AMERCO Form 10-Q Summary
Business context and reporting period
AMERCO, parent of U-Haul International, Amerco Real Estate, Repwest Insurance and Oxford Life Insurance, reported its second fiscal quarter ended September 30, 2012, and six months ended September 30, 2012. The filing was dated November 7, 2012. Reportable segments are Moving and Storage, Property and Casualty Insurance, and Life Insurance. Insurance subsidiaries report on calendar-year quarters, creating a June 30, 2012 measurement date for their segment information.
Financial performance and liquidity
| Metric | Quarter ended September 30, 2012 | Quarter ended September 30, 2011 |
|---|
| Total revenue | $741.3 million | $703.2 million |
| Earnings from operations | $194.3 million | $184.4 million |
| Pretax earnings | $172.2 million | $161.5 million |
| Net earnings | $109.4 million | $101.0 million |
| EPS, basic and diluted | $5.61 | $5.20 |
| Operating margin | 26.2% | 26.2% |
| Net margin | 14.8% | 14.4% |
| Metric | Six months ended September 30, 2012 | Six months ended September 30, 2011 |
|---|
| Total revenue | $1.407 billion | $1.346 billion |
| Earnings from operations | $345.2 million | $332.8 million |
| Pretax earnings | $299.6 million | $287.2 million |
| Earnings available to common shareholders | $190.0 million | $170.4 million |
| EPS, basic and diluted | $9.74 | $8.75 |
| Operating margin | 24.5% | 24.7% |
| Net income margin | 13.5% | 13.3% |
- Six-month operating cash flow was $539.5 million, compared with $419.3 million in the prior-year period.
- Investing cash outflow was $310.3 million, including $281.0 million of property, plant and equipment purchases.
- Financing cash flow was $59.7 million, compared with a $43.6 million use of cash in the prior-year period.
- Cash and cash equivalents increased to $645.8 million from $357.2 million at March 31, 2012.
- Notes, loans and leases payable totaled $1.557 billion, compared with $1.486 billion at March 31, 2012.
- Management reported $318.4 million of additional availability under existing Moving and Storage credit facilities.
- Total assets were $5.137 billion and stockholders’ equity was $1.236 billion at September 30, 2012.
Material changes versus the prior comparable period
- Quarterly revenue increased 5.4%, while six-month revenue increased 4.5%. Self-moving equipment rental revenue rose 5.2% for the quarter and 4.9% for six months.
- The average rental-truck fleet increased approximately 5% year over year in the quarter. Self-storage revenue increased 11.7% quarterly and 10.4% for six months.
- Owned self-storage occupancy based on room count increased to 81.1% from 79.1% in the quarter and to 79.6% from 78.0% for the six-month comparison.
- Moving and Storage segment revenue increased to $675.6 million from $639.6 million for the quarter and to $1.278 billion from $1.215 billion for six months.
- Operating expenses increased because of personnel, legal, liability and U-Box-related costs. Depreciation increased as the company financed more equipment on balance sheet, while lease expense declined.
- Net investment and interest income declined because SAC Holdings repaid $127.3 million of notes and interest receivables during the first quarter. The repaid notes carried approximately 9% interest.
- Life Insurance revenue declined for six months, primarily due to lower Medicare supplement premiums, while annuity deposits increased substantially and are recorded as balance-sheet deposits rather than premium revenue.
- Prior-year six-month earnings included a $5.9 million charge related to redemption of Series A preferred stock and $2.9 million of preferred dividends. No comparable amounts were recorded in fiscal 2013.
Guidance, outlook, risks and unusual items
- Management planned continued investment in rental fleet capacity, self-storage acquisitions and development, and the U-Box program. Fiscal 2013 fleet reinvestment was estimated at approximately $325 million, net of equipment sales, excluding lease buyouts; approximately $200.5 million had been reinvested through six months.
- Management expected approximately $71 million of fiscal 2013 investment in real estate acquisitions, construction, renovation and repairs during the first six months.
- The company stated that liquidity was adequate for foreseeable needs, but noted that future cash flows, financing availability, debt refinancing, economic conditions and used-vehicle prices could affect liquidity.
- Interest-rate exposure was managed with swaps. At September 30, 2012, variable-rate debt was approximately $457.1 million and a variable-rate operating lease was approximately $14.4 million. A 100-basis-point increase in LIBOR was estimated to reduce annual earnings and cash flow by approximately $0.2 million after hedging.
- Operating leases included $124.3 million of guaranteed residual values for rental equipment. The present value of minimum lease payments and residual value guarantees was $345.8 million.
- Insurance reserves, especially long-tailed workers’ compensation claims, are subject to adverse development from medical inflation, claimant longevity, legal changes and settlement trends.
- On August 20, 2012, remaining plaintiffs dismissed the long-running derivative litigation with prejudice. A final Mutual Release Agreement was filed October 16, 2012; AMERCO paid no plaintiffs’ fees or costs.
- Hurricane Sandy affected approximately 100 company-operated locations after quarter-end. The company had not yet determined the financial impact or the extent of insurance recovery.
- On November 7, 2012, the company declared a special cash dividend of $5.00 per common share, payable November 30, 2012, to shareholders of record on November 19, 2012. The filing stated that this was not an indication of recurring future dividends.
- Adoption of ASU 2010-26 reduced beginning retained earnings by $1.7 million. The filing states that ASU 2011-04 had no material impact.
Most important facts for investors to verify
- Confirm the fiscal-period convention: the filing is for AMERCO’s fiscal 2013 second quarter, although the requested period is described as 2012 Q2.
- Assess whether revenue growth and higher fleet and storage capacity offset rising operating expenses, depreciation and capital requirements.
- Review the sustainability of cash flow after excluding the $127.3 million repayment of related-party notes and interest.
- Evaluate debt maturities, lease commitments, residual-value guarantees, credit-facility availability and the company’s reliance on asset-backed financing.
- Monitor related-party notes, management fees, leases and dealer commissions involving entities controlled by significant shareholders.
- Assess potential effects of Hurricane Sandy, insurance reserve development, environmental matters and other contingencies.
- Consider the effect of the $5.00 special dividend on post-quarter-end liquidity and capital allocation.
