U-Haul Holding Co annual report, FY2014

AMERCO (U-Haul Holding Co.) Fiscal 2016 Form 10-K Summary

Reporting period: The supplied filing is AMERCO’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, not a 2013 fourth-quarter filing. Insurance subsidiaries are consolidated using calendar-year results through December 31, 2015.

Business context

AMERCO operates North America’s largest do-it-yourself moving and storage business through U-Haul International. Its principal activities include truck, trailer and towing-equipment rentals; self-storage; portable U-Box storage; moving supplies and services; and related property and casualty and life insurance operations. The company operated approximately 1,700 company-managed retail locations, 19,500 independent dealers, 139,000 trucks, 108,000 trailers and 38,000 towing devices at March 31, 2016.

Moving and Storage generated approximately 91.0% of consolidated revenue.
Property and Casualty Insurance generated approximately 2.0%.
Life Insurance generated approximately 7.0%.
The Moving and Storage business is seasonal, with stronger first and second fiscal quarters and a generally weaker fourth quarter.

Financial performance

Metric	Fiscal 2016	Fiscal 2015	Change
Total revenue	$3.276 billion	$3.075 billion	+6.5%
Earnings from operations	$866.8 million	$663.0 million	+30.7%
Pretax earnings	$768.9 million	$561.4 million	+36.9%
Net earnings available to common shareholders	$489.0 million	$356.7 million	+37.1%
Basic and diluted EPS	$24.95	$18.21	+37.0%
Net cash from operating activities	$1.041 billion	$759.1 million	+37.1%
Cash and cash equivalents	$600.6 million	$441.9 million	+$158.8 million
Notes, loans and leases payable	$2.689 billion	$2.191 billion	+22.7%
Stockholders’ equity	$2.251 billion	$1.884 billion	+19.5%

Margins: Operating margin increased to approximately 26.5% from 21.6%; net margin increased to approximately 14.9% from 11.6%. The filing does not present adjusted or non-GAAP margin measures.

Revenue and operating drivers

Self-moving equipment rental revenue increased to $2.298 billion from $2.146 billion, primarily due to higher one-way and In-Town rental transactions, broader distribution and fleet additions.
Self-storage revenue increased to $247.9 million from $211.1 million. Average monthly occupied square feet increased 13.8%, while net rentable square footage increased approximately 17.9%.
Products and service sales increased to $251.5 million from $244.2 million.
Life insurance premiums increased to $162.7 million from $156.1 million, and property and casualty premiums increased to $50.0 million from $46.5 million.
Other revenue decreased to $152.2 million from $160.2 million, primarily due to lower U-Box rentals.

Cash flow, capital spending, debt and liquidity

Operating cash flow was $1.041 billion. Investing cash use was $1.273 billion, driven by $1.509 billion of property, plant and equipment purchases and increased investment purchases. Financing activities provided $406.9 million.
Net capital expenditures increased to $969.9 million from $630.3 million. Fiscal 2016 included $881.3 million of rental-equipment purchases, $81.7 million of equipment lease buyouts and $592.4 million of real estate acquisitions, construction, renovations and repairs, partly offset by asset-sale proceeds.
Management estimated approximately $600 million of net truck and trailer fleet reinvestment for fiscal 2017, excluding lease buyouts. The filing states this would be funded largely through debt financing, external leases and operating cash flow.
Total notes, loans and leases payable were $2.689 billion. Contractual obligations totaled $6.978 billion, including debt, interest, operating leases, insurance obligations, self-insurance accruals and life, health and annuity obligations.
Available borrowing capacity under existing credit facilities was $48.0 million at March 31, 2016. A working-capital facility was amended after year-end to increase its maximum borrowing capacity from $25 million to $50 million and extend its maturity to September 2018.
Approximately $770 million of variable-rate debt and a $9.3 million variable-rate operating lease were outstanding. Management estimated that a 100-basis-point LIBOR increase would reduce annual earnings and cash flow by approximately $3.6 million after hedging effects.

Material changes versus the prior comparable period

Revenue growth accelerated across truck rentals, storage, products and insurance, while operating earnings benefited from higher volume and substantially lower litigation accruals.
Fiscal 2015 included a $60.7 million accrual related to the PODS litigation; fiscal 2016 included an additional $5.0 million accrual for prejudgment interest and costs.
Lease expense fell by $30.0 million as the company financed more equipment on balance sheet rather than through operating leases.
Depreciation increased, but gains on disposal of property and equipment also increased to $98.7 million from $74.6 million.
Debt increased by approximately $498 million, while property, plant and equipment increased by approximately $910 million.
Common dividends declared increased to $5.00 per share for fiscal 2016 from $1.00 per share for fiscal 2015.

Outlook, risks and unusual items

Management planned to increase moving transaction volume, improve pricing and equipment utilization, maintain fleet investment, acquire or develop storage locations, improve occupancy and continue investing in U-Box. Life Insurance planned to expand Medicare supplement, life and annuity sales, agency capacity and potential acquisitions. No quantitative revenue or earnings guidance was provided.

PODS litigation: The trial judgment totaled $60.7 million, with $4.9 million of prejudgment interest and $82,727 of costs. A permanent injunction applied to advertising, promotion, marketing or description of products and services. The judgment was stayed pending appeal; U-Haul’s appeal was pending as of the filing date.
Leverage and refinancing: Debt service, capital requirements, interest-rate increases and tighter credit markets could constrain fleet rotation, storage expansion and liquidity.
Fleet and residual values: Results depend on truck availability, manufacturer relationships, used-equipment resale values and the ability to dispose of vehicles near carrying value.
Insurance reserves: Long-tailed claims, medical inflation, mortality, morbidity, lapse and withdrawal assumptions may produce adverse reserve development.
Related parties: The company had a $49.3 million junior unsecured note receivable from SAC Holding and continued related-party management, lease and dealer arrangements. Management identified a potential loss exposure if SAC Holding defaults.
Ownership and governance: A stockholder agreement covered approximately 55.6% of common shares at year-end; certain holders planned to withdraw shares effective June 30, 2016, after which AMERCO expected to cease being a Nasdaq “controlled company.”
Other risks: Competition, seasonality, environmental liabilities, regulation, independent-dealer dependence, liability claims, cybersecurity and information-system disruptions were identified as material risks.

Investor verification checklist

Verify that the intended period is fiscal 2016 rather than 2013 Q4, because the supplied filing is a March 31, 2016 Form 10-K.
Review the final status and cash impact of the PODS appeal, injunction and related judgment.
Reconcile the increase in debt and capital expenditures with fleet growth, storage expansion and future financing needs.
Assess whether the projected $600 million fiscal 2017 fleet reinvestment is consistent with operating cash flow and available borrowing capacity.
Review liquidity restrictions on insurance-subsidiary assets and the ability to upstream dividends to AMERCO.
Evaluate exposure to used-truck resale values, variable interest rates, insurance reserve development and environmental remediation.
Review related-party transactions, including SAC Holding notes, property management fees, leases and dealer commissions.