Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
General
We begin this MD&A with the overall strategy of AMERCO, followed by a description of and strategy related to, our operating segments to give the reader an overview of the goals of our businesses and the direction in which our businesses and products are moving. We then discuss our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our results of operations for fiscal 2010 compared with fiscal 2009, and for fiscal 2009 compared with fiscal 2008 which is followed by an analysis of changes in our balance sheets and cash flows, and a discussion of our financial commitments in the sections entitled Liquidity and Capital Resources and Disclosures about Contractual Obligations and Commercial Commitments. We conclude this MD&A by discussing our outlook for fiscal 2011.
This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including Item 1: Business, Item 6: Selected Financial Data and Item 8: Financial Statements and Supplementary Data. The various sections of this MD&A contain a number of forward-looking statements, as discussed under the caption, Cautionary Statements Regarding Forward-Looking Statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly under the section Item 1A: Risk Factors. Our actual results may differ materially from these forward-looking statements.
AMERCO has a fiscal year that ends on the 31
st
of March for each year that is referenced. Our insurance company subsidiaries have fiscal years that end on the 31
st
of December for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2009, 2008 and 2007 correspond to fiscal 2010, 2009 and 2008 for AMERCO.
Overall Strategy
Our overall strategy is to maintain our leadership position in the North American “do-it-yourself” moving and storage industry. We accomplish this by providing a seamless and integrated supply chain to the “do-it-yourself” moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul
with our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.
Our primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities and related moving and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage rooms available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our growing eMove capabilities.
Property and Casualty Insurance is focused on providing and administering property and casualty insurance to U-Haul and its customers, its independent dealers and affiliates.
Life Insurance is focused on long-term capital growth through direct writing and reinsuring of life, Medicare supplement and annuity products in the senior marketplace.
Description of Operating Segments
AMERCO’s three current reportable segments are (and one former reportable segment was):
(a)
|
Moving and Storage, comprised of AMERCO, U-Haul and Real Estate and the subsidiaries of U-Haul and Real Estate,
|
(b)
|
Property and Casualty Insurance, comprised of RepWest and its subsidiaries and ARCOA risk retention group (“ARCOA”),
|
(c)
|
Life Insurance, comprised of Oxford and its subsidiaries, and
|
(d)
|
SAC Holding II and its subsidiaries (through October 2007).
|
See Note 1, Basis of Presentation, Note 22, Financial Information by Geographic Area and Note 22A, Consolidating Financial Information by Industry Segment of the Notes to Consolidated Financial Statements included in this Form 10-K.
Moving and Storage Operating Segment
Our Moving and Storage operating segment consists of the rental of trucks, trailers, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul
®
throughout the United States and Canada.
With respect to our truck, trailer, specialty rental items and self-storage rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.
U-Haul brand self-moving related products and services, such as boxes, pads and tape allow our customers to, among other things, protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-yourself” moving and storage customer in mind.
eMove is an online marketplace that connects consumers to independent Moving Help™ service providers and over 5,100 independent Self-Storage Affiliates. Our network of customer rated affiliates provide pack and load help, cleaning help, self-storage and similar services, all over North America. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.
For nearly sixty-five years, U-Haul has incorporated sustainable practices into its everyday operations. We believe that our basic business premise of equipment sharing helps reduce greenhouse gas emissions and reduces the need for total large capacity vehicles. We remain focused on reducing waste and are dedicated to manufacturing reusable components and recyclable products. We believe that our commitment to sustainability, through our products and services and everyday operations has helped us to reduce our impact on the environment.
Property and Casualty Insurance Operating Segment
Our Property and Casualty Insurance operating segment provides loss adjusting and claims handling for U-Haul through regional offices across North America. Property and Casualty Insurance also underwrites components of the Safemove, Safetow, Super Safemove
and
Safestor
protection packages to U-Haul customers. We continue to focus on increasing the penetration of these products into the market. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul
related programs.
Life Insurance Operating Segment
Our Life Insurance operating segment provides life and health insurance products primarily to the senior market through the direct writing or reinsuring of life insurance, Medicare supplement and annuity policies.
SAC Holding II Operating Segment
SAC Holding II owns self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain SAC Holding II properties entitling AMERCO to potential future income based on the financial performance of these properties. AMERCO was considered the primary beneficiary of these contractual interests prior to November 2007. Consequently, for those reporting periods prior to November 2007, we included the results of SAC Holding II in the consolidated financial statements of AMERCO. While the deconsolidation affected AMERCO’s financial reporting, it has no operational or financial impact on the Company’s relationship with SAC Holding II.
Critical Accounting Policies and Estimates
The Company’s financial statements have been prepared in accordance with the generally accepted accounting principles (“GAAP”) in the United States. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Note 3, Accounting Policies of the Notes to Consolidated Financial Statements in Item 8: Financial Statements and Supplementary Data of this Form 10-K summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements and related disclosures. Certain accounting policies require us to make difficult and subjective judgments and assumptions, often as a result of the need to estimate matters that are inherently uncertain.
Below we have set forth, with a detailed description, the accounting policies that we deem most critical to us and that require management’s most difficult and subjective judgments. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptions that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions; such differences may be material.
We also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following:
Principles of Consolidation
The Company applies ASC 810 -
Consolidation
(“ASC 810”) in its principles of consolidation. ASC 810 addresses arrangements where a company does not hold a majority of the voting or similar interests of a variable interest entity (“VIE”). A company is required to consolidate a VIE if it has determined it is the primary beneficiary. ASC 810 also addresses the policy when a company owns a majority of the voting or similar rights and exercises effective control.
As promulgated by ASC 810, a VIE is not self-supportive due to having one or both of the following conditions: a) it has an insufficient amount of equity for it to finance its activities without receiving additional subordinated financial support or b) its owners do not hold the typical risks and rights of equity owners. This determination is made upon the creation of a variable interest and can be re-assessed should certain changes in the operations of a VIE, or its relationship with the primary beneficiary trigger a reconsideration under the provisions of ASC 810. After a triggering event occurs the most recent facts and circumstances are utilized in determining whether or not a company is a VIE, which other company(s) have a variable interest in the entity, and whether or not the company’s interest is such that it is the primary beneficiary.
In fiscal 2003 and fiscal 2002, SAC Holdings were considered special purpose entities and were consolidated based on the provisions of Emerging Issues Task Force Issue 90-15,
Impact of Nonsubstantive Lessors, Residual Value Guarantees and Other Provisions in Leasing Transactions,
(“EITF 90-15”). In fiscal 2004, the Company evaluated its interests in SAC Holdings and the Company concluded that SAC Holdings were VIE’s and that the Company was the primary beneficiary. Accordingly, the Company continued to include SAC Holdings in its consolidated financial statements.
Triggering events in February and March of 2004 and November 2007 required AMERCO to reassess its involvement in specific SAC Holdings entities. During these reassessments it was concluded that AMERCO was no longer the primary beneficiary resulting in the deconsolidation of SAC Holding Corporation in fiscal 2004 and SAC Holding II in fiscal 2008.
It is possible that SAC Holdings could take actions that would require us to re-determine whether SAC Holdings has become a VIE or whether we have become the primary beneficiary of SAC Holdings. Should this occur, we could be required to consolidate some or all of SAC Holdings with our financial statements.
The consolidated balance sheets as of March 31, 2010 and 2009 include the accounts of AMERCO and its wholly-owned subsidiaries. The March 31, 2010 and 2009 statements of operations and cash flows include AMERCO and its wholly-owned subsidiaries. The March 31, 2008 statements of operations and cash flows include AMERCO and its wholly-owned subsidiaries for the entire year, and reflect SAC Holding II for the seven months ended October 31, 2007.
Recoverability of Property, Plant and Equipment
Property, plant and equipment are stated at cost. Interest expense incurred during the initial construction of buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes using the straight-line or an accelerated method based on a declining balance formula over the following estimated useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. The Company follows the deferral method of accounting based on ASC 908 -
Airlines
(“ASC 908”) for major overhauls in which engine overhauls are capitalized and amortized over five years and transmission overhauls are capitalized and amortized over three years. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses on dispositions of property, plant and equipment are netted against depreciation expense when realized. Equipment depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal, i.e., minimize gains or losses. In determining the depreciation rate, historical disposal experience, holding periods and trends in the market for vehicles are reviewed.
We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets are shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. In fiscal 2010, the Company reduced the carrying value of certain older trucks by $9.1 million or $0.47 per share before taxes, in which the tax effect was approximately $0.17 per share. If asset residual values are determined to be recoverable, but the useful lives are shorter or longer than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.
In fiscal 2006, management performed an analysis of the expected economic value of new rental trucks and determined that additions to the fleet resulting from purchase should be depreciated on an accelerated method based upon a declining formula. The salvage value and useful life assumptions of the rental truck fleet remain unchanged. Under the declining balances method (2.4 times declining balance), the book value of a rental truck is reduced approximately 16%, 13%, 11%, 9%, 8%, 7%, and 6% during years one through seven, respectively and then reduced on a straight line basis an additional 10% by the end of year fifteen. Whereas, a standard straight line approach would reduce the book value by approximately 5.3% per year over the life of the truck. For the affected equipment, the accelerated depreciation was $49.1 million, $56.0 million and $56.7 million greater than what it would have been if calculated under a straight line approach for fiscal 2010, 2009 and 2008, respectively.
Although we intend to sell our used vehicles for prices approximating book value, the extent to which we realize a gain or loss on the sale of used vehicles is dependent upon various factors including the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and the depreciation rates with respect to the vehicle
.
We typically sell our used vehicles at our sales centers throughout North America, on our web site at uhaul.com/trucksales or by phone at 1-866-404-0355. Additionally, we sell a large portion of our pickup and cargo van fleet at automobile dealer auctions.
Insurance Reserves
Liabilities for life insurance and certain annuity and health policies are established to meet the estimated future obligations of policies in force, and are based on mortality, morbidity and withdrawal assumptions from recognized actuarial tables which contain margins for adverse deviation. In addition, liabilities for health, disability and other policies include estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred, but not yet reported. Liabilities for annuity contracts consist of contract account balances that accrue to the benefit of the policyholders.
Insurance reserves for Property and Casualty Insurance operating segment and U-Haul take into account losses incurred based upon actuarial estimates. These estimates are based on past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation. Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liability for future policy benefits and claims, the amounts to be ultimately paid to settle liabilities cannot be precisely determined and may vary significantly from the estimated liability.
Due to the long tailed nature of the assumed reinsurance and the excess workers compensation lines of insurance that were written by RepWest, it may take a number of years for claims to be fully reported and finally settled.
Impairment of Investments
Investments are evaluated pursuant to guidance contained in ASC 320 -
Investments - Debt and Equity Securities
(“ASC 320”) to determine if and when a decline in market value below amortized cost is other-than-temporary. Management makes certain assumptions or judgments in its assessment including but not limited to: ability and intent not to sell the security, quoted market prices, dealer quotes or discounted cash flows, industry factors, financial factors, and issuer specific information such as credit strength. Other-than-temporary impairment in value is recognized in the current period operating results. The Company’s insurance subsidiaries recognized other-than-temporary impairments of $2.2 million, $0.4 million and $0.5 million for fiscal 2010, 2009 and 2008, respectively.
Income Taxes
The Company’s tax returns are periodically reviewed by various taxing authorities. The final outcome of these audits may cause changes that could materially impact our financial results.
AMERCO files a consolidated tax return with all of its legal subsidiaries, except DGLIC, a subsidiary of Oxford, which will file on a stand alone basis until 2012. SAC Holding Corporation and SAC Holding II Corporation file separate consolidated tax returns, which are in no way associated with AMERCO’s consolidated returns.
Fair Values
Fair values of cash equivalents approximate carrying value due to the short period of time to maturity. Fair values of short term investments, investments available-for-sale, long term investments, mortgage loans and notes on real estate, and interest rate swap contracts are based on quoted market prices, dealer quotes or discounted cash flows. Fair values of trade receivables approximate their recorded value.
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, reinsurance recoverables and notes receivable. Limited credit risk exists on trade receivables due to the diversity of our customer base and their dispersion across broad geographic markets. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution.
The Company has mortgage receivables, which potentially expose the Company to credit risk. The portfolio of notes is principally collateralized by mini-warehouse storage facilities and commercial properties. The Company has not experienced any material losses related to the notes from individual or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method and using interest rates currently offered for similar loans to borrowers with similar credit ratings.
The carrying amount of long term debt and short term borrowings are estimated to approximate fair value as the actual interest rate is consistent with the rate estimated to be currently available for debt of similar term and remaining maturity.
Other investments including short term investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.
Subsequent Events
On May 3, 2010, the Board declared a regular quarterly cash dividend of $0.53125 per share on the Company’s Series A Preferred. The dividend was paid on June 1, 2010 to holders of record on May 17, 2010.
The Company’s management has evaluated subsequent events occurring after March 31, 2010, the date of our most recent balance sheet date, through the date our financial statements will be issued. Other than the preferred stock dividend, we do not believe any subsequent events have occurred that would require further disclosure or adjustment to our financial statements.
Adoption of New Accounting Pronouncements
ASC 105 -
Generally Accepted Accounting Principles
(“ASC 105”) established the FASB Accounting Standards Codification (“ASC”) also known collectively as the “Codification”, which supersedes all existing accounting standard documents and has become the single source of authoritative non-governmental U.S. GAAP. All other accounting literature not included in the Codification is considered non-authoritative. The Codification was implemented on July 1, 2009 and became effective for interim and annual periods ending after September 15, 2009. All accounting references have been updated, and therefore previous accounting standard references have been replaced with ASC references.
ASC 820 -
Fair Value Measurements and Disclosures
(“ASC 820”) provides guidelines for a broad interpretation of when to apply market-based fair value measurements. ASC 820 reaffirms management's need to use judgment to determine when a market that was once active has become inactive and in determining fair values in markets that are no longer active. The Company adopted the provisions of this statement in the first quarter of fiscal 2010 and it did not have a material impact on our financial statements.
ASC 320 -
Investments - Debt and Equity Securities
(“ASC 320”) segregates credit and noncredit components of impaired debt securities that are not expected to be sold. Impairments will continue to be measured at fair value with credit losses recognized in earnings and non-credit losses recognized in other comprehensive income. ASC 320 also requires some additional disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The Company adopted the provisions of this statement in the first quarter of fiscal 2010 and it did not have a material impact on our financial statements.
ASC 825 -
Financial Instruments
(“ASC 825”) and ASC 270 -
Interim Reporting
(“ASC 270”) increased the frequency of fair value disclosures to a quarterly instead of annual basis. ASC 825 and ASC 270 relate to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. The Company adopted the provisions of these statements in the first quarter of fiscal 2010 and they did not have a material impact on our financial statements.
ASC 805 -
Business Combinations
(“ASC 805”) provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. ASC 805 also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with a business combination will generally be expensed as incurred. The Company adopted the provisions of this statement in the first quarter of fiscal 2010 and it did not have a material impact on our financial statements.
ASC 810 -
Consolidation
(“ASC 810”) clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. ASC 810 changes the way the consolidated income statement is presented by requiring net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and to disclose those amounts on the face of the income statement. The Company adopted the provisions of this statement in the first quarter of fiscal 2010 and it did not have a material impact on our financial statements.
ASC 855 -
Subsequent Events
(“ASC 855”) provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. The Company adopted the provisions of this statement in the first quarter of fiscal 2010.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or the SEC that are adopted by the Company as of the specified effective date. Unless otherwise discussed, these Accounting Standards Updates (“ASU”) entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore will have minimal, if any, impact on our financial position or results of operations upon adoption.
ASU 2009-16 formally incorporates into the FASB Codification amendments to Statements of Financial Accounting Standards (“SFAS”) 140 made by SFAS 166 primarily to (1) eliminate the concept of a qualifying special-purpose entity, (2) limit the circumstances under which a financial asset (or portion thereof) should be derecognized when the entire financial asset has not been transferred to a non-consolidated entity, (3) require additional information to be disclosed concerning a transferor's continuing involvement with transferred financial assets, and (4) require that all servicing assets and servicing liabilities be initially measured at fair value. The amendments to ASC 860-10 and ASC 860-50 are effective as of the start of the first annual reporting period beginning after November 15, 2009, for interim periods within the first annual reporting period, and for all subsequent annual and interim reporting periods. Earlier application is not permitted. The Company does not believe that the adoption of this statement in the first quarter of fiscal 2011 will have a material impact on our financial statements.
ASU 2009-17 formally incorporates into the FASB Codification amendments to FIN 46(R) made by SFAS 167 to require that a comprehensive qualitative analysis be performed to determine whether a holder of variable interests in a variable interest entity also has a controlling financial interest in that entity. In addition, the amendments require that the same type of analysis be applied to entities that were previously designated as qualified special-purpose entities. The amendments to ASC 810-10 are effective as of the start of the first annual reporting period beginning after November 15, 2009, for interim periods within the first annual reporting period, and for all subsequent annual and interim reporting periods. Earlier application is not permitted, but retrospective application to previously issued financial statements for previous years is allowed (but not required). The Company does not believe that the adoption of this statement in the first quarter of fiscal 2011 will have a material impact on our financial statements.
ASU 2010-06 formally incorporates into the FASB Codification amendments to SFAS 157. Entities will be required to provide enhanced disclosures about transfers in and out of Level 1 and 2 fair value classifications and separate disclosures about purchases, sales, issuances and settlements relating to the Level 3 fair value classification. The new guidance also clarifies existing fair value disclosures regarding the level of disaggregation of assets or liabilities and the valuation techniques and inputs used to measure fair value. The amendments to ASC 820-10 for Level 1 and 2 disclosures are effective for interim and annual reporting periods beginning after December 15, 2009; and for Level 3 disclosures are effective for interim and annual reporting periods beginning after December 15, 2010. Early adoption is permitted. We will adopt this statement in the first quarter of fiscal 2011. The Company does not believe that the adoption of this amendment will have a material impact on our financial statements.
Results of Operations
AMERCO and Consolidated Entities
Fiscal 2010 Compared with Fiscal 2009
Listed below, on a consolidated basis, are revenues for our major product lines for fiscal 2010 and fiscal 2009:
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
Self-moving equipment rentals
|
|
$
|
1,419,726
|
|
|
$
|
1,423,022
|
|
Self-storage revenues
|
|
|
110,369
|
|
|
|
110,548
|
|
Self-moving and self-storage products and service sales
|
|
|
198,785
|
|
|
|
199,394
|
|
Property management fees
|
|
|
21,632
|
|
|
|
23,192
|
|
Life insurance premiums
|
|
|
134,345
|
|
|
|
109,572
|
|
Property and casualty insurance premiums
|
|
|
27,625
|
|
|
|
28,337
|
|
Net investment and interest income
|
|
|
49,989
|
|
|
|
58,021
|
|
Other revenue
|
|
|
39,534
|
|
|
|
40,180
|
|
Consolidated revenue
|
|
$
|
2,002,005
|
|
|
$
|
1,992,266
|
|
Self-moving equipment rental revenues decreased $3.3 million in fiscal 2010, compared with fiscal 2009. Self-moving equipment rental revenues declined $29.1 million during the first six months of fiscal 2010 due to declines in one-way truck rental revenue caused by fewer transactions and lower revenue per transaction. Conversely, during the second six months of fiscal 2010 self-moving equipment rental revenues increased $25.8 million from both In-Town and one-way revenue and transaction growth. This improvement in revenue resulted from growth in transactions which were tempered with lower average revenue per transactions due to a shift in usage towards smaller equipment models, an increased ratio of In-Town moves compared with one-way moves, and continued price competition.
Self-storage revenues decreased $0.2 million in fiscal 2010, compared with fiscal 2009. Average rooms occupied during fiscal 2010 were essentially flat in comparison with fiscal 2009. Self-storage revenue during the first six months of fiscal 2010 had decreased $1.0 million while it increased $0.8 million during the second six months in comparison with fiscal 2009. During fiscal 2010 we have added over 580,000 net rentable square feet to the storage portfolio.
Sales of self-moving and self-storage products and services decreased $0.6 million in fiscal 2010, compared with fiscal 2009. The annual decline was due to the reduced cost of propane compared with fiscal 2009, despite an increase in gallons sold. Self-moving and self-storage product and service sales decreased $7.5 million during the first six months of fiscal 2010 while they increased $6.9 million over the last six months of fiscal 2010 compared with comparable periods in fiscal 2009.
Life insurance premiums increased $24.8 million in fiscal 2010, compared with fiscal 2009 primarily as a result of continued expansion of its final expense life insurance business combined with the launch of its new single premium whole life product.
Net investment and interest income decreased $8.0 million in fiscal 2010, compared with fiscal 2009 due to reduced yields earned on short-term investments.
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,002.0 million for fiscal 2010, compared with $1,992.3 million in fiscal 2009.
Listed below are revenues and earnings from operations at each of our operating segments for fiscal 2010 and fiscal 2009, the insurance companies years ended are December 31, 2009 and 2008.
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
Moving and storage
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,816,322
|
|
|
$
|
1,823,049
|
|
Earnings from operations
|
|
|
185,329
|
|
|
|
112,080
|
|
Property and casualty insurance
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
34,390
|
|
|
|
37,419
|
|
Earnings from operations
|
|
|
6,279
|
|
|
|
7,505
|
|
Life insurance
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
155,725
|
|
|
|
135,056
|
|
Earnings from operations
|
|
|
16,858
|
|
|
|
17,748
|
|
Eliminations
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
(4,432
|
)
|
|
|
(3,258
|
)
|
Earnings from operations
|
|
|
(14,929
|
)
|
|
|
(16,285
|
)
|
Consolidated Results
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,002,005
|
|
|
|
1,992,266
|
|
Earnings from operations
|
|
|
193,537
|
|
|
|
121,048
|
|
Total costs and expenses decreased $62.8 million in fiscal 2010, compared with fiscal 2009. Operating expenses for the Moving and Storage operating segment decreased $35.8 million due to improvement in maintenance and repair costs and improved liability costs associated with the rental equipment fleet. Maintenance and repair was positively influenced by the retirement of older equipment from the truck fleet. Liability costs have improved as expected losses from prior years are developing positively. Depreciation expense decreased $37.6 million due to a decline in the amount of new equipment added to the balance sheet in fiscal 2010 along with an $18.6 million improvement in the gain on the disposal of rental equipment. Cost of sales decreased $10.3 million largely from lower propane costs combined with a positive LIFO inventory adjustment.
Total costs and expenses at the insurance companies increased $19.8 million primarily from an increase in benefits in the life insurance segment. This increase was related to the single premium whole life premium growth.
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $193.5 million for fiscal 2010, compared with $121.0 million for fiscal 2009.
Interest expense for fiscal 2010 was $93.3 million, compared with $98.5 million in fiscal 2009.
Income tax expense was $34.6 million for fiscal 2010, compared with $9.2 million in fiscal 2009 due in part to higher pretax earnings for fiscal 2010.
For fiscal 2010, the Company recognized an excess carrying amount on the purchase of Series A Preferred by our insurance subsidiaries of $0.4 million as required by ASC 260.
Dividends accrued on our Series A Preferred were $12.9 million in fiscal 2010, compared with $13.0 million for fiscal 2009.
As a result of the above mentioned items, earnings available to common shareholders were $53.2 million for fiscal 2010, compared with $0.4 million in fiscal 2009.
The weighted average common shares outstanding basic and diluted were 19,386,791 in fiscal 2010, compared with 19,350,041 in fiscal 2009.
Basic and diluted earnings per common share in fiscal 2010 were $2.74, compared with $0.02 in fiscal 2009.
Fiscal 2009 Compared with Fiscal 2008
Listed below, on a consolidated basis, are revenues for our major product lines for fiscal 2009 and fiscal 2008:
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Self-moving equipment rentals
|
|
$
|
1,423,022
|
|
|
$
|
1,451,292
|
|
Self-storage revenues
|
|
|
110,548
|
|
|
|
122,248
|
|
Self-moving and self-storage products and service sales
|
|
|
199,394
|
|
|
|
217,798
|
|
Property management fees
|
|
|
23,192
|
|
|
|
22,820
|
|
Life insurance premiums
|
|
|
109,572
|
|
|
|
111,996
|
|
Property and casualty insurance premiums
|
|
|
28,337
|
|
|
|
28,388
|
|
Net investment and interest income
|
|
|
58,021
|
|
|
|
62,110
|
|
Other revenue
|
|
|
40,180
|
|
|
|
32,522
|
|
Consolidated revenue
|
|
$
|
1,992,266
|
|
|
$
|
2,049,174
|
|
Self-moving equipment rental revenues decreased $28.3 million in fiscal 2009, compared with fiscal 2008. The majority of the decrease occurred in the third and fourth quarters of fiscal 2009. Several factors led to the decline in revenues including a decrease in total rental equipment transactions, foreign currency exchange rates, reduced revenue per transaction for In-Town moves and the extra day in fiscal 2008. Total rental equipment transactions decreased less than one percent during the year. Foreign currency exchange rates between the United States and Canada negatively affected our translated U.S. dollar results during the second half of fiscal 2009. During fiscal 2009 our average revenue per one-way transactions increased while In-Town experienced decreases primarily due to reduced mileage.
Self-storage revenues decreased $11.7 million in fiscal 2009, compared with fiscal 2008. The deconsolidation of SAC Holding II, which was effective October 31, 2007, accounted for $11.5 million of the decrease. At Company-owned locations, during fiscal 2009, we saw a decrease in our occupancy rate of approximately 5% compared with fiscal 2008. The decrease was a result of the addition of approximately seven thousand new rooms into the portfolio combined with a 2% decrease in rooms rented. We were able to largely offset the occupancy declines with rate actions.
Sales of self-moving and self-storage products and services decreased $18.4 million in fiscal 2009, compared with fiscal 2008. The deconsolidation of SAC Holding II accounted for $10.0 million of the decrease. The remaining decrease was related to reduced sales of hitches, towing accessories and rental support items.
Life Insurance premiums decreased $2.4 million primarily as a result of decreases in Medicare supplement premiums.
Property and Casualty Insurance premiums decreased $0.1 million due to a decline in U-Haul related business.
Net investment and interest income decreased $4.1 million in fiscal 2009, compared with fiscal 2008. This decline was due primarily to smaller invested asset portfolios at the insurance companies combined with reduced investment yields for both the insurance companies and U-Haul’s invested short-term balances.
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $1,992.3 million for fiscal 2009, compared with $2,049.2 million for fiscal 2008.
Listed below are revenues and earnings from operations at each of our operating segments for fiscal 2009 and fiscal 2008, the insurance companies years ended are December 31, 2008 and 2007.
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Moving and storage
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,823,049
|
|
|
$
|
1,858,230
|
|
Earnings from operations
|
|
|
112,080
|
|
|
|
192,970
|
|
Property and casualty insurance
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
37,419
|
|
|
|
40,478
|
|
Earnings from operations
|
|
|
7,505
|
|
|
|
9,244
|
|
Life insurance
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
135,056
|
|
|
|
137,448
|
|
Earnings from operations
|
|
|
17,748
|
|
|
|
17,202
|
|
SAC Holding II (a)
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
-
|
|
|
|
28,102
|
|
Earnings from operations
|
|
|
-
|
|
|
|
7,926
|
|
Eliminations
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
(3,258
|
)
|
|
|
(15,084
|
)
|
Earnings from operations
|
|
|
(16,285
|
)
|
|
|
(23,620
|
)
|
Consolidated Results
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,992,266
|
|
|
|
2,049,174
|
|
Earnings from operations
|
|
|
121,048
|
|
|
|
203,722
|
|
|
|
|
|
|
|
|
|
|
(a) Fiscal 2008 includes 7 months of activity for SAC Holding II which was deconsolidated effective October 31, 2007.
|
|
Total costs and expenses increased $25.8 million in fiscal 2009, compared with fiscal 2008. The largest contributing factors to the increase were equipment related costs including $18.2 million of additional equipment depreciation, $17.8 of additional equipment lease costs, and $12.1 million of additional losses from the disposal of equipment. Gains related to the disposal of real estate decreased $10.3 million in fiscal 2009, compared with fiscal 2008. Commission and cost of sales expenses decreased in relation to their associated revenues. Total costs and expenses at the insurance companies decreased $4.3 million through a combination of lower benefits and reduced operating costs resulting from less business. In fiscal 2009, the Company recognized approximately $12.0 million of positive prior year experience on its portion of the self-insured liability risk related to the rental fleet. The deconsolidation of SAC Holding II accounted for an $11.9 million decrease.
As a result of the aforementioned changes in revenues and expenses, earnings from operations decreased to $121.0 million for fiscal 2009, compared with $203.7 million for fiscal 2008.
Interest expense for fiscal 2009 was $98.5 million, compared with $101.4 million in fiscal 2008. The decrease in interest expense in fiscal 2009 was primarily related to the deconsolidation of SAC Holding II which accounted for $3.5 million of the decline.
Income tax expense was $9.2 million in fiscal 2009, compared with $34.5 million in fiscal 2008.
Dividends accrued on our Series A preferred stock were $13.0 million for fiscal 2009 and 2008.
As a result of the above mentioned items, net earnings available to common shareholders were $0.4 million in fiscal 2009, compared with $54.8 million in fiscal 2008.
The weighted average common shares outstanding basic and diluted were 19,350,041 in fiscal 2009 and 19,740,571 in fiscal 2008.
Basic and diluted earnings per share in fiscal 2009 were $0.02, compared with $2.78 in fiscal 2008.
Moving and Storage
Fiscal 2010 Compared with Fiscal 2009
Listed below are revenues for the major product lines at our Moving and Storage operating segment for fiscal 2010 and fiscal 2009:
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
Self-moving equipment rentals
|
|
$
|
1,421,331
|
|
|
$
|
1,423,330
|
|
Self-storage revenues
|
|
|
110,369
|
|
|
|
110,548
|
|
Self-moving and self-storage products and service sales
|
|
|
198,785
|
|
|
|
199,394
|
|
Property management fees
|
|
|
21,632
|
|
|
|
23,192
|
|
Net investment and interest income
|
|
|
26,055
|
|
|
|
29,865
|
|
Other revenue
|
|
|
38,150
|
|
|
|
36,720
|
|
Moving and Storage revenue
|
|
$
|
1,816,322
|
|
|
$
|
1,823,049
|
|
Self-moving equipment rental revenues decreased $2.0 million in fiscal 2010, compared with fiscal 2009. Self-moving equipment rental revenues declined $28.4 million during the first half of fiscal 2010 due to declines in one-way truck rental revenue caused by fewer transactions and lower revenue per transaction. Conversely, during the second six months of fiscal 2010 self-moving equipment rental revenues increased $26.4 million from both In-Town and one-way revenue and transaction growth. This improvement in revenue resulted from growth in transactions which were tempered with lower average revenue per transactions due with a shift in usage towards smaller equipment models, an increased ratio of In-Town moves compared with one-way moves, and continued price competition.
Self-storage revenues decreased $0.2 million in fiscal 2010, compared with fiscal 2009. Average rooms occupied during fiscal 2010 were essentially flat in comparison with fiscal 2009. Self-storage revenue during the first six months of fiscal 2010 had decreased $1.0 million while it increased $0.8 million during the second six months in comparison with fiscal 2009. During fiscal 2010 we have added over 580,000 net rentable square feet to the storage portfolio.
Sales of self-moving and self-storage products and services decreased $0.6 million in fiscal 2010, compared with fiscal 2009. The annual decline was due to the reduced cost of propane compared with fiscal 2009, this despite an increase in gallons sold. Sales of self-moving and self-storage products and services decreased $7.5 million during the first six months of fiscal 2010 while they increased $6.9 million over the last six months of fiscal 2010 compared with comparable periods in fiscal 2009.
Net investment and interest income decreased $3.8 million in fiscal 2010, compared with fiscal 2009 as a result of reduced investment yields on invested short-term balances.
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements represent Company-owned locations only. Self-storage data for our owned storage locations was as follows:
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except occupancy rate)
|
|
Room count as of March 31
|
|
|
144
|
|
|
|
138
|
|
Square footage as of March 31
|
|
|
11,713
|
|
|
|
11,131
|
|
Average number of rooms occupied
|
|
|
106
|
|
|
|
106
|
|
Average occupancy rate based on room count
|
|
|
75.2
|
%
|
|
|
78.9
|
%
|
Average square footage occupied
|
|
|
8,827
|
|
|
|
8,745
|
|
Total costs and expenses decreased $81.4 million in fiscal 2010, compared with fiscal 2009. Operating expenses decreased $35.8 million from improvement in maintenance and repair costs and improved liability costs associated with the rental equipment fleet. Maintenance and repair was positively influenced by the retirement of older equipment from the truck fleet. Liability costs have improved as expected losses from prior years are developing positively. Depreciation expense decreased $37.6 million due to a decline in the amount of new equipment added to the balance sheet in fiscal 2010 along with an $18.6 million improvement in the gain on the disposal of rental equipment. Cost of sales decreased $10.3 million largely from lower propane costs combined with a positive LIFO inventory adjustment.
Equity in the earnings of AMERCO’s insurance subsidiaries decreased $1.4 million in fiscal 2010, compared with fiscal 2009.
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $186.2 million in fiscal 2010, compared with $112.1 million for fiscal 2009.
Fiscal 2009 Compared with Fiscal 2008
Listed below are revenues for the major product lines at our Moving and Storage operating segment for fiscal 2009 and fiscal 2008:
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Self-moving equipment rentals
|
|
$
|
1,423,330
|
|
|
$
|
1,451,292
|
|
Self-storage revenues
|
|
|
110,548
|
|
|
|
110,779
|
|
Self-moving and self-storage products and service sales
|
|
|
199,394
|
|
|
|
207,759
|
|
Property management fees
|
|
|
23,192
|
|
|
|
24,520
|
|
Net investment and interest income
|
|
|
29,865
|
|
|
|
34,906
|
|
Other revenue
|
|
|
36,720
|
|
|
|
28,974
|
|
Moving and Storage revenue
|
|
$
|
1,823,049
|
|
|
$
|
1,858,230
|
|
Self-moving equipment rental revenues decreased $28.0 million in fiscal 2009, compared with fiscal 2008. The majority of the decrease occurred in the third and fourth quarters of fiscal 2009. Several factors led to the decline in revenues including a decrease in total rental equipment transactions, foreign currency exchange rates, reduced revenue per transaction for In-Town moves and the extra day in fiscal 2008. Total rental equipment transactions decreased less than one percent during the year. Foreign currency exchange rates between the United States and Canada negatively affected our translated U.S. dollar results during the second half of fiscal 2009. During fiscal 2009 our average revenue per one-way transactions increased while In-Town experienced decreases primarily due to reduced mileage.
Self-storage revenues decreased $0.2 million in fiscal 2009, compared with fiscal 2008. At Company-owned locations during fiscal 2009 we saw a decrease in our occupancy rate of approximately 5% compared with fiscal 2008. The decrease was a result of the addition of approximately seven thousand new rooms into the portfolio combined with a 2% decrease in rooms rented. We were able to largely offset the occupancy declines with rate actions.
Sales of self-moving and self-storage products and services decreased $8.4 million in fiscal 2009, compared with fiscal 2008 with the decrease primarily related to reduced sales of hitches, towing accessories and rental support items.
Net investment and interest income decreased $5.0 million in fiscal 2009, compared with fiscal 2008 due to lower investment yields on the Company’s invested short-term cash balances.
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements for Moving and Storage represent Company-owned locations only. Self-storage data for our owned storage locations was as follows:
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except occupancy rate)
|
|
Room count as of March 31
|
|
|
138
|
|
|
|
131
|
|
Square footage as of March 31
|
|
|
11,131
|
|
|
|
10,533
|
|
Average number of rooms occupied
|
|
|
106
|
|
|
|
109
|
|
Average occupancy rate based on room count
|
|
|
78.9
|
%
|
|
|
84.0
|
%
|
Average square footage occupied
|
|
|
8,745
|
|
|
|
8,767
|
|
Total costs and expenses increased $42.2 million in fiscal 2009, compared with fiscal 2008. The largest contributing factors to the increase were equipment related costs including $18.2 million of additional equipment depreciation, $17.8 of additional equipment lease costs, and $12.1 million of additional losses from the disposal of equipment. Gains related to the disposal of real estate decreased $10.3 million in fiscal 2009, compared with fiscal 2008. Commission and cost of sales expenses decreased in relation to their associated revenues. In fiscal 2009 the Moving and Storage operating segment recognized approximately $12.0 million of positive prior year experience on its portion of the self-insured liability risk related to the rental fleet.
Equity in the earnings of AMERCO’s insurance subsidiaries decreased $3.3 million in fiscal 2009, compared with fiscal 2008.
As a result of the above mentioned changes in revenues and expenses, earnings from operations decreased to $112.1 million in fiscal 2009, compared with $193.0 million for fiscal 2008.
Property and Casualty Insurance
2009 Compared with 2008
Net premiums were $27.6 million and $28.3 million for the years ended December 31, 2009 and 2008, respectively.
Net investment income was $6.8 million and $9.1 million for years ended December 31, 2009 and 2008, respectively. The decrease was due to a lower interest rates earned on short-term investments.
Net operating expenses were $13.6 million and $15.9 million for years ended December 31, 2009 and 2008. The decrease was a result of consolidating claims offices which reduced operating expenses by $1.2 million and a $0.8 million decrease in uncollectible reinsurance written off.
Benefits and losses incurred were $14.6 million and $14.0 million for years ended December 31, 2009 and 2008, respectively.
As a result of the above mentioned change in revenues and expenses, pretax earnings from operations were $6.3 million and $7.5 million for years ended December 31, 2009 and 2008, respectively.
2008 Compared with 2007
Net premiums were $28.3 million and $28.4 million for the years ended December 31, 2008 and 2007, respectively.
Net investment income was $9.1 million and $12.1 million for the years ended December 31, 2008 and 2007, respectively. The decrease was a result of lower returns on bonds and short-term investments and a decrease in the overall size of the investment portfolio.
Net operating expenses were $15.9 million and $15.7 million for the years ended December 31, 2008 and 2007, respectively.
Benefits and losses incurred were $14.0 million and $15.4 million for the years ended December 31, 2008 and 2007, respectively.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $7.5 million and $9.2 million for the years ended December 31, 2008 and 2007, respectively.
Life Insurance
2009 Compared with 2008
Net premiums were $134.3 million and $109.6 million for the years ended December 31, 2009 and 2008, respectively. The increase was primarily driven by expanded distribution resulting in an increase in life insurance premiums of $33.5 million. This was somewhat offset by a decrease in Medicare supplement premiums of $6.3 million.
Net investment income was $18.5 million and $20.4 million for the years ended December 31, 2009 and 2008, respectively. The decrease was due to lower short term investment yields and a lower average investment portfolio compared with the prior year.
Other income was $2.9 million and $5.1 million for the years ended December 31, 2009 and 2008, respectively. The decrease was due to the settlement of an arbitration in 2008 related to the acquisition of DGLIC.
Net operating expenses were $24.8 million and $21.3 million for the years ended December 31, 2009 and 2008, respectively. The increase was primarily attributable to commissions, premium taxes, licenses, and fees associated with the increase in premiums.
Benefits and losses incurred were $106.5 million and $83.6 million, for the years ended December 31, 2009 and 2008, respectively. The significant increase was the result of higher life insurance benefits of $27.8 million due to the increase in reserves from expanded sales and additional claims on a larger volume of inforce business which was offset by a net decrease of $4.9 million in the other business lines.
Amortization of deferred acquisition costs (“DAC”) and the value of business acquired (“VOBA”) was $7.6 million and $12.4 million for the years ended December 31, 2009 and 2008, respectively. Most of this was from a decrease of $4.0 million in the annuity block due to a refinement in the maximum amortization periods in 2008.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $16.9 million and $17.7 million for the years ended December 31, 2009 and 2008, respectively.
2008 Compared with 2007
Net premiums were $109.6 million and $112.0 million for the years ended December 31, 2008 and 2007, respectively. Medicare supplement premiums decreased by $6.0 million due to policy lapses and lower first year sales which was offset by an increase in life insurance premiums of $6.8 million due to increased sales. Oxford stopped writing new credit insurance business in 2006 and as a result, credit insurance premiums decreased by $2.0 million. Other premiums decreased $1.2 million.
Net investment income was $20.4 million and $20.9 million for the years ended December 31, 2008 and 2007, respectively. The decrease was due to a net reduction in invested assets and lower investment yields.
Net operating expenses were $21.3 million and $23.8 million for the years ended December 31, 2008 and 2007, respectively. The decrease was primarily attributable to the reduction of expenses on credit insurance due to business discontinuance and capitalization of life insurance acquisition expenses.
Benefits and losses incurred were $83.6 million and $83.4 million, for the years ended December 31, 2008 and 2007, respectively. This increase was the result of a $3.2 million decrease in Medicare supplement due to policy decrements, offset by life insurance benefits of $6.0 million due to increased sales. Other benefits decreased $2.6 million.
Amortization of DAC and VOBA was $12.4 million and $13.0 million for the years ended December 31, 2008 and 2007, respectively. Amortization of DAC for the credit business decreased $1.4 million as a result of the runoff status of this program. Amortization of DAC for the life business increased $1.9 million due to increased sales. Medicare supplement decreased by $1.3 million due to the full amortization of VOBA associated with the CFLIC acquisition.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $17.7 million and $17.2 million for the years ended December 31, 2008 and 2007, respectively.
Liquidity and Capital Resources
We believe our current capital structure is a positive factor that will enable us to pursue our operational plans and goals, and provide us with sufficient liquidity for the foreseeable future. The majority of our obligations currently in place mature at the end of fiscal years 2014, 2015 or 2018. However, since there are many factors which could affect our liquidity, including some which are beyond our control, there is no assurance that future cash flows will be sufficient to meet our outstanding debt obligations and our other future capital needs.
At March 31, 2010, cash and cash equivalents totaled $244.1 million, compared with $240.6 million on March 31, 2009. The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations (AMERCO, U-Haul and Real Estate). As of March 31, 2010 (or as otherwise indicated), cash and cash equivalents, other financial assets (receivables, short-term investments, other investments, fixed maturities, and related party assets) and obligations of each operating segment were:
|
|
Moving & Storage
|
|
|
Property and Casualty Insurance (a)
|
|
|
Life
Insurance (a)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
207,705
|
|
|
$
|
22,126
|
|
|
$
|
14,287
|
|
Other financial assets
|
|
|
357,316
|
|
|
|
375,522
|
|
|
|
552,918
|
|
Debt obligations
|
|
|
1,347,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Moving and Storage operations (AMERCO, U-Haul and Real Estate) had cash available under existing credit facilities of $124.0 million, also available was $76.4 million of a term loan to be used for new equipment purchases.
A summary of our consolidated cash flows for fiscal 2010, 2009 and 2008 is shown in the table below:
|
|
Years Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Net cash provided by operating activities
|
|
$
|
399,872
|
|
|
$
|
274,960
|
|
|
$
|
329,287
|
|
Net cash used by investing activities
|
|
|
(116,502
|
)
|
|
|
(221,726
|
)
|
|
|
(357,962
|
)
|
Net cash provided (used) by financing activities
|
|
|
(282,483
|
)
|
|
|
(17,832
|
)
|
|
|
159,929
|
|
Effects of exchange rate on cash
|
|
|
2,644
|
|
|
|
(1,437
|
)
|
|
|
96
|
|
Net cash flow
|
|
|
3,531
|
|
|
|
33,965
|
|
|
|
131,350
|
|
Cash at the beginning of the period
|
|
|
240,587
|
|
|
|
206,622
|
|
|
|
75,272
|
|
Cash at the end of the period
|
|
$
|
244,118
|
|
|
$
|
240,587
|
|
|
$
|
206,622
|
|
Net cash provided by operating activities increased $124.9 million in fiscal 2010, compared with fiscal 2009 primarily due to improved profitability at the Moving and Storage segment. This improvement largely came from reduced operating costs combined with a $22.0 million reduction in claim payments related to our U-Haul self-insurance program. Operating cash flows from the Life Insurance segment increased $26.4 million primarily due to new premiums.
Net cash used in investing activities decreased $105.2 million in fiscal 2010, compared with fiscal 2009. Purchases of property, plant and equipment, which are reported net of cash from leases, decreased $137.2 million. Cash from new leases decreased $223.2 million and cash used to purchase new equipment and invest in construction and real estate decreased $360.4 million. Cash from the sales of property, plant and equipment increased $14.7 million largely due to improving resale values for pickup and cargo vans. Cash from investing activities at the insurance companies decreased $30.1 million primarily due to reduced reinvestment of short-term funds in their investment portfolios this year compared with last.
Net cash used by financing activities increased $264.7 million in fiscal 2010, as compared with fiscal 2009. During fiscal 2010 the Company decreased new borrowing activity and increased loan repayment activity resulting in the net cash used for the year.
Liquidity and Capital Resources and Requirements of Our Operating Segments
Moving and Storage
To meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Capital expenditures have primarily reflected new rental equipment acquisitions and the buyouts of existing fleet from leases. The capital to fund these expenditures has historically been obtained internally from operations and the sale of used equipment and externally from debt and lease financing. In the future, we anticipate that our internally generated funds will be used to service the existing debt and fund operations. U-Haul estimates that during fiscal 2011 the Company will reinvest in its truck and trailer rental fleet approximately $210 million, net of equipment sales and excluding any lease buyouts. For fiscal 2010, the Company invested, net of sales, approximately $80 million before any lease buyouts in its truck and trailer fleet. Fleet investments in fiscal 2011 and beyond will be dependent upon several factors including availability of capital, the truck rental environment and the used-truck sales market. We anticipate that the fiscal 2011 investments will be funded largely through external debt financing, lease financing and cash from operations. Management considers several factors including cost and tax consequences when selecting a method to fund capital expenditures. Our allocation between debt and lease financing can change from year to year based upon financial market conditions which may alter the cost or availability of financing options.
Real Estate has traditionally financed the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations and sales. The Company’s plan for the expansion of owned storage properties includes the acquisition of existing self-storage locations from third parties, the acquisition and development of bare land, and the acquisition and redevelopment of existing buildings not currently used for self-storage. The Company is funding these development projects through construction loans and internally generated funds. For fiscal 2010, the Company invested nearly $46 million in real estate acquisitions, new construction and renovation and repair. For fiscal 2011, the timing of new projects will be dependent upon several factors including the entitlement process, availability of capital, weather, and the identification and successful acquisition of target properties. U-Haul's growth plan in self-storage also includes the expansion of the eMove program, which does not require significant capital.
Net capital expenditures (purchases of property, plant and equipment less proceeds from the sale of property, plant and equipment and lease fundings) were $116.6 million, $268.5 million and $402.8 million for fiscal 2010, 2009 and 2008, respectively. During fiscal 2010, 2009 and 2008, the Company entered into new equipment leases of $74.9 million, $298.1 million and $129.1 million, respectively.
The Moving and Storage operating segment continues to hold significant cash and has access to additional liquidity. Management may invest these funds in our existing operations, expand our product lines or pursue external opportunities in the self-moving and storage market place, or reduce existing indebtedness where possible.
Property and Casualty Insurance
State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Property and Casualty Insurance’s assets are generally not available to satisfy the claims of AMERCO or its legal subsidiaries. RepWest paid a $4.6 million cash dividend to AMERCO in November 2009.
Stockholder’s equity was $151.7 million, $147.9 million, and $148.6 million at December 31, 2009, 2008, and 2007, respectively. The increase resulted from earnings of $4.5 million, offset by a dividend paid to AMERCO of $4.6 million and an increase in other comprehensive income of $3.9 million. Property and Casualty Insurance does not use debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio.
Life Insurance
The Life Insurance operating segment manages its financial assets to meet policyholder and other obligations including investment contract withdrawals. Life Insurance’s net withdrawals for the year ended December 31, 2009 were $34.5 million. State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Life Insurance’s funds are generally not available to satisfy the claims of AMERCO or its legal subsidiaries. Oxford paid a $3.2 million cash dividend to AMERCO in December 2009.
Life Insurance’s stockholder’s equity was $173.2 million, $156.7 million, and $150.7 million at December 31, 2009, 2008 and 2007, respectively. The increase resulted from earnings of $10.3 million, offset by a dividend paid to AMERCO of $3.2 million and an increase in other comprehensive income of $9.4 million. Life Insurance does not use debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio.
Cash Provided from Operating Activities by Operating Segments
Moving and Storage
Net cash provided by operating activities was $366.2 million, $272.5 million and $324.4 million in fiscal 2010, 2009 and 2008, respectively. The increase primarily came from reduced operating costs combined with a $22.0 million reduction in claim payments related to our U-Haul self-insurance program.
Property and Casualty Insurance
Cash provided (used) by operating activities was $3.6 million, ($1.3) million, and ($4.0) million for the years ended December 31, 2009, 2008, and 2007, respectively. The increase was primarily due to the collection of reinsurance receivables.
Property and Casualty Insurance’s cash and cash equivalents and short-term investment portfolios amounted to $106.3 million, $112.0 million, and $79.3 million at December 31, 2009, 2008, and 2007, respectively. This balance reflects funds in transition from maturity proceeds to long term investments. Management believes this level of liquid assets, combined with budgeted cash flow, is adequate to meet periodic needs. Capital and operating budgets allow Property and Casualty Insurance to schedule cash needs in accordance with investment and underwriting proceeds.
Life Insurance
Cash provided by operating activities from Life Insurance were $30.1 million, $3.7 million and $7.1 million for the years ended December 31, 2009, 2008 and 2007, respectively. The increase was primarily due to an increase of $22.8 million in net cash received from new sales of our single premium life product.
In addition to cash flows from operating activities and financing activities, a substantial amount of liquid funds are available through Life Insurance’s short-term portfolio. At December 31, 2009, 2008 and 2007, cash and cash equivalents and short-term investments amounted to $57.5 million, $39.3 million and $37.7 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs.
Liquidity and Capital Resources - Summary
We believe we have the financial resources needed to meet our business plans and to meet our business requirements including capital expenditures for the investment in our rental fleet, rental equipment and storage space, working capital requirements and our preferred stock dividend program.
Our borrowing strategy is primarily focused on asset-backed financing and rental equipment operating leases. As part of this strategy, we seek to ladder maturities and hedge floating rate loans through the use of interest rate swaps. While each of these loans typically contains provisions governing the amount that can be borrowed in relation to specific assets, the overall structure is flexible with no limits on overall Company borrowings. Management feels it has adequate liquidity between cash and cash equivalents and unused borrowing capacity in existing facilities to meet the current and expected needs of the Company over the next several years. At March 31, 2010, we had cash availability under existing credit facilities of $124.0 million and $76.4 million of a term loan to be used for new equipment purchases. It is possible that circumstances beyond our control could alter the ability of the financial institutions to lend us the unused lines of credit. Despite the current financial market conditions, we believe that there are additional opportunities for leverage in our existing capital structure. For a more detailed discussion of our long-term debt and borrowing capacity, please see Note 10, Borrowings of the Notes to Consolidated Financial Statements.
Fair Value of Financial Instruments
Effective April 1, 2008, assets and liabilities recorded at fair value on the consolidated balance sheets were measured and classified based upon a three tiered approach to valuation. ASC 820 requires that financial assets and liabilities recorded at fair value be classified and disclosed in a Level 1, Level 2 or Level 3 category. For more information, please see Note 16, Fair Value Measurements of the Notes to Consolidated Financial Statements.
The available-for-sale securities held by the Company are recorded at fair value. These values are determined primarily from actively traded markets where prices are based either on direct market quotes or observed transactions. Liquidity is a factor considered during the determination of the fair value of these securities. Market price quotes may not be readily available for certain securities or the market for them has slowed or ceased. In situations where the market is determined to be illiquid, fair value is determined based upon limited available information and other factors including expected cash flows. At March 31, 2010, we had $3.3 million of available-for-sale assets classified in Level 3.
The interest rate swaps held by the Company as hedges against interest rate risk for our variable rate debt are recorded at fair value. These values are determined using pricing valuation models which include broker quotes for which significant inputs are observable. They include adjustments for counterparty credit quality and other deal-specific factors, where appropriate and are classified as Level 2.
Disclosures about Contractual Obligations and Commercial Commitments
The following table provides contractual commitments and contingencies as of March 31, 2010:
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|
|
|
|
Payment due by Period (as of March 31, 2010)
|
|
Contractual Obligations
|
|
Total
|
|
|
Prior to
03/31/11
|
|
|
04/01/11
03/31/13
|
|
|
04/01/13
03/31/15
|
|
|
April 1, 2015
and Thereafter
|
|
|
|
(In thousands)
|
|
Notes, loans and leases payable - Principal
|
|
$
|
1,246,635
|
|
|
$
|
111,701
|
|
|
$
|
251,878
|
|
|
$
|
207,006
|
|
|
$
|
676,050
|
|
Notes, loans and leases payable - Interest
|
|
|
221,822
|
|
|
|
49,036
|
|
|
|
86,265
|
|
|
|
67,617
|
|
|
|
18,904
|
|
Revolving credit agreements - Principal
|
|
|
101,000
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
-
|
|
|
|
86,000
|
|
Revolving credit agreements - Interest
|
|
|
13,062
|
|
|
|
1,750
|
|
|
|
3,129
|
|
|
|
2,976
|
|
|
|
5,207
|
|
Operating leases
|
|
|
697,624
|
|
|
|
145,996
|
|
|
|
288,763
|
|
|
|
179,555
|
|
|
|
83,310
|
|
Property and casualty obligations (a)
|
|
|
108,966
|
|
|
|
14,829
|
|
|
|
16,156
|
|
|
|
10,437
|
|
|
|
67,544
|
|
Life, health and annuity obligations (b)
|
|
|
1,722,970
|
|
|
|
129,561
|
|
|
|
234,798
|
|
|
|
202,736
|
|
|
|
1,155,875
|
|
Self insurance accruals (c)
|
|
|
385,520
|
|
|
|
96,069
|
|
|
|
171,446
|
|
|
|
79,385
|
|
|
|
38,620
|
|
Post retirement benefit liability
|
|
|
9,977
|
|
|
|
589
|
|
|
|
1,487
|
|
|
|
1,942
|
|
|
|
5,959
|
|
Total contractual obligations
|
|
$
|
4,507,576
|
|
|
$
|
549,531
|
|
|
$
|
1,068,922
|
|
|
$
|
751,654
|
|
|
$
|
2,137,469
|
|
(a) These estimated obligations for unpaid losses and loss adjustment expenses include case reserves for reported claims and incurred but not reported (“IBNR”) claims estimates and are net of expected reinsurance recoveries. The ultimate amount to settle both the case reserves and IBNR is an estimate based upon historical experience and current trends and could materially differ from actual results. The assumptions do not include future premiums. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results.
(b) These estimated obligations are based on mortality, morbidity, withdrawal and lapse assumptions drawn from our historical experience and adjusted for any known trends. These obligations include expected interest crediting but no amounts for future annuity deposits or premiums for life and Medicare supplement policies. The cash flows shown are undiscounted for interest and as a result total outflows for all years shown significantly exceed the corresponding liabilities of $427.8 million included in our consolidated balance sheet as of March 31, 2010. Life Insurance expects to fully fund these obligations from their invested asset portfolio. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results.
(c) These estimated obligation are primarily the Company’s self insurance accruals for portions of the liability coverage for our rental equipment. The estimates for future settlement are based upon historical experience and current trends. Due to the significant assumptions employed in this model, the amounts shown could materially differ from actual results.
As presented above, contractual obligations on debt and guarantees represent principal payments while contractual obligations for operating leases represent the notional payments under the lease arrangements. Interest on variable rate debt is based on the applicable rate at March 31, 2010 without regard to associated interest rate swaps.
ASC 740 -
Income Taxes
liabilities and interest of $11.8 million is not included above due to uncertainty surrounding ultimate settlements, if any.
Off Balance Sheet Arrangements
The Company uses off-balance sheet arrangements in situations where management believes that the economics and sound business principles warrant their use.
AMERCO utilizes operating leases for certain rental equipment and facilities with terms expiring through 2017, with the exception of one land lease expiring in 2034. In the event of a shortfall in proceeds from the sales of the underlying rental equipment assets, AMERCO has guaranteed approximately $176.5 million of residual values at March 31, 2010 for these assets at the end of their respective lease terms. AMERCO has been leasing rental equipment since 1987. To date, we have not experienced residual value shortfalls related to these leasing arrangements. Using the average cost of fleet related debt as the discount rate, the present value of AMERCO’s minimum lease payments and residual value guarantees were $542.2 million at March 31, 2010.
Historically, AMERCO has used off-balance sheet arrangements in connection with the expansion of our self-storage business. For more information please see Note 20, Related Party Transactions of the Notes to Consolidated Financial Statements. These arrangements were primarily used when the Company’s overall borrowing structure was more limited. The Company does not face similar limitations currently and off-balance sheet arrangements have not been utilized in our self-storage expansion in recent years. In the future, the Company will continue to identify and consider off-balance sheet opportunities to the extent such arrangements would be economically advantageous to the Company and its stockholders.
The Company currently manages the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini Storage Realty, L.P. (“Private Mini”) pursuant to a standard form of management agreement, under which the Company receives a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. The Company received management fees, exclusive of reimbursed expenses, of $22.6 million, $24.3 million and $23.7 million from the above mentioned entities during fiscal 2010, 2009 and 2008, respectively. This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater Investments, Inc. (“Blackwater”). Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant shareholder and director of AMERCO, has an interest in Mercury.
The Company leases space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. Total lease payments pursuant to such leases were $2.5 million, $2.4 million and $2.1 million in fiscal 2010, 2009 and 2008, respectively. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased by the Company.
At March 31, 2010, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with the Company’s other independent dealers whereby commissions are paid by the Company based on equipment rental revenues. The Company paid the above mentioned entities $34.7 million, $34.7 million and $36.0 million in commissions pursuant to such dealership contracts during fiscal 2010, 2009 and 2008, respectively.
These agreements along with notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $42.7 million, expenses of $2.5 million and cash flows of $37.4 million during fiscal 2010. Revenues and commission expenses related to the dealer agreements were $165.1 million and $34.7 million, respectively during fiscal 2010.
During fiscal 2010, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater. Blackwater is wholly-owned by Mark V. Shoen. The Company does not have an equity ownership interest in SAC Holdings. The Company recorded interest income of $18.9 million, $18.4 million and $18.6 million and received cash interest payments of $13.9 million, $14.1 million and $19.2 million from SAC Holdings during fiscal 2010, 2009 and 2008, respectively. The largest aggregate amount of notes receivable outstanding during fiscal 2010 was $197.6 million and the aggregate notes receivable balance at March 31, 2010 was $196.9 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2019 and 2024.
Fiscal 2011 Outlook
We will continue to focus our attention on increasing transaction volume and improving pricing, product and utilization for self-moving equipment rentals. Maintaining an adequate level of new investment in our truck fleet is an important component of our plan to meet these goals. Revenue in the U-Move program could continue to be adversely impacted should we fail to execute in any of these areas. Even if we execute our plans we could see declines in revenues primarily due to the adverse economic conditions that are beyond our control.
We have added new storage locations and expanded at existing locations. In fiscal 2011 we are looking to complete current projects and increase occupancy in our existing portfolio of locations. New projects and acquisitions will be considered and pursued if they fit our long-term plans and meet our financial objectives. The Company will continue to invest capital and resources in the “U-Box”
TM
storage container program throughout fiscal 2011.
The Property and Casualty Insurance operating segment will continue to provide loss adjusting and claims handling for U-Haul and underwrite components of the Safemove, Safetow, Super Safemove and Safestor protection packages to U-Haul customers.
Life Insurance is pursuing its goal of expanding its presence in the senior market through the sales of its Medicare supplement, life and annuity policies. This strategy includes growing its agency force, expanding its new product offerings, and pursuing business acquisition opportunities.
Quarterly Results (unaudited)
The quarterly results shown below are derived from unaudited financial statements for the eight quarters beginning April 1, 2008 and ending March 31, 2010. The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with GAAP, such results. Moving and Storage operations are seasonal and proportionally more of the Company’s revenues and net earnings from its Moving and Storage operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period.
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|
Quarter Ended
|
|
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
|
September 30,
2009
|
|
|
June 30,
2009
|
|
|
|
(In thousands, except for share and per share data)
|
|
Total revenues
|
|
$
|
443,794
|
|
|
$
|
463,628
|
|
|
$
|
573,924
|
|
|
$
|
520,659
|
|
Earnings from operations
|
|
|
9,965
|
|
|
|
28,558
|
|
|
|
95,818
|
|
|
|
59,196
|
|
Net earnings (loss)
|
|
|
(5,020
|
)
|
|
|
3,520
|
|
|
|
44,691
|
|
|
|
22,432
|
|
Earnings (loss) available to common
shareholders
|
|
|
(8,211
|
)
|
|
|
325
|
|
|
|
41,527
|
|
|
|
19,514
|
|
Basic and diluted earings (loss):
per common share
|
|
$
|
(0.43
|
)
|
|
$
|
0.02
|
|
|
$
|
2.14
|
|
|
$
|
1.01
|
|
Weighted average common shares
outstanding: basic and diluted
|
|
|
19,402,035
|
|
|
|
19,393,306
|
|
|
|
19,382,101
|
|
|
|
19,369,591
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
September 30,
2008
|
|
|
June 30,
2008
|
|
|
|
(In thousands, except for share and per share data)
|
|
Total revenues
|
|
$
|
415,393
|
|
|
$
|
442,584
|
|
|
$
|
591,495
|
|
|
$
|
542,794
|
|
Earnings (loss) from operations
|
|
|
(32,135
|
)
|
|
|
(14,001
|
)
|
|
|
95,522
|
|
|
|
71,662
|
|
Net earnings (loss)
|
|
|
(35,288
|
)
|
|
|
(24,952
|
)
|
|
|
43,824
|
|
|
|
29,826
|
|
Earnings (loss) available to common
shareholders
|
|
|
(38,528
|
)
|
|
|
(28,193
|
)
|
|
|
40,583
|
|
|
|
26,585
|
|
Basic and diluted earings (loss):
per common share
|
|
$
|
(1.99
|
)
|
|
$
|
(1.46
|
)
|
|
$
|
2.10
|
|
|
$
|
1.37
|
|
Weighted average common shares
outstanding: basic and diluted
|
|
|
19,357,185
|
|
|
|
19,347,660
|
|
|
|
19,351,322
|
|
|
|
19,343,184
|
|