Business Context and Reporting Period
This filing is AMERCO’s Form 10-K for the fiscal year ended March 31, 2015. The request metadata refers to “2012 Q4,” but the supplied filing is an annual report for fiscal 2015, not a 2012 quarterly filing.
AMERCO operates U-Haul, North America’s largest do-it-yourself moving and storage business, along with property and casualty insurance and life insurance subsidiaries. U-Haul operated approximately 1,600 company stores, 18,200 independent dealers, 135,000 trucks, 107,000 trailers and 38,000 towing devices at March 31, 2015. Its storage network included nearly 1,280 locations and 44.2 million rentable square feet.
Key Financial Metrics
| Metric | Fiscal 2015 | Fiscal 2014 | Change |
|---|---|---|---|
| Total revenue | $3.075 billion | $2.835 billion | +8.4% |
| Earnings from operations | $663.0 million | $630.2 million | +5.2% |
| Net earnings | $356.7 million | $342.4 million | +4.2% |
| EPS, basic and diluted | $18.21 | $17.51 | +4.0% |
| Operating margin | 21.6% | 22.2% | Down approximately 60 bps |
| Net margin | 11.6% | 12.1% | Down approximately 50 bps |
| Operating cash flow | $808.2 million | $709.5 million | +13.9% |
| Net capital expenditures | $700.3 million | $729.3 million | -$29.0 million |
| Cash and equivalents | $441.9 million | $495.1 million | -$53.3 million |
| Notes, loans and leases payable | $2.191 billion | $1.942 billion | +12.8% |
| Stockholders’ equity | $1.884 billion | $1.527 billion | +23.4% |
Self-moving equipment rental revenue increased to $2.146 billion from $1.955 billion, while self-storage revenue increased to $211.1 million from $181.8 million. Life insurance premiums declined modestly to $156.1 million, while property and casualty insurance premiums rose to $46.5 million.
Operating cash flow exceeded net capital expenditures by approximately $107.9 million before financing and other investing activity. Cash flow was pressured by $825.2 million of investing outflows and net financing outflows of $25.5 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by higher U-Haul transaction volume, expanded fleet availability, broader distribution and increased self-storage capacity.
- U-Haul added approximately 37,000 new trucks and expanded owned storage capacity by approximately 2.1 million net rentable square feet. Average monthly occupied storage square feet increased 13%, and the average occupancy rate based on room count rose to 81.7% from 80.5%.
- Total costs and expenses increased $206.5 million. Operating expenses rose $165.7 million, depreciation increased $18.6 million, and commission expense increased with revenue.
- Lease expense declined $20.7 million as the Company financed more equipment on its balance sheet rather than through operating leases.
- Fiscal 2015 included $60.7 million of operating expense for an accrual related to the PEI litigation and $4.1 million of fees and amortization associated with early debt extinguishment.
- Debt increased by approximately $248.5 million, while cash declined by $53.3 million. Property, plant and equipment increased to $4.108 billion from $3.409 billion.
Guidance, Outlook, Risks and Unusual Items
Management’s fiscal 2016 outlook emphasizes increasing moving transaction volume, improving pricing and equipment utilization, maintaining fleet investment, expanding and acquiring storage locations, increasing occupancy and continuing investment in U-Box. The Company estimated approximately $500 million of net truck and trailer fleet reinvestment for fiscal 2016, excluding lease buyouts, and expected to fund it primarily through debt, leases and operating cash flow. No formal earnings or revenue guidance was provided.
The PEI trademark litigation is a significant contingency. A jury awarded $60.7 million against U-Haul, and the Company accrued the full amount in fiscal 2015. Post-judgment motions and an appeal remained pending; PEI also sought attorneys’ fees, costs, prejudgment interest, a permanent injunction and potentially doubled damages.
Key risks include high leverage, refinancing and interest-rate exposure, dependence on used-equipment resale values and vehicle manufacturers, competitive pricing, seasonality, independent dealers, environmental and regulatory liabilities, vehicle accident claims, insurance reserve uncertainty, cybersecurity and systems dependence, and related-party exposure. The Company reported $201.5 million of undiscounted operating lease commitments and $72.3 million of guaranteed residual values.
At March 31, 2015, available borrowing capacity under existing credit facilities was $130.0 million. Approximately $690.6 million of variable-rate debt and a $10.8 million variable-rate operating lease were outstanding; a 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by $3.6 million after hedging.
AMERCO’s three reportable segments were Moving and Storage, Property and Casualty Insurance, and Life Insurance. Insurance subsidiary assets are generally unavailable to fund non-insurance operations, and dividends are subject to statutory restrictions. Oxford’s A.M. Best financial strength rating was affirmed at A- with a stable outlook.
BDO USA, LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Investor Verification Items
- Confirm that the relevant reporting period is fiscal 2015 rather than the “2012 Q4” period in the request metadata.
- Review the final resolution, cash payment, injunction terms and any additional damages or fees arising from the PEI litigation.
- Reconcile debt maturities, capital lease obligations, available credit capacity and planned fiscal 2016 fleet and real-estate investment.
- Assess whether operating cash flow can continue to fund high capital requirements while servicing debt and leases.
- Monitor truck and trailer resale values, fleet utilization, rental pricing, storage occupancy and U-Box performance.
- Evaluate the collectability and subordination risk of approximately $106.9 million of junior notes receivable from SAC Holding and Private Mini at March 31, 2015.
- Review insurance reserve development, reinsurance recoverables and restrictions on insurance subsidiary dividends.
- Consider the effect of seasonality, competition, interest rates, fuel and labor costs, environmental obligations and regulatory changes on future margins.