Business Context and Reporting Period
Company: AMERCO (Parent of U-Haul International, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: March 31, 2011
Business Overview: AMERCO operates as North America's largest "do-it-yourself" moving and storage operator through its subsidiary U-Haul. The company operates three reportable segments: Moving and Storage (rental of trucks, trailers, self-storage, and sales of moving supplies), Property and Casualty Insurance (claims handling and underwriting for U-Haul), and Life Insurance (products for the senior market). The business is highly seasonal, with revenues typically strongest in the first and second fiscal quarters.
Key Financial Metrics (Fiscal Year 2011)
| Metric | 2011 | 2010 |
|---|---|---|
| Total Revenues | $2,241.3 million | $2,002.0 million |
| Earnings from Operations | $377.7 million | $193.5 million |
| Net Earnings | $183.6 million | $65.6 million |
| Earnings Available to Common Shareholders | $171.0 million | $53.2 million |
| Diluted EPS | $8.80 | $2.74 |
| Total Assets | $4,176.2 million | $3,762.5 million |
| Total Debt (Notes, Loans, Leases) | $1,397.8 million | $1,347.6 million |
| Cash and Cash Equivalents | $375.5 million | $244.1 million |
| Operating Cash Flow | $572.8 million | $401.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 12.0% to $2.24 billion. This was driven by a $127.3 million increase in self-moving equipment rentals (due to higher transaction volume and revenue per transaction) and a $72.6 million increase in life insurance premiums (driven by reinsurance transactions and single premium whole life product expansion).
- Profitability Surge: Earnings from operations nearly doubled, rising 95.1% to $377.7 million. This was primarily due to a $38.4 million decrease in depreciation expense (partially due to a $21.1 million improvement in gains on disposal of equipment) and reduced liability costs.
- Segment Performance:
- Moving and Storage: Revenues rose to $1.98 billion; operating earnings increased to $370.1 million.
- Life Insurance: Revenues jumped to $229.9 million; operating earnings increased slightly to $17.4 million.
- Property and Casualty Insurance: Revenues increased to $38.7 million; operating earnings decreased slightly to $5.6 million.
- Balance Sheet: Total debt increased by $50.2 million, while cash and cash equivalents increased by $131.4 million, reflecting strong operating cash flows.
Guidance, Outlook, and Risks
Outlook for Fiscal 2012: Management plans to focus on increasing transaction volume and improving pricing for self-moving equipment. The company intends to maintain adequate investment in its truck fleet (estimated at approximately $220 million net of sales) and continue expanding the U-Box storage container program. The Life Insurance segment aims to expand its presence in the senior market through new product offerings and business acquisitions.
Key Risks and Contingencies:
- High Leverage: The company carries significant debt ($1.398 billion) and lease commitments ($398.8 million), which limits financial flexibility and requires substantial cash flow for debt service.
- Legal Proceedings: A shareholder derivative lawsuit (Shoen v. SAC Holding Corporation) regarding the sale of self-storage properties to related parties was remanded by the Nevada Supreme Court in May 2011 for further proceedings. The outcome remains uncertain.
- Economic Sensitivity: Results are sensitive to general economic conditions, consumer spending, and the used vehicle market, which impacts the residual value of the rental fleet.
- Related Party Transactions: The company holds approximately $196.2 million in junior unsecured notes receivable from SAC Holdings, a related party. If SAC Holdings defaults on senior debt, AMERCO could suffer losses on these notes.
Investor Verification Checklist
- Preferred Stock Redemption: Verify the impact of the June 1, 2011, redemption of all 6.1 million shares of Series A Preferred Stock ($155.7 million total cost), which occurred after the fiscal year-end.
- Depreciation Methodology: Review the accelerated depreciation method used for rental trucks and the impact of gains/losses on equipment disposals on operating income.
- Related Party Exposure: Assess the credit risk associated with the $196.2 million in notes receivable from SAC Holdings and the ongoing derivative litigation involving the Shoen family.
- Insurance Reserves: Monitor the adequacy of self-insurance reserves ($397.4 million) and life insurance reserves, which rely on actuarial estimates and could fluctuate based on claims experience.
- Seasonality: Account for the significant quarterly fluctuations in revenue and earnings, with the fourth quarter typically being the weakest due to weather conditions.