AMERCO Form 10-Q Summary
Registrant and period: The filing is for AMERCO, the parent of U-Haul International, not an entity identified in the filing as “U-Haul Holding Co.” It covers the unaudited quarter ended June 30, 2011, AMERCO’s first quarter of fiscal 2012; the comparable period was June 30, 2010. AMERCO operates Moving and Storage, Property and Casualty Insurance, and Life Insurance segments in the United States and Canada.
Financial performance and position
| Metric | Quarter ended June 30, 2011 | Quarter ended June 30, 2010 | Change |
|---|---|---|---|
| Total revenue | $643.0 million | $585.9 million | +9.7% |
| Earnings from operations | $148.4 million | $128.1 million | +15.8% |
| Pretax earnings | $125.7 million | $106.6 million | +17.9% |
| Net earnings | $78.2 million | $66.5 million | +17.6% |
| Earnings available to common shareholders | $69.2 million | $63.3 million | +9.4% |
| Basic and diluted EPS | $3.56 | $3.26 | +9.2% |
| Operating margin | 23.1% | 21.9% | +120 basis points |
| Net margin | 12.2% | 11.3% | +80 basis points |
| Cash flow from operations | $151.4 million | $173.9 million | -$22.5 million |
| Net cash used in investing | $174.0 million | $99.0 million | -$74.9 million |
| Net cash used in financing | $109.2 million | $30.3 million | -$78.9 million |
Revenue drivers: Self-moving equipment rental revenue increased to $446.5 million from $419.5 million, reflecting higher transaction volume, revenue per transaction, and an average truck fleet more than 4% larger. Self-storage revenue increased to $31.8 million from $28.2 million. Life insurance premiums increased to $51.0 million from $37.8 million, primarily due to Medicare supplement business. Other revenue increased to $20.3 million from $13.1 million, primarily from newer initiatives including U-Box.
Segment results: Moving and Storage revenue increased to $575.0 million from $535.2 million and operating earnings increased to $147.3 million from $126.4 million. Property and Casualty Insurance revenue increased to $9.1 million from $8.1 million and operating earnings increased to $1.9 million from $1.4 million. Life Insurance revenue increased to $60.0 million from $43.8 million, while operating earnings declined to $2.0 million from $3.4 million because higher premiums were accompanied by increased commissions, benefits, losses, and acquisition-cost amortization.
Balance sheet and liquidity: Cash and cash equivalents were $243.8 million at June 30, 2011, down from $375.5 million at March 31, 2011. Total assets were $4.17 billion and total liabilities were $3.25 billion. Stockholders’ equity was $919.7 million, compared with $993.0 million at March 31, 2011.
Debt: Notes, loans and leases payable totaled $1.41 billion at June 30, 2011, up from $1.40 billion at March 31, 2011. Debt maturities for the year ending June 30, 2012 were $163.2 million, followed by $210.8 million in 2013 and $164.7 million in 2014. The company reported $323.8 million of available capacity under existing credit facilities and $10.8 million of unused securitized fleet-loan capacity. Variable-rate debt was $599.7 million, with interest-rate swaps used to mitigate exposure.
Material changes versus the prior comparable period
- Revenue growth was led by truck rentals, self-storage, Medicare supplement premiums, and U-Box-related activities.
- Operating expenses increased by $18.8 million overall, including higher Moving and Storage maintenance and personnel costs and higher Life Insurance commissions and benefits.
- Operating margin improved to approximately 23.1% from 21.9%, despite higher operating costs.
- Operating cash flow declined because favorable operating performance was more than offset by working-capital changes. The prior-year period also benefited from a $5.5 million federal tax refund and a $28.3 million loan deposit.
- Net capital expenditures increased to approximately $160.8 million from $91.7 million, primarily reflecting greater purchases of rental equipment, construction, and real estate.
- On June 1, 2011, AMERCO redeemed all 6.1 million outstanding Series A 8.5% preferred shares for approximately $152.5 million, including accrued dividends. The transaction produced a $5.9 million reduction in earnings available to common shareholders for EPS purposes.
- Cash used in financing increased substantially, primarily because of the preferred-stock redemption.
Outlook, risks, contingencies, and unusual items
Outlook: Management plans to increase moving transaction volume, pricing, product availability, and fleet utilization; expand self-storage occupancy and complete current projects; continue investing in U-Box; and expand the Life Insurance business in Medicare supplement, life, and annuity products. No specific earnings or revenue guidance was provided.
- Management expected approximately $235 million of fiscal 2012 net investment in the truck and trailer rental fleet, excluding lease buyouts; approximately $115 million had been invested through the first quarter.
- Approximately $19 million was invested in real estate acquisitions, construction, renovation, and repairs during the quarter.
- Management stated that cash, operating cash flow, and unused borrowing capacity were expected to meet foreseeable needs, while acknowledging risks related to financing availability, refinancing, economic conditions, competition, and future cash flows.
- Operating leases carried approximately $153.5 million of guaranteed residual values for rental equipment. The filing states that the company has not experienced material losses on these guarantees.
- A shareholder derivative lawsuit involving historical transactions with SAC Holdings was remanded for further proceedings by the Nevada Supreme Court on May 12, 2011. Management also stated that environmental matters and other litigation were not expected to have a material effect, but the litigation remains a contingency.
- Related-party exposure was significant: related-party assets totaled $304.9 million, including approximately $196.0 million of notes receivable from SAC Holdings and $69.1 million related to Private Mini. The company also reported related-party revenue of $10.9 million and related-party costs and expenses of $11.3 million for the quarter.
- Insurance-company assets are generally restricted by state regulation and are not freely available to fund non-insurance operations.
- The company reported no investment write-downs in either comparable quarter and stated that its disclosure controls were effective as of June 30, 2011.
Key facts for investors to verify
- Confirm the intended registrant: the supplied filing is AMERCO’s 10-Q, while the request identifies U-Haul Holding Co.
- Assess whether the sharp increase in capital expenditures and the planned $235 million fleet investment can be funded from operating cash flow and available debt capacity.
- Review the $1.41 billion debt balance, near-term maturities, covenant requirements, securitization terms, and refinancing exposure.
- Evaluate the effect of the preferred-stock redemption on cash, equity, future dividends, and comparability of EPS.
- Monitor the SAC Holdings-related notes receivable, related-party transactions, and derivative litigation following the Nevada Supreme Court remand.
- Consider insurance reserve uncertainty, restricted insurance-company liquidity, interest-rate risk, used-equipment resale values, environmental obligations, and broader economic and competitive risks.
- Compare subsequent quarterly results with management’s stated fleet, self-storage, U-Box, and Life Insurance expansion plans; the filing provides no formal earnings guidance.