Business Context and Reporting Period
Registrant: AMERCO and consolidated entities, including U-Haul International, Real Estate, Repwest Insurance and Oxford Life Insurance. The filing describes three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance.
Period: Form 10-Q for the quarter and six months ended September 30, 2016, corresponding to AMERCO fiscal 2017 second quarter and first six months. The insurance subsidiaries report on a calendar-year basis, with balances and results generally reflecting June 30, 2016. The request metadata identifies “2014 Q2” and “U-Haul Holding Co,” which do not match the source filing; investors should verify the intended issuer and period.
Key Financial Metrics
| Metric | Quarter Ended September 30, 2016 | Quarter Ended September 30, 2015 | Six Months Ended September 30, 2016 | Six Months Ended September 30, 2015 |
|---|---|---|---|---|
| Revenue | $998.9 million | $962.9 million | $1.922 billion | $1.848 billion |
| Earnings from operations | $307.2 million | $311.1 million | $567.0 million | $602.2 million |
| Earnings available to common stockholders | $176.5 million | $183.4 million | $323.6 million | $354.7 million |
| Basic and diluted EPS | $9.01 | $9.36 | $16.52 | $18.10 |
| Operating margin | 30.8% | 32.3% | 29.5% | 32.6% |
| Net margin | 17.7% | 19.1% | 16.8% | 19.2% |
- Quarterly revenue increased 3.7%; six-month revenue increased 4.0%.
- Quarterly earnings available to common stockholders declined 3.8%; six-month earnings declined 8.7%.
- Cash provided by operating activities was $753.1 million for the six months, compared with $733.2 million in the prior-year period.
- Net cash used in investing activities was $566.3 million, including $761.3 million of property, plant and equipment purchases. Net capital expenditures were $450.9 million, up from $341.1 million.
- Cash and cash equivalents were $921.3 million at September 30, 2016, up from $600.6 million at March 31, 2016.
- Total notes, loans and leases payable were $2.992 billion, compared with $2.665 billion at March 31, 2016. Total liabilities were $6.392 billion and stockholders’ equity was $2.615 billion.
- Moving and Storage generated $920.4 million of quarterly revenue and $1.766 billion for the six-month period. Self-moving rental revenue and self-storage revenue were the principal growth drivers.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rental revenue increased $13.5 million in the quarter and $30.5 million for six months, primarily from higher transaction volume and a larger average truck fleet.
- Self-storage revenue increased $10.1 million in the quarter and $20.6 million for six months. Average occupied square footage increased 12.8% quarterly and 13.5% for six months.
- The company added approximately 3.5 million net rentable square feet over the preceding twelve months, a 15.7% increase. Occupancy declined to 78.9% from 84.0% on a quarterly room-count basis and to 78.2% from 83.2% for six months, reflecting recently added capacity.
- Net depreciation expense increased $46.8 million in the quarter and $91.2 million for six months. The increase reflected fleet growth, fewer used-truck sales and lower average sales proceeds per unit.
- Interest expense increased to $28.2 million from $24.0 million in the quarter and to $54.9 million from $46.1 million for six months, primarily because of increased borrowings.
- The company changed its capitalization threshold for certain smaller assets beginning in fiscal 2017, resulting in more immediate operating expense recognition and lower future depreciation for those assets.
- Net investment and interest income increased because of larger insurance-company invested asset bases and gains from the mortgage loan portfolio.
Outlook, Risks, Contingencies and Unusual Items
- Management expects to continue emphasizing transaction growth, pricing, equipment utilization, fleet investment, self-storage acquisitions and development, and expansion of the U-Box program. The filing does not provide formal revenue or earnings guidance.
- Fiscal 2017 planned truck and trailer fleet reinvestment was approximately $665 million, excluding lease buyouts and net of equipment sales. Approximately $357 million had been invested through six months. Real Estate invested approximately $252 million in acquisitions, construction, renovations and major repairs during the first six months.
- The company reported $63.0 million of additional borrowing capacity under existing credit facilities and stated that it expects liquidity to support operations and planned capital expenditures. Insurance-company assets are generally restricted from supporting non-insurance operations.
- The PODS litigation was settled in October 2016 for $41.4 million. The company had previously accrued approximately $66.0 million for damages and interest and recognized a $24.6 million reduction of operating expenses in the quarter for the difference between the accrual and settlement amount. The settlement occurred after the September 30 balance-sheet date.
- Variable-rate exposure included $842.0 million of variable-rate debt and an $8.6 million variable-rate operating lease. Management estimated that a 100-basis-point LIBOR increase would reduce annual earnings and cash flow by approximately $6.4 million after hedging.
- Operating lease commitments totaled $149.7 million, and the company guaranteed $20.4 million of residual values for certain rental equipment leases.
- Key risks include leverage, interest-rate movements, used-truck residual values, competition, economic conditions, dependence on third-party dealers and a limited number of truck manufacturers, insurance reserve development, environmental compliance, litigation, related-party transactions, and concentrated ownership. Edward J. Shoen and Mark V. Shoen and related entities controlled approximately 42.6% of common stock.
- Management stated that disclosure controls were effective and that no material change occurred in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm that the intended filing is AMERCO’s September 30, 2016 Form 10-Q rather than a 2014 second-quarter filing or a filing for a different legal issuer.
- Assess the sustainability of earnings excluding the $24.6 million PODS-related operating-expense reversal and the impact of lower gains on used-truck disposals.
- Reconcile fleet and real-estate capital spending with operating cash flow, debt growth, capital leases and available borrowing capacity.
- Evaluate self-storage occupancy trends as newly added capacity is absorbed.
- Review debt maturities, variable-rate exposure, hedge effectiveness and the estimated $6.4 million annual sensitivity to a 100-basis-point LIBOR increase.
- Review insurance reserve assumptions, regulatory restrictions on subsidiary dividends and the availability of insurance-company liquidity to the parent.
- Review related-party notes, management agreements, dealer commissions and the approximately $80.2 million of related-party assets, including the $48.7 million SAC Holdings note receivable.