Business Context and Reporting Period
AMERCO, the parent of U-Haul International, filed this unaudited Form 10-Q for the quarter ended June 30, 2012, the first quarter of fiscal 2013. The company operates through Moving and Storage, Property and Casualty Insurance, and Life Insurance segments. The insurance subsidiaries report on a calendar-quarter basis, so their results in this filing correspond to the quarter ended March 31, 2012.
The filing identifies the registrant as AMERCO rather than “U-Haul Holding Co.” Its principal activities include truck and trailer rentals, self-storage, moving supplies and services, property management, and insurance products.
Key Financial Metrics
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Total revenue | $665.4 million | $643.0 million | +$22.5 million, or 3.5% |
| Earnings from operations | $150.9 million | $148.4 million | +$2.5 million, or 1.7% |
| Operating margin | 22.7% | 23.1% | Down approximately 0.4 percentage points |
| Pretax earnings | $127.4 million | $125.7 million | +$1.7 million, or 1.3% |
| Net earnings | $80.6 million | $78.2 million | +$2.3 million, or 3.0% |
| Earnings available to common shareholders | $80.6 million | $69.2 million | +$11.3 million, or 16.4% |
| Basic and diluted EPS | $4.13 | $3.56 | +$0.57, or 16.0% |
| Net margin | 12.1% | 12.2% | Down approximately 0.1 percentage points |
| Cash flow from operations | $347.6 million | $153.4 million | +$194.2 million |
Revenue growth was led by self-moving equipment rentals of $467.0 million, self-storage revenue of $34.7 million, and moving and storage products and services of $67.2 million. Life insurance premiums declined to $46.4 million from $51.0 million, while net investment and interest income declined to $12.3 million from $17.3 million.
Total assets were $4.84 billion at June 30, 2012, compared with $4.65 billion at March 31, 2012. Stockholders’ equity increased to $1.11 billion from $1.04 billion. Notes, loans and leases payable increased to $1.54 billion from $1.49 billion.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rental revenue increased 4.6%, supported by growth in In-Town and one-way transactions and a 4% increase in the average rental-truck fleet.
- Self-storage revenue increased 9.1%. Average occupied square footage increased nearly 11%, and the company added approximately 1.4 million net rentable square feet over the preceding twelve months.
- Moving and Storage segment revenue increased to $602.8 million from $575.0 million, while earnings from operations before equity in subsidiary earnings increased to $147.0 million from $144.7 million.
- Property and Casualty Insurance revenue increased to $9.4 million from $9.1 million, and operating earnings increased to $2.6 million from $1.9 million.
- Life Insurance revenue decreased to $53.9 million from $60.0 million, and operating earnings decreased to $1.4 million from $2.0 million. Annuity deposits increased, but such deposits are generally recorded as balance-sheet liabilities rather than premium revenue.
- Operating expenses increased by $11.4 million, with significant spending on personnel and operating costs associated with the U-Box program. Depreciation increased by $11.8 million, partially offset by a $1.4 million decrease in lease expense.
- The prior-year quarter included $5.9 million attributable to the excess of redemption value over carrying value of redeemed Series A preferred stock and $3.1 million of preferred dividends. All Series A preferred stock had been redeemed on June 1, 2011.
- Operating cash flow benefited substantially from $127.3 million of repayments on notes and interest receivables from SAC Holdings, in addition to higher operating earnings.
Liquidity, Debt and Cash Flow
- Cash and cash equivalents increased to $566.2 million at June 30, 2012 from $350.1 million at March 31, 2012.
- Moving and Storage held $519.7 million of cash and had approximately $299.9 million of additional availability under existing credit facilities. Insurance subsidiary assets are generally restricted from satisfying non-insurance obligations.
- Net cash used in investing activities was $112.5 million, including $157.8 million of property, plant and equipment purchases and $62.4 million of proceeds from property and equipment sales.
- Net cash used in financing activities was $18.6 million. The company borrowed $26.2 million under credit facilities and repaid $61.1 million of credit-facility principal.
- Gross capital expenditures were $266.2 million, including $108.4 million of new equipment leases. Net capital expenditures were $95.4 million.
- The company expected to reinvest approximately $325 million in its truck and trailer fleet during fiscal 2013, excluding lease buyouts; $134.3 million had been reinvested through the first quarter.
- Long-term debt maturities for the year ending June 30, 2013 were $186.6 million, with additional maturities of $199.8 million in 2014 and $95.9 million in 2015.
- Interest-rate swaps had a total notional amount of approximately $480.5 million on debt and $14.8 million on a variable-rate operating lease. Management estimated that a 100-basis-point increase in LIBOR would reduce annual earnings and cash flow by approximately $0.4 million after hedging effects.
Guidance, Outlook, Risks and Unusual Items
Management did not provide specific numerical earnings or revenue guidance. Its fiscal 2013 outlook focused on increasing transaction volume, pricing, product availability and fleet utilization; expanding self-storage locations and occupancy; continuing investment in U-Box; and expanding insurance products and senior-market insurance distribution.
- Management cautioned that adverse economic conditions could reduce moving demand and revenue even if operating plans are executed.
- Fleet investment, financing availability, used-truck resale values, maintenance costs and access to credit are important to the operating plan.
- Insurance reserves, particularly long-tailed workers’ compensation claims, are subject to adverse development from medical inflation, claimant longevity, legal changes and settlement trends.
- The company guaranteed $132.4 million of residual values on leased rental equipment and reported total future lease commitments of $308.1 million for leases exceeding one year.
- A shareholder derivative lawsuit involving alleged self-dealing and transactions with SAC entities remained pending. A four-day evidentiary hearing on demand futility was scheduled to begin August 20, 2012.
- The company disclosed environmental matters at certain properties but stated that currently known compliance and remediation costs were not expected to have a material adverse effect.
- Related-party exposure remained significant. Related-party assets were $169.8 million at June 30, 2012, including $73.1 million of notes receivable from SAC Holdings and $66.2 million of notes receivable from Private Mini.
- AMERCO adopted ASU 2010-26 in the quarter, resulting in a $1.7 million reduction to beginning retained earnings. ASU 2011-04 had no material financial statement impact.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm the issuer and applicable reporting period: the filing is for AMERCO, with the quarter ended June 30, 2012, corresponding to Q1 fiscal 2013.
- Assess the sustainability of the large operating-cash-flow increase, particularly the non-recurring or potentially non-repeatable $127.3 million SAC Holdings repayment.
- Review debt maturities, equipment-leasing commitments, residual-value guarantees and the company’s reliance on asset-backed financing.
- Evaluate whether higher fleet and U-Box spending can generate sufficient revenue and margin improvement as depreciation and operating expenses rise.
- Monitor the decline in life-insurance premiums and investment income, along with the effect of annuity deposits on liquidity and insurance obligations.
- Review related-party transactions, notes receivable and management agreements involving SAC Holdings, Private Mini, Mercury and affiliated entities.
- Track the shareholder derivative litigation and any potential impact from insurance reserve development, environmental matters or other contingencies.