check, and it was a different time period this year than last year.

And when you were looking at a ratios, even though it did not make a big change year-over-year for the whole year, you had a bigger currency conversion difference on the top line. So it kind of compressed that also. Is that not true?

With the way the rates have been going between the US and Canada, it benefited the first half of the year and then they kind of depressed things during the second half of the year. On a net basis, that didn't have a huge effect on our earnings at all.

Okay. And how much will the new telephone system save you on an annual basis?

That's a terrific question, and I don't have the exact answer. But -- and how it falls through financial statements, of course, will be another thing. But we are going to spend $12 million to $15 million, Jason -- 12 to 15 -- he's shaking his head yes. And we are going to recover it well -- way short of three years. So, exactly how that comes through the accounting, I've been kind of querying him on where everything gets booked.

But we did -- when we did our basic analysis, that with no improvements in operating efficiency, we can recover our costs well short of three years. And so -- but again, sometimes it circles through the accounting a little differently.

Okay. And then finally, Joe, the issue of truck maintenance within operating expenses, is that still becoming a bit of a wash as your newer trucks [gauge]?

It's kind of starting to level out in the fourth quarter. I have some -- there is some money that can be worked out of that, Jim, and it's a real touchy deal, because the last thing you want to do is be caught preaching truck maintenance expenses. But at the same time, there is a little bit of fat in there. There is not much personnel fat. I think last time I saw it, we estimated that we were something like 70 people heavy there. Now, that's a half a person here and a half a person there. It's not 70 people in one place. But with all our maintenance places, we were, on a calculation basis, maybe 70 people high. Which that is historically a good margin for us.

But I think that there is some tweaking that can be done there, and we are working it. There is a little bit of opportunities in warranty -- we are a warranty station for both Ford and General Motors, and so there is a little bit -- we think there is a little bit of warranty recovery that we have -- that we are going to do better on. And we are doing a bunch of electronic handshakes with both Ford and General Motors that we think everybody agrees will reduce all our costs. And also for us, we think it will up our warranty recovery a little bit, which is -- basically nets against the maintenance line.

Right. And then finally, was weather a nonissue during the quarter?

I think the extra day was a bigger issue than weather. We had a leap year last year, so we missed one day of revenue this year. I'm not going to cry about either one. I don't think it was a terrible deal. We had an extra day last year, so we got a lift last year and we got a drop this year.

All right.

You got to take what you get.

Yes. Okay. Well, thanks again.

Ross Haberman.

How are you, gentlemen? I got on late. I was wondering if you made any mention about Avis selling their truck business, possibly, and how that might affect prices.

I didn't know they were doing it, so I guess my answer is I need to get informed, because I didn't know that was happening.

I just thought I read that somewhere, that that was a possibility.

Well, there has been speculation, but I haven't heard anything recently, and I don't know -- I could be a week late on insider talk in the industry or something, but I haven't heard anything about (multiple speakers).

Are they generally the price leader? And if that were to happen, would that sort of help general prices stabilize?

I think you missed something earlier on about -- the competition is you've got so much competition, and as the economy worsens, if a guy has a pickup truck, he goes in and becomes a mover. And I'm going to say we probably have -- I don't know -- a very large percentage of our business is done in the round-trip market. And you've got the people there.

But you have so many other issues that -- people are trying to bolster their income, and so they don't look at their time as you and I might. So I think there is just a lot of it. And I don't know if it would even have any impact, because those trucks would go someplace.

This is Joe again. I've watched that business more or less be sold three times. Ryder Truck Rental sold it to [J. Alex]. J. Alex sold it to [Sandy Miller]. Sandy Miller sold it to Budget. Budget did their funky reorganization, split off, a thing I never understood. So they've had three or four sales of that business. And every time I think it is going to go through a really rational guy and everything is going to be hunky-dory, and it has never happened. So I am not going to prognosticate.

But if anybody hears they are being sold, I'd love to get the news. I just -- I don't know that they are being sold and I don't know how they would even sell it because of the way it is all intertwined.

Generally, what is your thought -- again, I got on late -- what is your thought about general pricing? And do you -- was that a big element this quarter in terms of the dropoff in income and will it persist through the year?

The answer is no, it wasn't a big factor. The answer is is business going to be tight? Yes, it is going to be tight, and going ahead, it is going to be tight. It has been tight for the first two months. In other words, April, May have been tight. I see no change there.

Consumers are -- I don't know -- there's somebody probably making real good money right now, but I don't know them. So it is going to be tight, and I would expect it to be tight. We've got to manage our expenses, manage our overall fleet costs and pull out a decent year. That is our challenge.

Okay. Thank you, guys.

Ladies and gentlemen, this concludes the Q&A session for the call. I will now turn the call over back to the speakers for any closing remarks.

Thank you, everybody, for joining us on the call. I hope you got your questions answered. We are of course going to send out information here pretty soon, if we haven't, about the annual meeting. We are going to do some sort of a virtual analyst meeting again. We've done that two years in a row. I like that format. If you are complaining about it, the complaints aren't reaching me. So I look forward to those of you who join us for that, and I'll try to make your time invested there worthwhile. Thank you again.

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