Business Context and Reporting Period
This Form 10-Q is filed by AMERCO, the parent company of U-Haul, for the quarter ended September 30, 2013 and the first six months of fiscal 2014. The request metadata identifies “2011 Q2,” which does not match the filing. AMERCO reports three segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance. The insurance subsidiaries use reporting periods ending June 30, 2013.
Key Financial Metrics
| Metric | Quarter Ended September 30 | Six Months Ended September 30 |
|---|---|---|
| Revenue | $836.5 million, up 12.4% | $1.583 billion, up 12.2% |
| Earnings from operations | $240.0 million, up 23.5% | $442.3 million, up 28.1% |
| Earnings available to common shareholders | $138.0 million, up 26.1% | $251.0 million, up 32.1% |
| Basic and diluted EPS | $7.06, versus $5.61 | $12.84, versus $9.74 |
| Operating margin | 28.7%, versus 26.1% | 27.9%, versus 24.5% |
| Net margin | 16.5%, versus 14.7% | 15.9%, versus 13.5% |
| Interest expense | $23.1 million, versus $22.1 million | $46.4 million, versus $45.6 million |
| Cash from operating activities | Not separately reported for the quarter | $483.4 million, versus $539.4 million |
At September 30, 2013, cash and cash equivalents were $679.6 million, compared with $463.7 million at March 31, 2013. Notes, loans and leases payable were $1.775 billion, up from $1.662 billion. Stockholders’ equity was $1.462 billion, compared with $1.229 billion at March 31, 2013. Moving and Storage had $637.7 million of cash and $1.775 billion of debt; insurance-segment assets are generally unavailable for non-insurance obligations.
Net cash used in investing activities was $321.2 million, including $457.7 million of property, plant and equipment purchases. Net cash provided by financing activities was $53.2 million. The company reported $75.0 million of additional availability under existing Moving and Storage credit facilities.
Material Changes Versus the Prior Comparable Period
- Self-moving equipment rental revenue increased $60.6 million in the quarter and $115.2 million for six months, primarily from higher transaction volume, fleet expansion, improved utilization and additional retail locations.
- Self-storage revenue increased $7.6 million in the quarter and $15.0 million for six months. Average monthly occupied square footage increased nearly 19% in the quarter; approximately 2.2 million net rentable square feet was added over the preceding twelve months.
- Other revenue increased $22.4 million in the quarter and $35.9 million for six months, primarily from newer initiatives including U-Box.
- Life insurance premiums declined $8.2 million in the quarter and $13.6 million for six months, while investment income increased because of a larger invested asset base and realized gains.
- Property and casualty insurance earnings improved as premiums increased and benefits and losses declined.
- Operating expenses increased materially, including personnel, rental-equipment maintenance and U-Box costs. Lease expense declined as the company financed more equipment on its balance sheet rather than through operating leases.
- Net capital expenditures rose to $281.2 million for the first six months from $148.4 million, reflecting higher rental-equipment and real-estate investment.
- Operating cash flow declined $56.0 million year over year, largely because the prior period included $127.3 million of repayments on notes and interest receivables from SAC Holdings that did not recur. Excluding that item, management stated operating cash flow increased.
Guidance, Outlook, Risks and Unusual Items
Management expects to continue emphasizing transaction volume, pricing, product offerings and equipment utilization. Fiscal 2014 net investment in the truck and trailer fleet was estimated at approximately $315 million, excluding lease buyouts. Management also expects continued self-storage acquisitions, development and occupancy improvements, and continued investment in U-Box.
The company stated that it believes liquidity is adequate for foreseeable needs, but cautioned that future cash flows may be affected by economic conditions, competition, financing availability, debt refinancing needs, fleet and facility costs, credit-market conditions, regulations, litigation and demand changes.
- Total notes, loans and leases payable include significant maturities, including $241.9 million due in the year ending September 30, 2014 and $565.4 million in 2015.
- Operating leases carry guaranteed residual values of $110.1 million; the present value of minimum lease payments and residual guarantees was $257.1 million.
- Interest-rate swaps had a total notional amount of approximately $411.4 million for debt and $13.0 million for a variable-rate operating lease. A 100-basis-point LIBOR increase was estimated to reduce annual earnings and cash flow by approximately $0.5 million after hedging.
- Related-party assets were $168.8 million at September 30, 2013, including notes and receivables associated with SAC Holdings and Private Mini. Related-party transactions include management fees, leases, interest income and dealer commissions.
- Two subsequent real-estate loans were entered into in October 2013: $100 million maturing in October 2016, with extension options, and $50 million maturing in October 2033.
- No material legal proceedings were reported, and management stated that known environmental matters and other litigation were not expected to have a material adverse effect.
Most Important Facts to Verify
- Confirm the applicable period: the filing is for September 30, 2013, not 2011 Q2.
- Reconcile reported growth in earnings with higher operating expenses, increased debt and substantially higher capital expenditures.
- Assess liquidity after considering restricted insurance-company assets, debt maturities, lease obligations and the $75.0 million of available credit facilities.
- Review fleet utilization, used-equipment resale values and the sustainability of rental revenue growth.
- Evaluate exposure to SAC Holdings, Private Mini and other related parties, including the $168.8 million of related-party assets and associated dealer activity.
- Monitor insurance reserve development, investment portfolio losses, interest-rate risk and the effect of future LIBOR changes.