Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2010 (Fiscal Q2 2011) and the six months ended September 30, 2010, for AMERCO (U-Haul Holding Co). The company operates three primary segments: Moving and Storage (U-Haul truck/trailer rentals, self-storage, and moving supplies), Property and Casualty Insurance (RepWest), and Life Insurance (Oxford). The Moving and Storage segment is the primary revenue driver, while the insurance segments provide ancillary coverage and long-term capital growth.
Key Financial Metrics
| Metric | Q2 2010 (Quarter) | Q2 2009 (Quarter) | 6 Months 2010 (YTD) | 6 Months 2009 (YTD) |
|---|---|---|---|---|
| Total Revenues | $636.98 million | $573.92 million | $1,222.92 million | $1,094.58 million |
| Net Earnings | $85.22 million | $44.69 million | $151.72 million | $67.12 million |
| Earnings Available to Common Shareholders | $81.98 million | $41.53 million | $145.29 million | $61.04 million |
| Diluted EPS | $4.22 | $2.14 | $7.48 | $3.15 |
| Operating Cash Flow (6 Months) | $357.56 million (vs. $253.67 million YTD 2009) | |||
| Cash and Equivalents (Sep 30, 2010) | $329.83 million | |||
| Total Debt (Notes, Loans, Leases) | $1,278.56 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 11.0% in Q2 2010 and 11.7% YTD compared to the prior year.
- Moving & Storage: Self-moving equipment rental revenues rose $39.9 million (Q2) and $86.4 million (YTD) due to increased transaction volume and higher average revenue per transaction.
- Life Insurance: Premiums increased $11.3 million (Q2) and $21.5 million (YTD), driven by the expansion of single premium whole life products.
- Self-Storage: Revenues grew due to an increase in the number of rooms rented and an expansion of the portfolio by over 590,000 square feet.
- Profitability: Earnings from operations increased 65.0% in Q2 and 84.7% YTD. This was driven by revenue growth and a significant decrease in depreciation expense (down $12.6 million in Q2 and $27.3 million YTD) due to improved gains on the disposal of property, plant, and equipment.
- Expense Management: Operating expenses for Moving and Storage decreased due to reduced liability costs and improved maintenance/repair costs from retiring older fleet equipment.
Guidance, Outlook, and Risks
- Outlook: Management plans to continue focusing on increasing transaction volume and pricing for self-moving equipment. The company intends to reinvest approximately $210 million in its truck and trailer fleet during fiscal 2011. The Life Insurance segment aims to expand its presence in the senior market.
- Liquidity: The company maintains strong liquidity with $329.8 million in cash and cash equivalents and $233.6 million in available borrowing capacity under existing credit facilities.
- Subsequent Events: On October 31, 2010, the company entered into a fleet securitized financing of up to $155.0 million to fund rental truck acquisitions. A quarterly dividend of $0.53125 per share on Series A Preferred stock was declared on November 1, 2010.
- Risks:
- Legal Proceedings: A shareholder derivative lawsuit (Shoen v. SAC Holding Corp.) regarding the sale of self-storage properties is pending before the Nevada Supreme Court.
- Market Risk: The company is exposed to interest rate risk on variable rate debt (approx. $595.7 million), though this is mitigated by interest rate swaps. A 100 basis point increase in LIBOR would decrease earnings by approximately $0.9 million annually.
- Related Party Transactions: Significant transactions exist with entities controlled by major shareholders (SAC Holdings, Blackwater), including management fees, lease payments, and notes receivable totaling over $260 million.
Investor Verification Checklist
- Asset Disposal Gains: Verify the sustainability of the $15.5 million improvement in gains on disposal of property, plant, and equipment, which significantly reduced depreciation expense.
- Life Insurance Reserves: Review the adequacy of insurance reserves given the $21.5 million increase in life insurance benefits and losses incurred YTD.
- Related Party Exposure: Assess the credit risk associated with $196.6 million in notes receivable from SAC Holdings and other related entities.
- Debt Maturities: Confirm the company's ability to refinance or repay debt obligations, with significant maturities scheduled for 2014, 2015, and 2018.
- Legal Resolution: Monitor the outcome of the Shoen derivative lawsuit, which could impact the company's financial position or require unwinding of past transactions.