AMERCO (U-Haul) Form 10-K Summary
Reporting period: The supplied filing is AMERCO’s Form 10-K for the fiscal year ended March 31, 2019, filed May 29, 2019. The request metadata identifies “2016 Q4,” which does not match the filing text. AMERCO operates U-Haul’s North American do-it-yourself moving and storage business, plus property-and-casualty and life insurance subsidiaries.
Business context
- Moving and Storage generated approximately 94.0% of consolidated revenue and includes truck, trailer, towing-device, portable-storage and self-storage rentals, moving supplies, propane and related services.
- As of March 31, 2019, the company had approximately 167,000 trucks, 120,000 trailers, 43,000 towing devices, 1,981 company-operated retail stores, more than 20,000 independent dealers and 1,631 self-storage locations.
- Self-storage operations comprised nearly 697,000 rentable units and 60.7 million rentable square feet. The company employed more than 30,000 people, approximately 54% of whom were part-time.
Financial performance
| Metric | Fiscal 2019 | Fiscal 2018 | Change |
|---|---|---|---|
| Total revenue | $3.769 billion | $3.601 billion | +4.6% |
| Earnings from operations | $621.0 million | $765.2 million | -18.9% |
| Operating margin | 16.5% | 21.2% | Down 4.7 percentage points |
| Pretax earnings | $477.5 million | $637.6 million | -25.1% |
| Earnings available to common shareholders | $370.9 million | $790.6 million | -53.1% |
| Basic and diluted EPS | $18.93 | $40.36 | -53.1% |
| Net margin | 9.8% | 22.0% | Down 12.2 percentage points |
| Cash flow from operations | $975.6 million | $937.7 million | +4.0% |
| Net cash used in investing | $1.571 billion | $898.3 million | Higher investment spending |
- Self-moving equipment rental revenue increased to $2.653 billion from $2.480 billion, supported by fleet expansion, more company-operated locations and independent dealers, and improved one-way, in-town and corporate-account activity.
- Self-storage revenue increased to $367.3 million from $323.9 million. Average monthly occupied square feet increased 12.0%, while approximately 5.3 million net rentable square feet was added.
- Life insurance premiums fell to $63.5 million from $154.7 million, primarily because of a $78.4 million one-time reduction related to the termination of a reinsurance contract and lower Medicare supplement premiums.
- Moving and Storage operating earnings declined to $569.2 million from $712.7 million before equity in insurance-subsidiary earnings. Higher personnel, maintenance, repair, shipping, property-tax and building-maintenance costs were significant factors.
- Fiscal 2018 benefited from a $190.7 million pretax gain on the sale of a portion of the Chelsea, New York property; fiscal 2019 had virtually no real-estate disposal gain.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $673.7 million at March 31, 2019, down from $759.4 million.
- Total assets were $11.892 billion, including $7.934 billion of net property, plant and equipment. Stockholders’ equity was $3.692 billion.
- Notes, loans and leases payable, net, were $4.163 billion; management disclosed total debt outstanding of approximately $4.210 billion before certain presentation adjustments. Interest expense was $142.4 million, up from $126.7 million.
- Available borrowing capacity under existing credit facilities was $80.6 million. The company stated that cash, operating cash flow and borrowing capacity were sufficient for expected needs, but noted that future liquidity depends on operating performance and financing-market conditions.
- Net capital expenditures were $1.264 billion, compared with $663.9 million in fiscal 2018. Gross spending included $1.163 billion for rental equipment and $1.003 billion for real estate, construction, renovations and repairs, partially offset by lease proceeds and asset-sale proceeds.
- Fiscal 2020 truck and trailer fleet investment was estimated at approximately $700 million net of equipment sales, excluding lease buyouts, and was expected to be funded largely by debt, leases and operating cash flow.
Material changes, outlook and unusual items
- Management’s fiscal 2020 priorities were to increase moving transactions, improve pricing and utilization, maintain adequate fleet investment, raise storage occupancy, complete storage projects, pursue suitable acquisitions and continue investing in U-Box.
- The company adopted the revenue-recognition standard ASC 606 on April 1, 2018 without a material financial-statement impact.
- The company adopted ASU 2016-01, resulting in a $9.7 million reclassification from accumulated other comprehensive income to retained earnings. Changes in certain equity-security values were recognized in earnings, including a $5.7 million loss in fiscal 2019.
- Beginning April 1, 2019, the new lease standard was expected to increase assets by approximately $111.2 million and liabilities by approximately $109.6 million. Management did not expect a material change in the timing of rental revenue recognition.
- In connection with a 2014 propane-cylinder explosion, civil claims were settled and AMERCO paid $27.9 million for self-insured retention and legal fees. U-Haul Co. of Pennsylvania later pleaded guilty to employee-training and documentation violations and received a $1.0 million fine and two years of probation in May 2019.
- Key risks include high leverage, interest-rate and LIBOR-transition exposure, dependence on used-equipment resale values and vehicle manufacturers, competition, regulation and environmental liabilities, self-insurance and insurance-reserve estimates, cyber and systems risks, related-party transactions, and the seasonality of moving activity.
- The company is controlled by significant stockholders associated with Edward J. Shoen and Mark V. Shoen, who together owned approximately 42.6% of common stock. Related-party management, leasing and dealership arrangements generated material revenue, expense and commission amounts.
Most important facts for investors to verify
- Confirm the intended reporting period, because the provided metadata says 2016 Q4 while the filing is for fiscal 2019.
- Reconcile reported debt, capital-lease obligations, operating and ground leases, insurance obligations and available borrowing capacity.
- Assess whether revenue growth can offset rising fleet, repair, personnel, property and storage-expansion costs after the absence of the prior-year real-estate gain.
- Evaluate the sustainability of cash flow after substantial fleet and real-estate capital expenditures and planned fiscal 2020 investment.
- Review self-storage occupancy, newly added capacity and the effect of acquisitions and development on returns.
- Examine insurance-reserve assumptions, reinsurance recoverables, policyholder obligations and restrictions on transferring insurance-subsidiary cash to AMERCO.
- Review related-party arrangements and governance implications, including transactions with Blackwater, Mercury and entities controlled by significant stockholders.
- Monitor variable-rate debt, LIBOR replacement provisions and the potential sensitivity of earnings and cash flow to interest-rate increases.