U-Haul Holding Co: Form 10-Q for the period ended Dec 31, 2023

General

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) with the overall strategy of U-Haul Holding Company, followed by a description of, and 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 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 third quarter and first nine months of fiscal 2024, compared with the third quarter and first nine months of fiscal 2023, which is followed by an analysis of liquidity changes in our balance sheets and cash flows, and a discussion of our financial commitments in the sections entitled Liquidity and Capital Resources - Summary and Disclosures about Contractual Obligations and Commercial Commitments. We conclude this MD&A by discussing our current outlook for the remainder of fiscal 2024.

This MD&A should be read in conjunction with the other sections of this Quarterly Report, including the Notes to 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, 2023. Many of these risks and uncertainties are beyond our control and our actual results may differ materially from these forward-looking statements.

U-Haul Holding Company, a Nevada corporation, has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September 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 presentation of financial position or results of operations. We disclose material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2023 and 2022 correspond to fiscal 2024 and 2023 for U-Haul Holding Company.

Overall Strategy

Our overall strategy is to maintain our leadership position in the United States and Canada “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, portable moving and storage units 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 and storage units and portable moving and storage units available for rent, expanding the number of independent dealers and company operated locations in our network.

Property and Casualty Insurance is focused on providing and administering property and casualty insurance to U-Haul and its customers, its independent dealers and affiliates.

Life Insurance is focused on long term capital growth through direct writing and reinsuring of life insurance, Medicare supplement and annuity products in the senior marketplace.

Description of Operating and Reportable Segments

U-Haul Holding Company’s three operating and reportable segments are:

• Moving and Storage, comprised of U-Haul Holding Company, U-Haul, and Real Estate and the wholly owned subsidiaries of U-Haul and Real Estate;
• Property and Casualty Insurance, comprised of Repwest and its wholly owned subsidiaries and ARCOA; and
• Life Insurance, comprised of Oxford and its wholly owned subsidiaries.

Moving and Storage consists of the rental of trucks, trailers, portable moving and storage units, 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 and center network, which provides added convenience for our customers, and expands the selection and availability of rental equipment to satisfy the needs of our customers.

U-Haul® branded 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.

uhaul.com® is an online marketplace that connects consumers to our operations as well as 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 throughout the United States and Canada. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.

U-Haul’s mobile app, Truck Share 24/7, Skip-the-Counter Self-Storage rentals and Self-checkout for moving supplies provide our customers methods for conducting business with us directly via their mobile devices and also limiting physical exposure.

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 inventory of 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

Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul through regional offices across the United States and Canada. Property and Casualty Insurance also underwrites components of the Safemove®, Safetow®, Safemove Plus®, Safestor® and Safestor Mobile® 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 Property and Casualty Insurance includes offering property and casualty insurance products in other U-Haul related programs.

Life Insurance

Life Insurance 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.

Cybersecurity Incident

On September 9, 2022, we announced that the Company was made aware of a data security incident involving U-Haul's information technology network. U-Haul detected a compromise of two unique passwords used to access U-Haul customers' information. U-Haul took immediate steps to contain the incident and promptly enhanced its security measures to prevent any further unauthorized access. U-Haul retained cybersecurity experts and incident response counsel to investigate the incident and implement additional security safeguards. The investigation determined that between November 5, 2021 and April 8, 2022, the threat actor accessed customer contracts containing customers’ names, dates of birth, and driver’s license or state identification numbers. None of U-Haul’s financial, payment processing or email systems were involved. U-Haul has notified impacted customers and relevant governmental authorities.

Several class action lawsuits related to the incident have been filed against U-Haul. The lawsuits have been consolidated into one action in the U.S. District Court for the District of Arizona. On October 27, 2023, the Court dismissed with prejudice all claims except those brought under the California Consumer Privacy Act. The remaining claims will be vigorously defended by the Company; however, the outcome of such lawsuits cannot be predicted or guaranteed with any certainty.

Critical Accounting Policies and Estimates

Please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

U-Haul Holding Company and Consolidated Entities

Quarter Ended December 31, 2023 compared with the Quarter Ended December 31, 2022

Listed below, on a consolidated basis, are revenues for our major product lines for the third quarter of fiscal 2024 and the third quarter of fiscal 2023:

(Unaudited)

(In thousands)

Self-moving equipment rental revenues decreased $59.0 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.

Self-storage revenues increased $20.0 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. The average monthly number of occupied units increased by 5.7%, or 30,542 units, during the third quarter of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 3.8% improvement in average revenue per occupied foot. During the quarter, we added approximately 1.0 million new net rentable square feet.

Sales of self-moving and self-storage products and services decreased $4.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.

Life insurance premiums decreased $1.8 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023 due primarily to decreased life and Medicare supplement premiums.

Property and casualty insurance premiums decreased $0.4 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023.

Net investment and interest income increased $5.2 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Moving and Storage accounted for $3.3 million of the improvement due to an increase in interest rates on short-term deposits. Changes in the market value of common stock investments held at our Property and Casualty Insurance subsidiary accounted for $0.4 million of the increase. Our Life Insurance subsidiaries investment income increased $1.5 million primarily from gains on derivatives used as hedges to fixed indexed annuities.

Other revenue increased $4.6 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, caused primarily by decreases in our U-Box® program.

Listed below are revenues and earnings from operations at each of our operating segments for the third quarter of fiscal 2024 and the third quarter of fiscal 2023. The insurance companies’ third quarters ended September 30, 2023 and 2022.

(Unaudited)

(In thousands)

Total costs and expenses increased $86.6 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Operating expenses for Moving and Storage increased $36.8 million. Repair expenses associated with the rental fleet experienced a $2.9 million decrease during the quarter while we experienced increases in personnel, property taxes and building maintenance.

Depreciation expense associated with our rental fleet increased $12.6 million for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $34.3 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same quarter last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $12.9 million. Net losses on the disposal or retirement of land and buildings increased $1.7 million. Additional details are available in the following Moving and Storage section.

As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased $122.4 million to $197.6 million for the third quarter of fiscal 2024, compared with $320.0 million for the third quarter of fiscal 2023.

Interest expense for the third quarter of fiscal 2024 was $67.5 million, compared with $59.0 million for the third quarter of fiscal 2023, due to an increase in our average cost of debt.

Income tax expense was $30.5 million for the third quarter of fiscal 2024, compared with $61.8 million for the third quarter of fiscal 2023.

As a result of the above-mentioned items, earnings available to common stockholders were $99.2 million for the third quarter of fiscal 2024, compared with $198.9 million for the third quarter of fiscal 2023.

Quarter Ended December 31, 2023 compared with the Quarter Ended December 31, 2022

Listed below are revenues for our major product lines at Moving and Storage for the third quarter of fiscal 2024 and the third quarter of fiscal 2023:

(Unaudited)

(In thousands)

Self-moving equipment rental revenues decreased $59.1 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.

Self-storage revenues increased $20.0 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. The average monthly number of occupied units increased by 5.7%, or 30,542 units, during the third quarter of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 3.8% improvement in average revenue per occupied foot. During the quarter, we added approximately 1.0 million new net rentable square feet.

We own and manage 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:

(Unaudited)

(In thousands, except occupancy rate)

Over the last twelve months we added approximately 4.4 million net rentable square feet of new storage to the system. This was a mix of approximately 1.2 million square feet of existing storage locations we acquired and 3.2 million square feet of new development.

Sales of self-moving and self-storage products and services decreased $4.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.

Net investment and interest income increased $3.3 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, due to higher interest rates on short-term deposits.

Other revenue increased $4.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, caused primarily by increases in our U-Box® program.

Total costs and expenses increased $88.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Operating expenses increased $36.8 million. Repair costs associated with the rental fleet experienced a $2.9 million decrease during the quarter. Other increases included personnel, property taxes and building maintenance.

Depreciation expense associated with our rental fleet increased $12.6 million for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $34.3 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same quarter last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $12.9 million. Net losses on the disposal or retirement of land and buildings increased $1.7 million. Additional details are available in the following Moving and Storage section.

The components of depreciation, net of gains on disposals were as follows:

(Unaudited)

(In thousands)

As a result of the above-mentioned changes in revenues and expenses, earnings from operations for Moving and Storage, before consolidation of the equity in the earnings of the insurance subsidiaries, decreased $124.3 million to $180.5 million for the third quarter of fiscal 2024, compared with $304.7 million for the third quarter of fiscal 2023.

Equity in the earnings of U-Haul Holding Company’s insurance subsidiaries was $14.2 million for the third quarter of fiscal 2024, compared with $13.1 million for the third quarter of fiscal 2023.

As a result of the above-mentioned changes in revenues and expenses, consolidated earnings from operations for Moving and Storage decreased to $194.7 million for the third quarter of fiscal 2024, compared with $317.8 million for the third quarter of fiscal 2023.

Property and Casualty Insurance

Quarter Ended September 30, 2023 compared with the Quarter Ended September 30, 2022

Net premiums were $27.3 million and $26.9 million for the quarters ended September 30, 2023 and 2022, respectively. A significant portion of Repwest’s premiums were from policies sold in conjunction with U-Haul rental transactions. The premium written corresponded with improvements in storage and U-Box transactions at U-Haul during the same period.

Net investment and interest income was $2.0 million and $1.6 million for the quarters ended September 30, 2023 and 2022, respectively. The main driver of the change in net investment income was the increase in the market value of unaffiliated common stocks.

Operating expenses were $13.1 million and $11.8 million for the quarters ended September 30, 2023 and 2022, respectively. The change was due to an increase in commissions and personnel.

Benefits and losses incurred were $6.7 million and $5.7 million for the quarters ended September 30, 2023 and 2022, respectively. Benefits and losses incurred corresponded with the change in moving and storage transactions at U-Haul during the same period.

As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $9.4 million and $10.8 million for the quarters ended September 30, 2023 and 2022, respectively.

Life Insurance

Quarter Ended September 30, 2023 compared with the Quarter Ended September 30, 2022

Net premiums were $22.6 million and $24.4 million for the quarters ended September 30, 2023 and 2022, respectively. Medicare Supplement premiums decreased $1.8 million from the policy decrements offset by premium rate increases. Life premiums decreased $0.4 million primarily from the decrease in sales of single premium life and final expense. Both decreases were due to policyholder lapses currently outweighing sales levels. Deferred annuity deposits were $81.6 million or $7.5 million above prior year and are accounted for on the balance sheet as deposits rather than premiums.

Net investment income was $28.7 million and $27.2 million for the quarters ended September 30, 2023 and 2022, respectively. Realized gain on derivatives used as hedges to fixed indexed annuities was $1.1 million. Net interest income and other realized gains increased $0.4 million.

Operating expenses were $4.7 million and $5.1 million for the quarters ended September 30, 2023 and 2022, respectively. As sales of new final expense life insurance policies have declined, the associated administrative costs have also decreased.

Benefits and losses incurred were $35.8 million and $36.0 million for the quarters ended September 30, 2023 and 2022, respectively.

Amortization of deferred acquisition costs (“DAC”), sales inducement asset ("SIA") and the value of business acquired (“VOBA”) was $4.2 million and $7.0 million for the quarters ended September 30, 2023 and 2022, respectively. The decrease in DAC amortization is primarily due to a lower amount of mortgage prepayment penalty gains, for which we offset gains with a corresponding level of amortization.

As a result of the above-mentioned changes in revenues and expenses, pretax earnings (losses) from operations were $8.0 million and $4.7 million for the quarters ended September 30, 2023 and 2022, respectively.

U-Haul Holding Company and Consolidated Entities

Nine Months Ended December 31, 2023 compared with the Nine Months Ended December 31, 2022

Listed below on a consolidated basis are revenues for our major product lines for the first nine months of fiscal 2024 and the first nine months of fiscal 2023:

(Unaudited)

(In thousands)

Self-moving equipment rental revenues decreased $243.2 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.

Self-storage revenues increased $69.1 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. The average monthly number of occupied units increased by 7.9%, or 41,501 units, during the first nine months of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 4.7% improvement in average revenue per occupied foot. During the first nine months, we added approximately 3.1 million of new net rentable square feet.

Sales of self-moving and self-storage products and services decreased $18.3 million for the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.

Life insurance premiums decreased $7.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023 due primarily to decreased Medicare supplement premiums.

Property and casualty insurance premiums decreased $0.2 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023.

Net investment and interest income increased $70.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Moving and Storage accounted for $39.1 million of the improvement due to an increase in interest rates on short-term deposits. Changes in the market value of common stocks held at our Property and Casualty Insurance subsidiary accounted for $11.1 million of the increase. Our Life Insurance subsidiaries investment income increased $18.2 million primarily from gains on derivatives used as hedges to fixed indexed annuities.

Other revenue decreased $16.9 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, caused primarily by decreases in our U-Box® program.

Listed below are revenues and earnings from operations at each of our operating segments for the first nine months of fiscal 2024 and the first nine months of fiscal 2023. The insurance companies’ first nine months ended September 30, 2023 and 2022.

(Unaudited)

(In thousands)

Total costs and expenses increased $169.5 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Operating expenses for Moving and Storage increased $89.4 million. Repair costs associated with the rental fleet experienced a $44.0 million increase during the first nine months of fiscal 2024 due to the higher cost of preventative maintenance along with the costs associated with selling more retired trucks. Other increases included personnel, property taxes, utilities and building maintenance. Conversely, during the first nine months, we had $28.6 million of decreases for freight and payment processing costs.

Depreciation expense associated with our rental fleet increased $32.4 million for the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $60.5 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same period last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $27.7 million. Net losses on the disposal or retirement of land and buildings increased $0.3 million. Additional details are available in the following Moving and Storage section.

As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased $315.9 million to $1,019.6 million for the first nine months of fiscal 2024, as compared with $1,335.5 million for the first nine months of fiscal 2023.

Interest expense for the first nine months of fiscal 2024 was $192.0 million, compared with $166.0 million for the first nine months of fiscal 2023, due to an increase in our average cost of debt.

Income tax expense was $196.9 million for the first nine months of fiscal 2024, compared with $280.4 million for the first nine months of fiscal 2023.

As a result of the above-mentioned items, earnings available to common stockholders were $629.6 million for the first nine months of fiscal 2024, compared with $887.1 million for the first nine months of fiscal 2023.

Nine Months Ended December 31, 2023 compared with the Nine Months Ended December 31, 2022

Listed below are revenues for the major product lines at our Moving and Storage operating segment for the first nine months of fiscal 2024 and the first nine months of fiscal 2023:

(Unaudited)

(In thousands)

Self-moving equipment rental revenues decreased $243.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.

Self-storage revenues increased $69.1 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. The average monthly number of occupied units increased by 7.9%, or 41,501 units, during the first nine months of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 4.7% improvement in average revenue per occupied foot. During the first nine months, we added approximately 3.1 million of new net rentable square feet.

We own and manage 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:

(Unaudited)

(In thousands, except occupancy rate)

Over the last twelve months we added approximately 4.4 million net rentable square feet of new storage to the system. This was a mix of approximately 1.2 million square feet of existing storage locations we acquired and 3.2 million square feet of new development.

Sales of self-moving and self-storage products and services decreased $18.3 million for the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.

Net investment and interest income increased $39.1 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, due to higher interest rates on short-term deposits.

Other revenue decreased $17.7 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, caused primarily by decreases in our U-Box® program.

Total costs and expenses increased $161.3 million during the first nine months of fiscal 2024, compared with the nine months of fiscal 2023. Operating expenses increased $89.4 million. Repair costs associated with the rental fleet experienced a $44.0 million increase during the first nine months of fiscal 2024 due to the higher cost of preventative maintenance along with the costs associated with selling more retired trucks. Other increases included personnel, property taxes, utilities and building maintenance. Conversely, during the first nine months we had $28.6 million of decreases for freight and payment processing costs.

Depreciation expense associated with our rental fleet increased $32.4 million for the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $60.5 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same quarter last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $27.7 million. Net losses on the disposal or retirement of land and buildings increased $0.3 million. Additional details are available in the following Moving and Storage section.

The components of depreciation, net of gains on disposals for the first nine months of fiscal 2024 were as follows:

(Unaudited)

(In thousands)

As a result of the above-mentioned changes in revenues and expenses, earnings from operations for Moving and Storage before consolidation of the equity in the earnings of the insurance subsidiaries decreased to $968.9 million for the first nine months of fiscal 2024, compared with $1,301.3 million for the first nine months of fiscal 2023.

Equity in the earnings of U-Haul Holding Company’s insurance subsidiaries was $41.3 million for the first nine months of fiscal 2024, compared with $24.6 million for the first nine months of fiscal 2023.

As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased to $1,010.2 million for the first nine months of fiscal 2024, compared with $1,325.9 million for the first nine months of fiscal 2023.

Property and Casualty Insurance

Nine Months Ended September 30, 2023 compared with the Nine Months Ended September 30, 2022

Net premiums were $74.7 million and $73.6 million for the nine months ended September 30, 2023 and 2022, respectively. A significant portion of Repwest’s premiums come from policies sold in conjunction with U-Haul rental transactions. The premium written corresponded with improvements in storage and U-Box transactions at U-Haul during the same period.

Net investment and interest income was $14.3 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The main driver of the change in net investment income was the increase in the market value of investments in common stock.

Operating expenses were $36.5 million and $33.6 million for the nine months ended September 30, 2023 and 2022, respectively. The change was due to an increase in commissions and personnel.

Benefits and losses incurred were $15.4 million and $16.2 million for the nine months ended September 30, 2023 and 2022, respectively. Benefits and losses incurred corresponded with the change in moving and storage transactions at U-Haul during the same period.

As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $36.8 million and $24.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Life Insurance

Nine Months Ended September 30, 2023 compared with the Nine Months Ended September 30, 2022

Net premiums were $68.2 million and $75.6 million for the nine months ended September 30, 2023 and 2022, respectively. Medicare Supplement premiums decreased $4.7 million. Life premiums decreased $2.6 million primarily from the decrease in sales of single premium life and final expense. Deferred annuity deposits were $206.8 million or $36.3 million below prior year and are accounted for on the balance sheet as deposits rather than premiums.

Net investment income was $91.8 million and $73.7 million for the nine months ended September 30, 2023 and 2022, respectively. Realized gain on derivatives used as hedges to fixed indexed annuities was $13.0 million current year-to-date. The change in the provision for expected credit losses resulted in a $2.1 million decrease to investment income. Net interest income and other realized gains increased $3.1 million.

Operating expenses were $14.8 million and $15.8 million for the nine months ended September 30, 2023 and 2022, respectively.

Benefits and losses incurred were $115.0 million and $104.8 million for the nine months ended September 30, 2023 and 2022, respectively. Interest credited to policyholders increased $15.1 million due to an increase in the interest credited rates on equity - indexed annuities. Life benefits decreased $2.9 million due to lower death claims related to COVID-19 and lower sales. Medicare supplement benefits decreased by $3.6 million from the declined policies in force.

Amortization of DAC, SIA and VOBA were $19.0 million and $21.6 million for the nine months ended September 30, 2023 and 2022, respectively.

As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $14.7 million and $10.3 million for the nine months ended September 30, 2023 and 2022, 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. There are many factors that could affect our liquidity, including some which are beyond our control, and there is no assurance that future cash flows and liquidity resources will be sufficient to meet our outstanding debt obligations and our other future capital needs.

As of December 31, 2023, cash and cash equivalents totaled $1,806.0 million, compared with $2,060.5 million as of March 31, 2023. The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations (Moving and Storage). As of December 31, 2023 (or as otherwise indicated), cash and cash equivalents, other financial assets (receivables, other investments, fixed maturities, and related party assets) and debt obligations of each operating segment were:

(Unaudited)

(In thousands)

As of December 31, 2023, Moving and Storage had additional cash available under existing credit facilities of $475.0 million. The majority of invested cash at the Moving and Storage segment is held in government money market funds.

Net cash provided by operating activities decreased $275.6 million in the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to a decrease in operating profits combined with an increase in claim payments at Moving and Storage.

Net cash used in investing activities decreased $161.9 million in the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Purchases of property, plant and equipment increased $321.5 million. Fleet related spending increased $334.4 million while investment spending on real estate and development decreased $34.6 million. Cash from the sales of property, plant and equipment increased $64.6 million largely due to fleet sales. For our insurance subsidiaries, net cash provided in investing activities increased $136.6 million due to a decrease in purchases in fixed maturity investments and net cash provided by investing activities for Moving and Storage increased $278.7 million on short-term Treasury notes.

Net cash provided by financing activities increased $36.0 million in the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2023. This was due to a combination of decreased debt payments of $70.3 million, decreased finance lease repayments of $9.1 million, an increase in cash from borrowings of $61.1 million, a decrease in dividend payments of $3.7 million and an increase in net annuity withdrawals from Life Insurance of $109.3 million.

Liquidity and Capital Resources and Requirements of Our Operating Segments

To meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Capital expenditures have primarily consisted of 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. U-Haul estimates that during fiscal 2024, the Company will reinvest in its rental equipment fleet approximately $930 million, net of equipment sales and excluding any lease buyouts. Through the first nine months of fiscal 2024, the Company invested, net of sales, approximately $755 million before any lease buyouts in its rental equipment fleet. Fleet investments in fiscal 2024 and beyond will be dependent upon several factors including the availability of capital, the truck rental environment, the availability of equipment from our original equipment manufacturers and the used-truck sales market. We anticipate that the fiscal 2024 investments will be funded largely through debt financing, external lease financing 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.

The Company has traditionally funded the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations. The Company’s 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. For the first nine months of fiscal 2024, the Company invested $969 million in real estate acquisitions, new construction and renovation and repair. For fiscal 2024, 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 and the availability of labor and materials. We are likely to maintain a high level of real estate capital expenditures in fiscal 2024. U-Haul's growth plan in self-storage also includes the expansion of the U-Haul Storage Affiliate 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) at Moving and Storage were $1,802.8 million and $1,545.9 million for the first nine months of fiscal 2024 and 2023, respectively. The components of our net capital expenditures are provided in the following table:

(Unaudited)

(In thousands)

Moving and Storage continues to hold significant cash and we believe 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 marketplace, pay dividends, repurchase shares of common stock 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 U-Haul Holding Company or its legal subsidiaries. We believe that stockholders’ equity at Property and Casualty Insurance remains sufficient, and we do not believe that its ability to pay ordinary dividends to U-Haul Holding Company will be restricted per state regulations.

Property and Casualty Insurance’s stockholder’s equity was $319.8 million and $294.5 million as of September 30, 2023 and December 31, 2022, respectively. The increase resulted from net earnings of $29.3 million and a decrease in other comprehensive income of $4.0 million due to the decrease in the market value of its investment portfolio. 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

Life Insurance manages its financial assets to meet policyholder and other obligations, including investment contract withdrawals and deposits. Life Insurance’s net withdrawals as of September 30, 2023 were $87.8 million. State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Life Insurance’s assets are generally not available to satisfy the claims of U-Haul Holding Company or its legal subsidiaries.

Life Insurance’s stockholder’s equity was $122.5 million and $132.2 million as of September 30, 2023 and December 31, 2022, respectively. The decrease resulted from net earnings of $12.1 million and a decrease in other comprehensive income of $21.8 million primarily due to the effect of interest rate changes on the fixed maturity portion of the investment portfolio. Outside of its membership in the Federal Home Loan Bank (“FHLB”) system, Life Insurance has not historically used debt or equity issues to increase capital and therefore has not had any significant direct exposure to capital market conditions other than through its investment portfolio. As of September 30, 2023, Oxford had outstanding deposits of $60.0 million in the FHLB with an availability of $82.8 million, for which Oxford pays fixed interest rates between 0.49% and 4.30% with maturities between March 29, 2024 and September 30, 2027. As of September 30, 2023, available-for-sale-investments held with the FHLB totaled $93.5 million, of which $62.8 million were pledged as collateral to secure the outstanding advances. The balances of these advances are included within liabilities from investment contracts on the consolidated balance sheets.

Cash Flows by Operating Segments

Net cash provided from operating activities were $1,147.0 million and $1,419.0 million for the first nine months of fiscal 2024 and 2023, respectively, due to a decrease in operating profits combined with an increase in claim payments.

Property and Casualty Insurance

Net cash provided by operating activities were $27.4 million and $30.2 million for the first nine months ended September 30, 2023 and 2022, respectively. The decrease was due to the timing of payables activity within the normal course of business.

Property and Casualty Insurance’s cash and cash equivalents amounted to $37.0 million and $11.3 million as of September 30, 2023 and December 31, 2022, respectively. These balances reflect 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 our future operating 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 $65.6 million and $66.5 million for the first nine months ended September 30, 2023 and 2022, respectively. The decrease in operating cash flows was primarily due to timing of settlement of receivables for securities. This was offset by the decrease in premiums net of benefits and commissions.

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 and its membership in the FHLB. As of September 30, 2023 and December 31, 2022, cash and cash equivalents amounted to $32.7 million and $15.0 million, respectively. Management believes that the overall sources of liquidity are adequate to meet our future operating 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. We continue to hold significant cash and have 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.

As a result of the federal income tax provisions of the Coronavirus Aid, Relief and Economic Security Act, we have filed applicable forms with the Internal Revenue Service to carryback net operating losses. These refund claims total approximately $366 million, of which we have received approximately $243 million with the remaining amount reflected in prepaid expense. These amounts are expected to provide us additional liquidity whenever received. It is possible future legislation could negatively impact our ability to receive these tax refunds.

Our borrowing strategy has primarily focused on asset-backed financing, rental equipment leases and private placement borrowings limited by the amount of unencumbered assets available. As part of this strategy, we seek to ladder maturities and fix interest rates. 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 believes 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. As of December 31, 2023, we had available borrowing capacity under existing credit facilities of $475.0 million. While 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, Notes, Loans and Finance Lease Payable, net, of the Notes to Consolidated Financial Statements.

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 Disclosures about Contractual Obligations and Commercial Commitments 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, 2023.

Fiscal 2024 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 and is likely to increase in fiscal 2024. Revenue in the U-Move® program could be adversely impacted should we fail to execute in any of these areas. Should we be unable to acquire enough new rental equipment to properly rotate our fleet, repair and maintenance costs will continue to increase. Even if we execute our plans, we could see declines in revenues primarily due to unforeseen events including adverse economic conditions or heightened competition that is beyond our control.

With respect to our storage business, we have added new locations and expanded existing locations. In fiscal 2024, we are actively looking to complete current projects, increase occupancy in our existing portfolio of locations and acquire new locations. New projects and acquisitions will be considered and pursued if they fit our long-term plans and meet our financial objectives. It is likely spending on acquisitions and new development will increase in fiscal 2024. We will continue to invest capital and resources in the U-Box® program throughout fiscal 2024.

Inflationary pressures may challenge our ability to maintain or improve upon our operating margin.

Property and Casualty Insurance will continue to provide loss adjusting and claims handling for U-Haul and underwrite components of the Safemove®, Safetow®, Safemove Plus®, Safestor® and Safestor Mobile® protection packages to U-Haul customers.

Life Insurance 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.

Consolidating Schedules by Operating and Reporting Segment (Unaudited)

This information includes elimination entries necessary to consolidate U-Haul Holding Company, the parent with its subsidiaries.

Consolidating balance sheets as of December 31, 2023 are as follows:

(In thousands)

62

Consolidating balance sheets as of December 31, 2023 continued:

(In thousands)

63

Consolidating balance sheets as of March 31, 2023 are as follows:

(In thousands)

64

Consolidating balance sheets as of March 31, 2023 continued:

(In thousands)

65

Consolidating statement of operations by operating segment for the quarter ended December 31, 2023 are as follows:

(In thousands)

66

Consolidating statement of operations by operating segment for the quarter ended December 31, 2022 are as follows:

(In thousands)

67

Consolidating statement of operations by operating segment for the nine months ended December 31, 2023 are as follows:

(In thousands)

68

Consolidating statement of operations by operating segment for the nine months ended December 31, 2022 are as follows:

(In thousands)

69

Consolidating cash flow statements by operating segment for the nine months ended December 31, 2023 are as follows:

(In thousands)

70

Consolidating cash flow statements by operating segment for the nine months ended December 31, 2023 continued:

(In thousands)

71

Consolidating cash flow statements by operating segment for the nine months ended December 31, 2022 are as follows:

(In thousands)

72

Consolidating cash flow statements by operating segment for the nine months ended December 31, 2022 continued:

(In thousands)

73

We are exposed to financial market risks, including changes in interest rates and currency exchange rates. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes.

Interest Rate Risk

The exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations and one variable rate operating lease. We have used interest rate swap agreements and forward swaps to reduce our exposure to changes in interest rates. We enter into these arrangements with counterparties that are significant financial institutions with whom we generally have other financial arrangements. We are exposed to credit risk should these counterparties not be able to perform their obligations. Following is a summary of our interest rate swap agreements as of December 31, 2023:

(Unaudited)

(In thousands)

As of December 31, 2023, we had $749.4 million of variable rate debt obligations, of this amount, $449.4 million is not fixed through interest rate swaps. If Secured Overnight Funding Rate (“SOFR”) were to increase 100 basis points, the increase in interest expense on the variable rate debt would decrease future earnings and cash flows by $4.5 million annually (after consideration of the effect of the above derivative contracts). Certain senior mortgages have an anticipated repayment date and a maturity date. If these senior mortgages are not repaid by the anticipated repayment date the interest rate on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule.

Additionally, our insurance subsidiaries’ fixed income investment portfolios expose us to interest rate risk. This interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. As part of our insurance companies’ asset and liability management, actuaries estimate the cash flow patterns of our existing liabilities to determine their duration. These outcomes are compared to the characteristics of the assets that are currently supporting these liabilities assisting management in determining an asset allocation strategy for future investments that management believes will mitigate the overall effect of interest rates.

We use derivatives to hedge our equity market exposure to indexed annuity products sold by our Life Insurance company. These contracts earn a return for the contract holder based on the change in the value of the S&P 500 index between annual index point dates. We buy and sell listed equity and index call options and call option spreads. The credit risk is with the party in which the options are written. The net option price is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair market value on our balance sheet. As of December 31, 2023 and March 31, 2023, these derivative hedges had a net market value of $8.8 million and $4.3 million, with notional amounts of $535.5 million and $465.7 million, respectively. These derivative instruments are included in Investments, other, on the consolidated balance sheets.

Although the call options are employed to be effective hedges against our policyholder obligations from an economic standpoint, they do not meet the requirements for hedge accounting under GAAP. Accordingly, the call options are marked to fair value on each reporting date with the change in fair value, plus or minus, included as a component of net investment and interest income. The change in fair value of the call options includes the gains or losses recognized at the expiration of the option term and the changes in fair value for open contracts.

Foreign Currency Exchange Rate Risk

The exposure to market risk for changes in foreign currency exchange rates relates primarily to our Canadian business. Approximately 5.2% of our revenue was generated in Canada during both the first nine months of fiscal 2024 and 2023. The result of a 10% change in the value of the U.S. dollar relative to the Canadian dollar would not be material to net income. We typically do not hedge any foreign currency risk since the exposure is not considered material.

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, the risk associated with COVID-19 or similar events on system members or customers; the impact of the economic environment on demand for our products and the cost and availability of debt and capital; estimates of capital expenditures; plans for future operations, products or services, financing needs, and strategies; our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us; liquidity and the availability of financial resources to meet our needs, goals and strategies; plans for new business, storage occupancy, growth rate assumptions, pricing, costs, and access to capital and leasing markets; the impact of our compliance with environmental laws and cleanup costs; our beliefs regarding our sustainability practices; our used vehicle disposition strategy; the sources and availability of funds for our rental equipment and self-storage expansion and replacement strategies and plans; our plan to expand our U-Haul® storage affiliate program; that additional leverage can be supported by our operations and business; the availability of alternative vehicle manufacturers; the availability and economics of electric vehicles for our rental fleet; our estimates of the residual values of our equipment fleet; our plans with respect to off-balance sheet arrangements; our plans to continue to invest in the U-Box® program; the impact of interest rate and foreign currency exchange rate changes on our operations; the sufficiency of our capital resources; the sufficiency of capital of our insurance subsidiaries; inflationary pressures that may challenge our ability to maintain or improve upon our operating margin; and expectations regarding the potential impact to our information technology infrastructure and on our financial performance and business operations of technology, cybersecurity or data security breaches, including any related costs, fines or lawsuits, and our ability to continue ongoing operations and safeguard the integrity of our information technology infrastructure, data, and employee, customer and vendor information, as well as assumptions relating to the foregoing. The words “believe,” “expect,” “anticipate,” “plan,” “may,” “will,” “could,” “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 degree and nature of our competition; our leverage; general economic conditions; fluctuations in our costs to maintain and update our fleet and facilities; the limited number of manufacturers that supply our rental trucks; our ability to effectively hedge our variable interest rate debt; that we are controlled by a small contingent of stockholders; fluctuations in quarterly results and seasonality; changes in, and our compliance with, government regulations, particularly environmental regulations and regulations relating to motor carrier operations; outcomes of litigation; our reliance on our third party dealer network; liability claims relating to our rental vehicles and equipment; our ability to attract, motivate and retain key employees; reliance on our automated systems and the internet; our credit ratings; our ability to recover under reinsurance arrangements and other factors described in our Annual Report on Form 10-K in Item 1A, Risk Factors, and in this Quarterly Report or the other documents we file with the SEC. The above factors, as well as other statements in this Quarterly Report and in the Notes to 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, except as required by law.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2023. Based upon that evaluation, our CEO and CFO have concluded that as of December 31, 2023, our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below.

Previously Disclosed Material Weaknesses and Remediation Plan

Two-Class Method of Earnings per Share. As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, we implemented a plan to address the material weakness related to the accounting for the two-class method of earnings per share associated with the recently issued UHAL.B common stock, including:

• Redesigning the related control
• Conducting relevant training for personnel involved in the process and control functions
• Enhancing the procedures and control activity documentation

These actions were completed in advance of our year end close process as of March 31, 2023, and the redesigned control operated as planned as part of our March 31, 2023, year-end close process.

In conjunction with our interim period close process as of September 30, 2023, the redesigned control again operated as designed. Therefore, based upon our testing of the redesigned control over these instances, we have concluded that the material weakness related to the calculation of earnings per share using the two-class method associated with the recently issued UHAL.B common stock, has been remediated.

General Information Technology Controls. As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, we determined a material weakness existed as management did not fully design, implement and monitor general information technology controls in the areas of program change management, user access, segregation of duties, and cyber security for systems supporting substantially all of the Company’s internal control processes. A substantial portion of the Company’s controls are dependent upon the information derived from the information technology systems and therefore the dependent controls were concluded to be ineffective. Our management, under the oversight of our Audit Committee, has begun evaluating and implementing new controls or redesigning controls to remediate the control deficiencies giving rise to this material weakness. These remediations measures have included:

• Assessing and formalizing the design of certain information technology policies
• Implementing controls and procedures relating to program change management, user access, segregation of duties and cyber security for systems supporting substantially all of the Company’s internal control processes
• Developing monitoring controls and protocols that will allow us to timely assess the design and operating effectiveness of the new and redesigned controls
• Strengthening of password policies
• Conducting more frequent end-user access reviews
• Enhancing the process for timely review of program management changes

We are committed to maintaining a strong internal control environment, and believe that these remediation actions represent significant improvements in our controls under the Internal Control – Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission. As we continue to evaluate and work to improve our internal control over financial reporting, additional remediation measures may be required, which may require additional implementation time, or we may modify certain of our remediation measures. The material weakness related to the general information technology controls will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than the material weakness described above, there have not been any changes in our internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The following discussion of potential risks under the caption ‘We are highly dependent upon our automated systems and the Internet for managing our business’ contains material updates to the risk factor described under the same heading in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Other than the following updated risk factor, we are not aware of any material updates to the risk factors described in that Annual Report.

We are highly dependent upon our automated systems and the Internet for managing our business.

Our information systems are largely Internet-based, including our point-of-sale reservation system, payment processing and telephone systems. While our reliance on this technology lowers our cost of providing service and expands our abilities to better serve customers, it exposes us to various risks, including natural and man-made disasters, terrorist attacks and cyber-attacks. We have put into place extensive security protocols, backup systems and alternative procedures to mitigate these risks. However, disruptions or breaches, detected or undetected by us, for any period of time in any portion of these systems could adversely affect our results of operations and financial condition and inflict reputational damage.

In addition, the provision of service to our customers and the operation of our networks and systems involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of customers, system members and others. Our information technology systems may be susceptible to computer viruses, attacks by computer hackers, malicious insiders or catastrophic events. Hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or ransom or other coordinated attacks that may cause service outages or other interruptions in our business and access to our data. In addition, breaches in security could expose us, our customers, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential data.

In 2022 and 2021, we experienced a cybersecurity incident, which is described in this Form 10-Q under the heading “Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operation – Cybersecurity Incident”. We have also experienced and continue to experience a significant increase in the number of attempted attacks on our technology systems, which could increase the likelihood that any of the risks described in this risk factor may be realized. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative or remedial measures.

Any of these occurrences could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, and litigation and potential liability for the Company. In addition, the cost and operational consequences of implementing further data or system protection measures could be significant, and our efforts to deter, identify, mitigate and/or eliminate any security breaches may not be successful.