AMERCO (U-Haul) Form 10-K Summary
Reporting-period note: The supplied filing is AMERCO’s annual report for the fiscal year ended March 31, 2014, filed May 28, 2014. It does not correspond to the requested “2011 Q4” period. Fiscal-year comparisons are primarily against March 31, 2013.
Business context
AMERCO operates U-Haul, a North American do-it-yourself moving and storage business, along with property and casualty insurance and life insurance operations. The Moving and Storage segment generated approximately 90.6% of consolidated net revenue in fiscal 2014. At March 31, 2014, the company had approximately 127,000 trucks, 98,000 trailers, 37,000 towing devices, 1,540 company-operated retail stores, 17,400 independent dealers and nearly 467,000 self-storage rooms.
The business is seasonal: revenues and cash flows are generally strongest in the first and second fiscal quarters, while the fourth quarter is typically weakest because of adverse-weather exposure.
Financial performance and key metrics
| Metric | Fiscal 2014 | Fiscal 2013 | Change |
|---|---|---|---|
| Total revenue | $2,835.3 million | $2,558.6 million | +10.8% |
| Earnings from operations | $630.2 million | $499.2 million | +26.2% |
| Operating margin | 22.2% | 19.5% | +2.7 percentage points |
| Pretax earnings | $537.5 million | $408.5 million | +31.6% |
| Net earnings | $342.4 million | $264.7 million | +29.3% |
| Net margin | 12.1% | 10.3% | +1.7 percentage points |
| Basic and diluted EPS | $17.51 | $13.56 | +29.1% |
| Cash flow from operations | $709.5 million | $661.5 million | +7.3% |
| Net capital expenditures | $729.3 million | $435.3 million | +67.6% |
| Cash and cash equivalents | $495.1 million | $463.7 million | +$31.4 million |
| Notes, loans and leases payable | $1,942.4 million | $1,661.8 million | +16.9% |
| Stockholders’ equity | $1,527.4 million | $1,229.3 million | +24.3% |
Revenue growth was led by self-moving equipment rentals, which increased $187.9 million, self-storage revenue, which increased $29.1 million, and other revenue, which increased $63.2 million, primarily from U-Box and other new initiatives. Life insurance premiums declined $20.2 million, partially offsetting growth in the core businesses.
Moving and Storage revenue increased to $2,572.0 million from $2,282.3 million, while segment earnings from operations before equity in insurance subsidiaries increased to $584.7 million from $462.3 million. Property and Casualty Insurance earnings increased to $19.3 million from $14.2 million. Life Insurance earnings increased to $26.7 million from $23.0 million despite lower premiums.
Material changes versus the prior comparable period
- Self-moving equipment rental revenue increased 10.6%, supported by higher In-Town and one-way transactions, more equipment, additional company-operated locations and dealer-network expansion.
- Self-storage average monthly occupancy increased to 80.5% based on room count from 78.7%. The company added approximately 2.1 million net rentable square feet during fiscal 2014.
- The fleet expanded through approximately 37,500 new trucks placed in service. Net truck and trailer fleet investment was approximately $518 million before lease buyouts.
- Operating expenses increased $118.2 million, driven principally by personnel, rental-equipment maintenance and U-Box costs. Depreciation increased while lease expense declined as the company financed more equipment on its balance sheet rather than through operating leases.
- Net capital expenditures increased substantially to $729.3 million, including $775.8 million of rental-equipment purchases and $321.3 million of real-estate purchases, construction and renovations.
- Debt increased $280.5 million, while interest expense rose modestly to $92.7 million from $90.7 million because of higher average borrowings, partly offset by lower average borrowing costs.
- The company declared and paid a $1.00-per-share common-stock dividend, compared with a $5.00-per-share dividend in fiscal 2013.
Liquidity, debt and cash flow
AMERCO generated $709.5 million of operating cash flow but used $845.8 million in investing activities, primarily for property, plant and equipment and investments. Financing activities provided $167.8 million, resulting in a net increase in cash of $31.4 million.
Moving and Storage held $464.7 million of cash at March 31, 2014 and had $160.4 million available under existing credit facilities. Management stated that cash, operating cash flow and borrowing capacity were adequate for expected needs, but noted that liquidity could be affected by economic conditions, credit-market availability and interest-rate changes.
Total debt was $1.942 billion. Contractual obligations totaled $5.862 billion, including $1.853 billion of debt principal, $240.5 million of operating leases, $2.826 billion of life, health and annuity obligations, and $370.7 million of self-insurance accruals. AMERCO also guaranteed $95.0 million of residual values on certain leased rental equipment.
Approximately $581.3 million of variable-rate debt and $12.3 million of variable-rate operating leases were outstanding. After hedging, a 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $2.1 million.
Guidance, outlook, risks and unusual items
For fiscal 2015, management planned approximately $350 million of net investment in the truck and trailer fleet, excluding lease buyouts. It also expected to pursue self-storage acquisitions and development, improve occupancy, continue investing in U-Box and expand insurance products and the life-insurance agency and product platforms. No specific revenue or earnings guidance was provided.
- Key risks include intense competition, pricing pressure, economic weakness, fuel and labor costs, adverse used-truck resale values and limited dependence on major truck manufacturers.
- Approximately 45% of equipment-rental revenue was generated through independent dealers, creating dealer-network and third-party execution risk.
- The company is highly leveraged and depends on operating cash flow, asset sales and financing markets to fund debt service and fleet rotation.
- AMERCO held $137.0 million of junior unsecured notes from SAC Holding and Private Mini, related parties controlled by individuals associated with significant AMERCO shareholders. These borrowers are highly leveraged, creating credit and related-party exposure.
- Insurance reserves, self-insurance liabilities, reinsurance recoverables and long-tailed workers’ compensation claims depend on actuarial estimates and could develop adversely.
- Environmental remediation, regulatory compliance, vehicle liability claims, litigation, cyber and system disruptions, and interest-rate volatility could materially affect results.
- Oxford received an A- financial-strength rating with a stable outlook from A.M. Best in May 2014. Repwest maintained a B rating with a stable outlook.
- The filing reported no material unresolved SEC staff comments, no material legal proceedings expected to affect results, and effective internal control over financial reporting with an unqualified audit opinion.
Important facts for investors to verify
- Confirm the intended reporting period, because the supplied filing is fiscal 2014 rather than 2011 Q4.
- Reconcile consolidated debt, upcoming maturities and unused credit capacity against planned fleet and real-estate investment.
- Assess whether operating cash flow can consistently fund the company’s capital-intensive fleet rotation and storage expansion.
- Monitor self-storage occupancy, rental pricing, equipment utilization and used-vehicle resale values.
- Review related-party notes receivable, management fees, leases and dealer commissions involving SAC-related entities.
- Evaluate insurance reserve development, reinsurance collectability and statutory capital restrictions on insurance-subsidiary dividends.
- Track variable-rate debt, interest-rate swaps and the potential effect of changes in LIBOR or refinancing conditions.
- Review the complete contractual-obligations, contingencies and environmental disclosures in the audited notes.