Filing Overview
Registrant: AMERCO, the parent company of U-Haul International, Inc.; the filing is not identified as U-Haul Holding Co. The supplied filing is a Form 10-Q for the quarter ended September 30, 2014, representing AMERCO’s fiscal 2015 second quarter. The request metadata states “2012 Q2,” which does not match the filing text.
AMERCO reports three segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. The interim financial statements are unaudited and include only normal recurring adjustments. Insurance subsidiaries report on calendar-year periods and are consolidated using June 30, 2014 balances for the reported second quarter.
Financial Results and Position
| Metric | Quarter Ended September 30, 2014 | Quarter Ended September 30, 2013 | Change |
|---|---|---|---|
| Revenue | $906.5 million | $839.2 million | +8.0% |
| Earnings from operations | $275.8 million | $240.0 million | +14.9% |
| Operating margin | 30.4% | 28.6% | +1.8 percentage points |
| Pretax earnings | $246.9 million | $216.8 million | +13.9% |
| Earnings available to common stockholders | $156.2 million | $138.0 million | +13.2% |
| Net margin | 17.2% | 16.4% | +0.8 percentage points |
| Basic and diluted EPS | $7.98 | $7.06 | +13.0% |
For the six months ended September 30, 2014, revenue was $1.725 billion versus $1.588 billion, earnings from operations were $495.0 million versus $442.3 million, and earnings available to common stockholders were $280.7 million versus $251.0 million. Six-month EPS increased to $14.34 from $12.84. The six-month operating margin was approximately 28.7%, compared with 27.9% in the prior year, and the net margin was approximately 16.3%, compared with 15.8%.
Revenue Drivers
- Self-moving equipment rental revenue increased to $653.5 million from $598.9 million, primarily from higher In-Town and one-way transaction volume, increased equipment availability, and network expansion.
- Self-storage revenue increased to $53.0 million from $45.6 million. Average occupied square footage increased 14%; average occupancy based on room count rose to 84.1% from 82.5%.
- Self-moving and self-storage products and services increased to $68.0 million from $65.4 million.
- Property and casualty insurance premiums increased to $12.5 million from $10.9 million, while life insurance premiums decreased to $39.0 million from $39.4 million.
Cash Flow, Capital Spending, Debt and Liquidity
- Six-month operating cash flow was $479.0 million, slightly below $483.4 million in the prior-year period.
- Investing cash usage was $417.0 million, including $599.4 million of property, plant and equipment purchases and $260.7 million of proceeds from property and equipment sales.
- Net capital expenditures were $338.7 million versus $281.2 million. The company invested approximately $275 million, before lease buyouts, in its truck and trailer fleet and approximately $181 million in real estate acquisitions, construction, renovations and repairs.
- Financing activities provided $295.8 million, driven by $506.8 million of borrowings partially offset by $208.1 million of repayments and $40.7 million of capital lease payments.
- Cash and cash equivalents increased to $849.1 million at September 30, 2014 from $495.1 million at March 31, 2014.
- Notes, loans and leases payable totaled $2.382 billion, up from $1.942 billion at March 31, 2014. Debt included $880.2 million of senior mortgages, $558.1 million of capital leases, and $342.4 million of fleet amortizing loans.
- The Moving and Storage segment had approximately $88.0 million of additional liquidity available under existing credit facilities.
- Total assets were $6.870 billion and stockholders’ equity was $1.842 billion at September 30, 2014. Total liabilities were $5.028 billion.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by truck and trailer rentals and self-storage, while operating income grew faster than revenue due to operating leverage and higher gains on equipment disposals.
- Operating expenses increased, particularly personnel, rental equipment maintenance, and U-Box-related costs. Depreciation increased, but lease expense declined as the company financed more equipment on balance sheet rather than through operating leases.
- Interest expense increased to $24.9 million from $23.1 million because of higher average borrowings, partly offset by lower average borrowing costs.
- The company recorded $4.1 million of fees and amortization related to the early extinguishment of debt, including approximately $3.8 million of fees and $0.3 million of transaction-cost amortization.
- Available-for-sale investments increased to $1.260 billion from $1.138 billion at March 31, 2014. No other-than-temporary impairment write-downs were recorded.
- Accumulated other comprehensive loss improved to $23.2 million from $53.9 million of loss, primarily due to unrealized investment gains and hedge-related changes.
Outlook, Risks and Unusual Items
- Management expects to continue focusing on transaction volume, pricing, product availability and utilization of self-moving equipment. Fiscal 2015 fleet reinvestment was estimated at approximately $400 million, net of equipment sales and excluding lease buyouts.
- The company plans to expand self-storage locations, improve occupancy, continue U-Box investment, and pursue projects that meet its long-term and financial objectives. No earnings or revenue guidance range was provided.
- On September 25, 2014, a jury found in favor of PODS Enterprises in trademark litigation concerning U-Haul’s use of “pod” and “pods.” The jury awarded $45.0 million of actual damages and $15.7 million of U-Haul profits, for a total award of $60.7 million. U-Haul intended to pursue post-trial motions and, if necessary, appeal. The filing text does not clearly state whether an accrual was recorded for the award.
- Management identifies risks relating to leverage, variable interest rates, fleet and facility costs, limited truck manufacturers, competition, dealer-network dependence, vehicle liability claims, insurance reserve uncertainty, environmental compliance, related-party notes receivable, seasonality, and access to financing.
- A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $4.0 million after hedging effects.
- Operating leases included $72.3 million of guaranteed residual values for rental equipment. Management reported no material historical losses on these guarantees.
- Related-party assets totaled $167.0 million, including notes and receivables from entities controlled by significant stockholders. Management stated that it had no present plan to provide additional financial support to those entities.
- Management concluded that disclosure controls were effective and that no material changes occurred in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Confirm the correct issuer and reporting period: AMERCO fiscal second quarter ended September 30, 2014, rather than the metadata reference to 2012 Q2.
- Review the subsequent legal developments, accounting treatment, and ultimate cash exposure related to the $60.7 million PODS verdict.
- Assess whether increased debt-funded fleet and real estate investment is generating adequate operating cash flow and returns.
- Reconcile the $2.382 billion debt balance with scheduled maturities, including approximately $502.0 million due in the twelve months ending September 30, 2015.
- Evaluate liquidity available to the Moving and Storage segment separately from insurance-company assets, which are generally restricted by insurance regulations.
- Monitor self-storage occupancy, U-Box costs, used-equipment sale prices, fleet depreciation assumptions, and the impact of higher interest rates.
- Review the collectability and concentration risk of related-party notes receivable totaling approximately $136.3 million from SAC Holdings and Private Mini.