AMERCO (U-Haul) Fiscal 2012 Form 10-K Summary
Reporting period: The filing is an annual report for the fiscal year ended March 31, 2012, filed June 6, 2012. The request metadata references “2011 Q4,” but the source filing reports fiscal 2012 results. Insurance subsidiaries use calendar-year reporting and are consolidated using results for the year ended December 31, 2011.
Business context
AMERCO operates U-Haul, North America’s largest do-it-yourself moving and storage business, through truck and trailer rentals, self-storage, portable storage, moving supplies, towing products, propane and related services. Reportable segments are Moving and Storage, Property and Casualty Insurance and Life Insurance.
- Approximately 106,000 trucks, 83,000 trailers and 33,000 towing devices at March 31, 2012.
- Approximately 1,450 company-operated retail centers and 15,500 independent dealers.
- Over 423,000 self-storage rooms totaling 37.8 million rentable square feet.
- Approximately 17,700 employees, with about 98% in Moving and Storage.
Key financial metrics
| Metric | Fiscal 2012 | Fiscal 2011 | Change |
|---|---|---|---|
| Total revenue | $2,502.7 million | $2,241.3 million | 11.7% increase |
| Earnings from operations | $416.0 million | $377.7 million | 10.1% increase |
| Operating margin | 16.6% | 16.9% | Down approximately 0.3 points |
| Pretax earnings | $325.6 million | $289.3 million | 12.6% increase |
| Net earnings | $205.4 million | $183.6 million | 11.9% increase |
| Earnings available to common shareholders | $196.5 million | $171.0 million | 14.9% increase |
| Basic and diluted EPS | $10.09 | $8.80 | 14.7% increase |
| Net margin | 8.2% | 8.2% | Approximately unchanged |
| Cash flow from operating activities | $664.6 million | $572.9 million | 16.0% increase |
| Net capital expenditures | $420.9 million | $300.0 million | 40.3% increase |
| Cash and cash equivalents | $350.1 million | $375.5 million | Decrease of $25.4 million |
| Notes, loans and leases payable | $1,486.2 million | $1,397.8 million | Increase of $88.4 million |
| Total stockholders’ equity | $1,035.8 million | $993.0 million | Increase of $42.8 million |
Material changes versus the prior comparable period
- Self-moving equipment rental revenue increased $131.2 million, driven by higher In-Town and one-way transaction volumes, approximately 4% average truck-fleet growth, improved utilization and higher average revenue per transaction.
- Self-storage revenue increased $13.7 million. Average occupied square footage increased approximately 10%, while net rentable space grew by 1.4 million square feet.
- Life insurance premiums increased $70.6 million, primarily from a new reinsurance agreement and higher Medicare supplement premiums related to a prior acquisition.
- Moving and Storage segment revenue increased to $2,156.9 million from $1,977.8 million, and segment earnings before equity in insurance subsidiaries increased to $432.8 million from $355.2 million.
- Property and Casualty Insurance reported a $36.4 million operating loss versus $5.6 million of operating earnings, primarily because of reserve strengthening.
- Benefits and losses increased to $310.8 million from $190.4 million. Repwest strengthened excess workers’ compensation reserves by $48.3 million, reducing after-tax earnings by approximately $31.4 million, or $1.61 per share.
- The company redeemed all 6.1 million Series A preferred shares on June 1, 2011 for $152.5 million. Fiscal 2012 earnings available to common shareholders included a $5.9 million nonrecurring redemption-related charge.
- The company declared and paid a special common-stock dividend of $1.00 per share, totaling approximately $19.5 million.
- Capital investment increased substantially, including approximately $338 million invested in the truck and trailer fleet, net of sales, and nearly $102 million in real estate acquisitions, construction, renovation and repairs.
Liquidity, debt and cash flow
- Operating cash flow was $664.6 million, compared with $572.9 million in fiscal 2011.
- Investing cash outflows increased to $577.0 million, primarily because of higher property, plant and equipment purchases and insurance-segment investment activity.
- Financing cash outflows were $112.7 million, including preferred-stock redemption and the special common dividend.
- Moving and Storage had $299.9 million available under existing credit facilities and an additional $19.1 million term-loan capacity for new equipment purchases at March 31, 2012.
- Management estimated approximately $325 million of fiscal 2013 truck and trailer fleet reinvestment, net of equipment sales and excluding lease buyouts.
- Total notes, loans and leases payable were $1.486 billion. Contractual principal, interest and lease obligations were substantial, and total contractual obligations were reported at $5.338 billion, including insurance and self-insurance obligations.
- AMERCO had $538.6 million of variable-rate debt and $15.1 million of a variable-rate operating lease. After hedging, a 100-basis-point LIBOR increase was estimated to reduce annual earnings and cash flow by approximately $0.4 million.
Outlook, risks and unusual items
Management’s fiscal 2013 priorities are to increase moving transactions, improve pricing and utilization, maintain fleet investment, expand storage capacity and occupancy, develop U-Box, and pursue selected storage acquisitions. The Life Insurance segment plans to expand its senior-market presence through Medicare supplement, life and annuity products, agency growth and acquisitions.
- Results are seasonal, with stronger moving activity generally in the first and second fiscal quarters and the fourth quarter typically weakest.
- Management identified competition, economic conditions, financing availability, refinancing risk, used-equipment resale values, fleet-manufacturer concentration, interest rates, regulation, environmental liabilities, labor availability and information-system disruptions as significant risks.
- Repwest’s A.M. Best financial-strength rating was downgraded to B, with negative implications, in February 2012. Management stated that current business lines were not generally ratings-sensitive but acknowledged possible effects on future expansion or costs.
- Oxford’s A.M. Best rating was affirmed at B++ with a positive outlook in April 2012.
- AMERCO held $195.4 million of junior unsecured notes receivable from SAC Holdings at March 31, 2012. SAC Holdings was highly leveraged and represented credit and related-party risk. Subsequent repayments in April and May 2012 totaled $118.6 million, reducing the notes receivable balance by $113.5 million and accrued interest by $5.1 million.
- A shareholder derivative lawsuit concerning historical SAC transactions remained unresolved. The trial court denied AMERCO’s summary-judgment motion in December 2011, and a four-day demand-futility evidentiary hearing was scheduled for August 20, 2012.
- Management stated that known environmental matters and other ordinary-course litigation were not expected to have a material effect, but future environmental remediation and legal outcomes remain contingencies.
- BDO USA, LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective at March 31, 2012.
Most important facts for investors to verify
- Whether the $48.3 million Repwest workers’ compensation reserve strengthening adequately reflects long-tail claims exposure and whether further adverse development is possible.
- The maturity schedule, covenants, collateral and refinancing requirements associated with the $1.486 billion debt balance and substantial lease commitments.
- Actual fiscal 2013 fleet and real-estate capital spending versus management’s stated plans and the resulting effect on free cash flow.
- The collectability and remaining balance of SAC Holdings-related notes receivable after the April and May 2012 repayments.
- The effect of the Repwest rating downgrade on regulatory capital, product distribution, expansion opportunities and financing costs.
- The outcome of the SAC-related shareholder litigation and any potential damages, remedies or governance implications.
- Quarterly seasonality and whether transaction growth, pricing and utilization remain strong outside the peak moving season.