Business Context and Reporting Period
This Form 10-Q is filed by AMERCO, the parent of U-Haul International, for the quarter and nine months ended December 31, 2013, corresponding to the third quarter and first nine months of fiscal 2014. The source metadata identifies “2011 Q3,” but the filing itself clearly reports 2013 results. AMERCO operates through Moving and Storage, Property and Casualty Insurance, and Life Insurance segments in the United States and Canada.
The financial statements are unaudited. AMERCO’s insurance subsidiaries report on a calendar-quarter basis, with their results consolidated using periods ended September 30.
Key Financial Metrics
| Metric | Quarter ended December 31, 2013 | Quarter ended December 31, 2012 | Change |
|---|---|---|---|
| Revenue | $641.3 million | $582.5 million | +10.1% |
| Earnings from operations | $106.0 million | $81.9 million | +29.3% |
| Pretax earnings | $82.4 million | $59.9 million | +37.6% |
| Net earnings available to common shareholders | $52.2 million | $36.8 million | +41.7% |
| Basic and diluted EPS | $2.67 | $1.89 | +41.3% |
| Operating margin | 16.5% | 14.1% | +2.4 percentage points |
| Net margin | 8.1% | 6.3% | +1.8 percentage points |
| Metric | Nine months ended December 31, 2013 | Nine months ended December 31, 2012 | Change |
|---|---|---|---|
| Revenue | $2.225 billion | $1.994 billion | +11.5% |
| Earnings from operations | $548.3 million | $427.1 million | +28.4% |
| Net earnings available to common shareholders | $303.2 million | $226.8 million | +33.7% |
| Basic and diluted EPS | $15.50 | $11.62 | +33.4% |
| Operating margin | 24.6% | 21.4% | +3.2 percentage points |
| Net margin | 13.6% | 11.4% | +2.2 percentage points |
| Cash provided by operating activities | $561.3 million | $576.3 million | -2.6% |
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $601.6 million at December 31, 2013, versus $463.7 million at March 31, 2013.
- Total assets were $5.874 billion, compared with $5.307 billion at March 31, 2013. Property, plant and equipment increased to $3.193 billion from $2.755 billion, reflecting fleet and real-estate investment.
- Notes, loans and leases payable increased to $1.863 billion from $1.662 billion. Scheduled debt maturities are $181.3 million in 2014, $590.4 million in 2015, $347.7 million in 2016, $168.8 million in 2017, $138.3 million in 2018, and $436.4 million thereafter.
- Moving and Storage had $75.0 million of additional availability under existing credit facilities at December 31, 2013. Insurance subsidiary assets are generally restricted from supporting non-insurance operations.
- Operating activities generated $561.3 million during the first nine months. Investing activities used $553.4 million, primarily because of $690.3 million of property, plant and equipment purchases. Financing activities provided $129.5 million.
- Net capital expenditures in Moving and Storage were $476.2 million, compared with $255.9 million in the prior-year period. Management expected approximately $470 million of fiscal 2014 net truck and trailer fleet reinvestment, excluding lease buyouts.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rental revenue increased $41.3 million in the quarter and $156.5 million for the nine-month period, driven primarily by higher truck and trailer transaction volume, fleet expansion, utilization improvements, and additional retail locations.
- Self-storage revenue increased 17.9% in the quarter and 19.6% for the nine-month period. Average monthly occupancy based on room count improved to 80.0% from 78.1% in the quarter and to 80.9% from 79.1% for nine months. The company added approximately 2.1 million net rentable square feet over the prior twelve months.
- Other revenue increased $10.3 million in the quarter and $46.2 million for nine months, primarily from newer initiatives including U-Box.
- Life insurance premiums declined $4.0 million in the quarter and $17.6 million for nine months, while Property and Casualty premiums increased $2.4 million and $5.0 million, respectively.
- Operating expenses increased $34.8 million in the quarter and $109.2 million for nine months, primarily due to personnel, rental-equipment maintenance, and U-Box operating costs. Depreciation increased as the company financed more equipment on balance sheet, while lease expense declined.
- Interest expense increased to $23.6 million in the quarter and $70.1 million for nine months, reflecting higher average borrowings partially offset by lower borrowing costs.
- Life Insurance operating earnings improved to $19.8 million for nine months from $12.8 million, while Property and Casualty Insurance operating earnings increased to $16.5 million from $7.0 million.
Guidance, Outlook, Risks and Unusual Items
- Management planned to focus on increasing transaction volume, pricing, product offerings, and utilization in self-moving rentals; expanding self-storage locations and occupancy; and continuing investment in U-Box.
- Management stated that current cash, operating cash flow, and borrowing capacity were expected to provide sufficient liquidity for foreseeable needs, but cautioned that future liquidity could be affected by economic conditions, financing availability, debt refinancing, competition, and operating results.
- On January 21, 2014, subsidiaries entered into a $75 million revolving fleet loan, expandable to $225 million, and drew approximately $18 million. On January 31, 2014, subsidiaries entered into a separate $100 million revolving fleet loan, expandable to $125 million.
- AMERCO declared a special cash dividend of $1.00 per common share, payable February 14, 2014.
- The company had $96.9 million of guaranteed residual values on operating-leased rental equipment. The present value of minimum lease payments and residual-value guarantees was $226.3 million.
- Related-party exposure included approximately $170.0 million of related-party assets, including notes and receivables from entities controlled by significant stockholders. Management concluded that these entities were not required to be consolidated.
- Management reported no material legal proceedings or material updates to the prior Form 10-K risk factors. Environmental compliance, insurance reserve development, used-equipment values, interest rates, refinancing, credit availability, competition, and related-party transactions remain important risk areas.
- Interest-rate swaps hedged variable-rate debt and a variable-rate lease. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $1.3 million after hedging effects.
Most Important Facts to Verify
- Confirm the applicable reporting period: the filing is for December 31, 2013 and fiscal 2014, not 2011 Q3.
- Assess whether increased fleet and real-estate investment is generating sufficient rental volume, utilization, occupancy, and cash returns.
- Review the sustainability of earnings growth given higher operating expenses, depreciation, debt, and capital expenditures.
- Evaluate debt maturities, available credit capacity, interest-rate exposure, and the effect of the January 2014 fleet loans.
- Review insurance reserve adequacy, investment portfolio performance, and restrictions on insurance subsidiary liquidity.
- Examine related-party notes, management agreements, dealership commissions, and the approximately $170 million of related-party assets.
- Consider the impact of the special dividend and ongoing capital requirements on future liquidity and leverage.