AMERCO Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2014, representing fiscal 2015 for AMERCO. The filing is for AMERCO, the parent company of U-Haul, rather than an entity named U-Haul Holding Co. Insurance subsidiaries report on a September 30 quarter-end and are consolidated accordingly. The financial statements are unaudited.
Business Context
AMERCO operates through three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. Moving and Storage includes U-Haul truck, trailer, portable storage and self-storage rentals, moving supplies, towing accessories, propane and related services in the United States and Canada.
Financial Performance and Position
| Metric | Quarter ended December 31, 2014 | Prior comparable period |
|---|---|---|
| Revenue | $706.4 million | $645.3 million |
| Earnings from operations | $133.2 million | $106.0 million |
| Pretax earnings | $107.4 million | $82.4 million |
| Net earnings available to common stockholders | $66.5 million | $52.2 million |
| Basic and diluted EPS | $3.40 | $2.67 |
| Operating margin | 18.9% | 16.4% |
| Net margin | 9.4% | 8.1% |
| Metric | Nine months ended December 31, 2014 | Prior comparable period |
|---|---|---|
| Revenue | $2.432 billion | $2.234 billion |
| Earnings from operations | $628.2 million | $548.3 million |
| Pretax earnings | $549.4 million | $478.3 million |
| Net earnings available to common stockholders | $347.3 million | $303.2 million |
| Basic and diluted EPS | $17.73 | $15.50 |
| Operating margin | 25.8% | 24.5% |
- Quarterly revenue increased approximately 9.5%, led by self-moving equipment rentals, which rose to $487.4 million from $436.2 million, and self-storage revenue, which rose to $53.5 million from $46.1 million.
- For the first nine months, self-moving equipment rental revenue increased approximately 10.3%, while self-storage revenue increased approximately 16.3%.
- Quarterly operating expenses increased $16.6 million, commission expense increased $7.8 million and depreciation increased $11.0 million net of disposal gains. Lease expense decreased $5.8 million as the company financed more equipment on balance sheet rather than through operating leases.
- Self-storage average occupancy increased to 81.1% from 80.0% in the quarter and to 82.5% from 80.9% for the nine-month period. Owned storage square footage increased to approximately 19.6 million from 17.8 million.
- Net cash provided by operating activities was $521.7 million for the first nine months, compared with $561.3 million in the prior period. Management attributed the decrease primarily to higher federal income tax payments.
- Net cash used in investing activities was $506.4 million, including $725.4 million of property, plant and equipment purchases and $321.7 million of proceeds from property and equipment sales.
- Net cash provided by financing activities was $224.8 million. Cash and cash equivalents increased to $729.0 million from $495.1 million at March 31, 2014.
- Total assets were $6.907 billion and stockholders’ equity was $1.906 billion at December 31, 2014.
- Notes, loans and leases payable increased to $2.365 billion from $1.942 billion at March 31, 2014. Reported debt included $595.9 million of capital leases, $873.2 million of senior mortgages and $331.6 million of amortizing fleet loans.
- Moving and Storage had $122.0 million of additional availability under existing credit facilities at December 31, 2014.
Material Changes and Unusual Items
- The company recorded $4.1 million of fees and amortization associated with early extinguishment of debt during the first nine months, with $3.8 million of fees and $0.3 million of transaction-cost amortization.
- In January 2015, AMERCO used existing cash to repay $245.9 million of senior mortgages due in July 2015. The repayment was not reflected in the December 31 debt maturity table.
- Net capital expenditures declined to $403.8 million from $476.2 million, despite higher gross capital expenditures, because of increased lease proceeds and fleet-sale proceeds.
- Accumulated other comprehensive loss improved to $27.4 million from $53.9 million at March 31, 2014, primarily due to unrealized investment gains and hedge-related changes.
- Related-party transactions remained significant. During the first nine months, related-party revenue was $27.5 million and related-party costs and expenses were $43.7 million. Related-party assets totaled $148.8 million at December 31, 2014.
Outlook, Risks and Contingencies
Management expects to continue increasing moving-equipment transaction volume, improving pricing and utilization, expanding storage occupancy and investing in the U-Box program. The company estimated approximately $400 million of fiscal 2015 net investment in the truck and trailer fleet, excluding lease buyouts, and had invested approximately $315 million through the first nine months. Management also expects to pursue storage acquisitions and development when consistent with long-term plans and financial objectives.
- The filing provides no quantitative earnings or revenue guidance.
- Management states that liquidity is adequate for foreseeable needs, but cautions that future cash flows and access to credit could be affected by economic conditions, leverage, used-equipment markets, capital availability and other factors.
- Variable-rate debt was approximately $708.2 million at December 31, 2014. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $3.7 million after hedging effects.
- Operating leases included $72.3 million of guaranteed residual values for rental equipment. The present value of minimum lease payments and residual value guarantees was $147.1 million.
- In the PODS trademark litigation, a jury found for PODS Enterprises and awarded $45.0 million of actual damages and $15.7 million of U-Haul profits. U-Haul intended to pursue post-trial motions and, if necessary, an appeal. The filing does not state a final resolution or accrued amount.
- Insurance reserves, environmental compliance, tax audits, related-party notes receivable and the ability to recover under reinsurance arrangements remain areas of potential uncertainty.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the applicable reporting period: the source filing is dated February 4, 2015 and covers December 31, 2014, not 2012 Q3.
- Review the final outcome, financial statement treatment and any subsequent developments related to the PODS litigation.
- Reconcile debt balances and maturities after the January 2015 $245.9 million mortgage repayment.
- Assess whether operating cash flow adequately supports fleet investment, storage expansion, lease obligations and debt service.
- Evaluate the concentration and collectability of related-party notes receivable, including the $50.7 million balance from SAC Holdings and $63.4 million of notes and receivables from Private Mini at December 31, 2014.
- Monitor variable-rate debt exposure, interest-rate swaps and the sensitivity of earnings to LIBOR changes.
- Review insurance reserve adequacy, regulatory restrictions on insurance-company dividends and potential adverse claims development.