Filing scope and business context
The provided filing is AMERCO’s Form 10-K for the fiscal year ended March 31, 2017, filed May 24, 2017. It is not a 2014 fourth-quarter filing and identifies AMERCO, rather than “U-Haul Holding Co.,” as the registrant. AMERCO operates U-Haul’s North American do-it-yourself moving and storage business, along with property and casualty insurance and life insurance segments.
Moving and Storage generated approximately 90.8% of consolidated revenue, Property and Casualty Insurance approximately 2.0%, and Life Insurance approximately 7.2%. At March 31, 2017, U-Haul had approximately 150,000 trucks, 112,000 trailers, 40,000 towing devices, nearly 1,440 self-storage locations and 51.4 million rentable square feet.
Key financial metrics
| Metric | Fiscal 2017 | Fiscal 2016 | Change |
|---|---|---|---|
| Total revenue | $3,421.8 million | $3,275.5 million | 4.5% increase |
| Earnings from operations | $742.3 million | $866.6 million | 14.4% decrease |
| Operating margin | 21.7% | 26.5% | Down 4.8 percentage points |
| Pretax earnings | $628.4 million | $768.9 million | 18.3% decrease |
| Net earnings available to common shareholders | $398.4 million | $489.0 million | 18.5% decrease |
| Basic and diluted EPS | $20.34 | $24.95 | 18.5% decrease |
| Net margin | 11.6% | 14.9% | Down 3.2 percentage points |
| Net cash from operating activities | $1,020.1 million | $1,041.0 million | 2.0% decrease |
| Net capital expenditures | $932.0 million | $969.9 million | 3.9% decrease |
| Cash and cash equivalents | $697.8 million | $600.6 million | 16.2% increase |
| Notes, loans and leases payable, net | $3,262.9 million | $2,647.4 million | 23.2% increase |
| Stockholders’ equity | $2,619.7 million | $2,251.4 million | 16.4% increase |
Revenue and operating performance
- Self-moving equipment rental revenue increased $64.9 million to $2,362.8 million as both In-Town and one-way transactions increased.
- Self-storage revenue increased $38.9 million to $286.9 million. Average monthly occupied square feet increased 11.8%, while approximately 3.4 million net rentable square feet were added.
- Other revenue increased $19.5 million, primarily from growth in the U-Box program. Net investment and interest income increased $15.7 million to $102.3 million.
- Moving and Storage earnings from operations before equity in insurance subsidiaries declined to $688.9 million from $813.1 million.
- Fiscal 2017 included a $24.6 million reduction in operating expense from the reversal of excess accruals related to the PODS litigation settlement. The company paid $41.4 million to settle the litigation in October 2016.
- Depreciation, net of gains and losses on disposals, increased by $154.7 million, reflecting fleet expansion, higher depreciation and lower gains on used-truck sales. A change in the capitalization threshold also caused $23.9 million of additional operating expenses.
Liquidity, capital allocation and debt
AMERCO reported $1,020.1 million of operating cash flow, $1,144.5 million of investing cash outflows and $223.8 million of financing cash inflows. Cash increased to $697.8 million at year-end. Moving and Storage had $133.0 million of available borrowing capacity under existing credit facilities.
- Fiscal 2017 net fleet investment was approximately $705 million before lease buyouts, and real estate acquisitions, construction, renovations and repairs totaled $484.5 million.
- Management estimated approximately $440 million of fiscal 2018 truck and trailer fleet reinvestment, net of equipment sales and excluding lease buyouts.
- Total debt outstanding before debt issuance costs was $3,287.2 million, including $876.8 million of capital leases, $1,292.2 million of senior mortgages and $742.1 million of fleet-related loans and securitization debt.
- Variable-rate debt and a variable-rate operating lease totaled approximately $903.9 million. Management estimated that a 100-basis-point increase in LIBOR would reduce annual earnings and cash flow by approximately $7.0 million after hedging effects.
- Common dividends declared were $2.00 per share for fiscal 2017, compared with $5.00 per share in fiscal 2016.
Material changes, outlook and risks
Management’s fiscal 2018 outlook focused on increasing moving transactions, improving pricing and utilization, maintaining fleet investment, expanding self-storage capacity and occupancy, pursuing additional storage acquisitions, and continuing investment in U-Box. Life Insurance planned to expand its senior-market presence through Medicare supplement, life and annuity products.
A subsequent-event agreement contemplated the sale of part of the company’s Manhattan real estate for $200.0 million, subject to regulatory contingencies, with closing expected in August 2017. The company intended to reinvest the proceeds in self-storage properties through a tax-free exchange. The filing does not confirm the eventual closing.
- Results are highly seasonal; the first and second fiscal quarters are generally strongest and the fourth quarter is generally weakest.
- AMERCO described itself as highly leveraged and dependent on operating cash flow, debt and lease financing to fund fleet rotation and storage expansion.
- Key risks include competition and pricing pressure, weaker used-equipment resale values, limited vehicle manufacturers, interest-rate increases, refinancing risk, economic downturns, regulatory and environmental liabilities, insurance reserve development, cyber and systems disruptions, and dependence on approximately 20,000 independent dealers.
- Related-party arrangements include management fees, leases, dealership commissions and a $48.1 million junior unsecured note receivable from SAC Holdings, an entity controlled by parties related to significant shareholders. The filing identifies credit and potential default risk associated with this note.
- The PODS litigation was settled, but the filing continues to identify environmental matters, self-insurance reserves and ordinary-course litigation as contingencies.
Investor verification checklist
- Confirm the intended issuer and period: the source is AMERCO’s fiscal 2017 10-K, not a 2014 Q4 filing for U-Haul Holding Co.
- Reconcile the $24.6 million PODS accrual reversal and the $41.4 million settlement payment when assessing normalized earnings.
- Evaluate whether the increase in debt and capital leases is supported by fleet utilization, storage occupancy and operating cash flow.
- Review debt maturities, available credit capacity, variable-rate exposure and interest-rate hedges.
- Assess the sustainability of used-truck resale values and the assumptions supporting depreciation and residual values.
- Review insurance reserve assumptions, self-insurance liabilities and restrictions on dividends from insurance subsidiaries.
- Examine the related-party transactions and the collectability of the SAC Holdings note receivable.
- Verify the status and tax treatment of the proposed $200.0 million Manhattan property sale.