UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 201 7

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________________ to __________________

 

 

 

Commission

File Number

Registrant, State of Incorporation,

Address and Telephone Number

I.R.S. Employer

Identification No.

 

 

 

 

AMERCOLOGO

 

 

 

 

1-11255

AMERCO

88-0106815

 

(A Nevada Corporation)

 

 

5555 Kietzke Lane , Ste. 100

 

 

Reno, Nevada 89511

 

 

Telephone (775) 688-6300

 

 

 

 

 

N/A

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant : (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]   No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule   405 of Regulation   S-T (§232.405 of this chapter) during the preceding 12   months (or for such shorter period that the registrant was required to submit and post such files) .   Yes   [x]   No   [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer , a smaller reporting company , or an emerging growth company . See the definition s of “large accelerated filer,” “accelerated filer” , “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [x]   Accelerated filer [ ]  

Non-accelerated filer [ ] (Do not check if a smaller reporting company)    Smaller reporting company [ ]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ) . Yes [ ] No [x]

19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at November 3 , 201 7.


TABLE OF CONTENTS

 

 

Page  

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a) Condensed Consolidated Balance Sheets as of September 30, 201 7 (unaudited) and March 31, 201 7

1

 

b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 201 7 and 201 6 (unaudited)

2

 

c) Condensed Consolidated Statement of Operations for the Six Months ended September 30, 201 7 and 201 6 (unaudited)

3

 

d ) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Six Months ended September 30, 201 7 and 201 6 (unaudited)

4

 

e ) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 201 7 and 201 6 (unaudited)

5

 

f ) Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

5 6

Item 4.

Controls and Procedures

59

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61



 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

September 30,

 

March 31,

 

 

2017

 

2017

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

768,351

$

697,806

Reinsurance recoverables and trade receivables, net

 

194,131

 

178,081

Inventories, net

 

100,693

 

82,439

Prepaid expenses

 

83,673

 

124,728

Investments, fixed maturities and marketable equities

 

1,843,768

 

1,663,768

Investments, other

 

395,327

 

367,830

Deferred policy acquisition costs, net

 

125,936

 

130,213

Other assets

 

101,767

 

97,525

Related party assets

 

80,923

 

86,168

 

 

3,694,569

 

3,428,558

Property, plant and equipment, at cost:

 

 

 

 

Land

 

684,729

 

648,757

Buildings and improvements

 

2,826,712

 

2,618,265

Furniture and equipment

 

564,033

 

510,415

Rental trailers and other rental equipment

 

526,603

 

492,280

Rental trucks

 

4,337,308

 

4,091,598

 

 

8,939,385

 

8,361,315

Less: Accumulated depreciation

 

(2,551,064)

 

(2,384,033)

Total property, plant and equipment

 

6,388,321

 

5,977,282

Total assets

$

10,082,890

$

9,405,840

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

441,010

$

450,541

Notes, loans and leases payable

 

3,422,077

 

3,262,880

Policy benefits and losses, claims and loss expenses payable

 

1,099,597

 

1,086,322

Liabilities from investment contracts

 

1,263,107

 

1,112,498

Other policyholders' funds and liabilities

 

20,454

 

10,150

Deferred income

 

32,443

 

28,696

Deferred income taxes

 

911,780

 

835,009

Total liabilities

 

7,190,468

 

6,786,096

 

 

 

 

 

Commitments and contingencies (notes 4, 8 and 9)

 

 

 

 

Stockholders' equity:

 

 

 

 

Series preferred stock, with or without par value, 50,000,000 shares authorized:

 

 

 

 

Series A preferred stock, with no par value, 6,100,000 shares authorized;

 

 

 

 

6,100,000 shares issued and none outstanding as of September 30 and March 31, 2017

 

 

Series B preferred stock, with no par value, 100,000 shares authorized; none

 

 

 

 

issued and outstanding as of September 30 and March 31, 2017

 

 

Serial common stock, with or without par value, 250,000,000 shares authorized:

 

 

 

 

Serial common stock of $0.25 par value, 10,000,000 shares authorized;

 

 

 

 

none issued and outstanding as of September 30 and March 31, 2017

 

 

Common stock, with $0.25 par value, 250,000,000 shares authorized:

 

 

 

 

Common stock of $0.25 par value, 250,000,000 shares authorized; 41,985,700

 

 

 

 

issued and 19,607,788 outstanding as of September 30 and March 31, 2017

 

10,497

 

10,497

Additional paid-in capital

 

452,474

 

452,172

Accumulated other comprehensive loss

 

(11,534)

 

(51,236)

Retained earnings

 

3,124,152

 

2,892,893

Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2017)

 

(525,653)

 

(525,653)

Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2017)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(5,517)

 

(6,932)

Total stockholders' equity

 

2,892,422

 

2,619,744

Total liabilities and stockholders' equity

$

10,082,890

$

9,405,840

The accompanying notes are an integral part of these condensed consolidated financial statements.


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

Quarter Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

740,558

$

711,710

Self-storage revenues

 

80,472

 

72,163

Self-moving and self-storage products and service sales

 

73,268

 

70,330

Property management fees

 

6,831

 

6,712

Life insurance premiums

 

38,862

 

40,893

Property and casualty insurance premiums

 

15,026

 

14,009

Net investment and interest income

 

26,469

 

25,590

Other revenue

 

61,200

 

57,278

Total revenues

 

1,042,686

 

998,685

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

492,482

 

398,213

Commission expenses

 

83,351

 

80,462

Cost of sales

 

42,866

 

40,952

Benefits and losses

 

47,109

 

46,836

Amortization of deferred policy acquisition costs

 

5,944

 

5,989

Lease expense

 

8,575

 

9,349

Depreciation, net of (gains) on disposals of (($5,104) and ($9,618), respectively)

 

132,978

 

109,904

Total costs and expenses

 

813,305

 

691,705

 

 

 

 

 

Earnings from operations

 

229,381

 

306,980

Interest expense

 

(32,023)

 

(27,989)

Pretax earnings

 

197,358

 

278,991

Income tax expense

 

(72,719)

 

(102,516)

Earnings available to common stockholders

$

124,639

$

176,475

Basic and diluted earnings per common share

$

6.36

$

9.01

Weighted average common shares outstanding: Basic and diluted

 

19,588,571

 

19,586,411

 

Related party revenues for the second quarter of fiscal 201 8 and 201 7 , net of eliminations, were $ 8.0 million and $ 7.9 million , respectively.

Related party costs and expenses for the second quarter of fiscal 201 8 and 201 7 , net of eliminations, were $ 18.2 million and $ 17.8 million , respectively.

Please see N ote 10, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for more information on the related party revenues and costs and expenses.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,410,416

$

1,358,046

Self-storage revenues

 

157,190

 

139,885

Self-moving and self-storage products and service sales

 

152,179

 

147,633

Property management fees

 

13,593

 

13,316

Life insurance premiums

 

77,953

 

81,785

Property and casualty insurance premiums

 

26,841

 

25,264

Net investment and interest income

 

53,686

 

52,921

Other revenue

 

108,753

 

103,026

Total revenues

 

2,000,611

 

1,921,876

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

909,406

 

783,295

Commission expenses

 

158,716

 

154,278

Cost of sales

 

90,461

 

84,314

Benefits and losses

 

94,829

 

93,839

Amortization of deferred policy acquisition costs

 

12,265

 

13,931

Lease expense

 

16,862

 

20,397

Depreciation, net of (gains) on disposals of (($9,845) and ($28,258), respectively)

 

259,660

 

205,285

Total costs and expenses

 

1,542,199

 

1,355,339

 

 

 

 

 

Earnings from operations

 

458,412

 

566,537

Interest expense

 

(62,368)

 

(54,415)

Pretax earnings

 

396,044

 

512,122

Income tax expense

 

(145,198)

 

(188,474)

Earnings available to common stockholders

$

250,846

$

323,648

Basic and diluted earnings per common share

$

12.81

$

16.52

Weighted average common shares outstanding: Basic and diluted

 

19,588,231

 

19,586,240

 

Related party revenues for the first six months of fiscal 201 8 and 201 7 , net of eliminations, were $ 16.0 million and $ 15.8 million , respectively.

Related party costs and expenses for the first six months of fiscal 201 8 and 201 7 , net of eliminations, were $34.8 million and $ 34.3 million , respectively.

Please see N ote 10, Related Party Transactions, of the Notes to Condensed Consolidated Financial Statements for more information on the related party revenues and costs and expenses.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

Quarter Ended September 30, 2017

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

197,358

$

(72,719)

$

124,639

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

12,767

 

 

12,767

Unrealized net gain on investments

 

15,473

 

(5,416)

 

10,057

Change in fair value of cash flow hedges

 

1,194

 

(454)

 

740

Total comprehensive income

$

226,792

$

(78,589)

$

148,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2016

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

278,991

$

(102,516)

$

176,475

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(1,704)

 

 

(1,704)

Unrealized net loss on investments

 

30,790

 

(10,777)

 

20,013

Change in fair value of cash flow hedges

 

3,105

 

(1,179)

 

1,926

Total comprehensive income

$

311,182

$

(114,472)

$

196,710

 

Six Months Ended September 30, 2017

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

396,044

$

(145,198)

$

250,846

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

21,034

 

 

21,034

Unrealized net gain on investments

 

26,104

 

(9,136)

 

16,968

Change in fair value of cash flow hedges

 

2,744

 

(1,044)

 

1,700

Total comprehensive income

$

445,926

$

(155,378)

$

290,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2016

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

512,122

$

(188,474)

$

323,648

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(1,982)

 

 

(1,982)

Unrealized net loss on investments

 

60,618

 

(21,217)

 

39,401

Change in fair value of cash flow hedges

 

5,186

 

(1,970)

 

3,216

Total comprehensive income

$

575,944

$

(211,661)

$

364,283

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$  

250,846

$  

323,648

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

269,505

 

233,543

Amortization of deferred policy acquisition costs

 

12,265

 

13,931

Amortization of debt issuance costs

 

1,946

 

1,765

Interest credited to policyholders

 

15,119

 

11,028

Change in allowance for losses on trade receivables

 

(2)

 

34

Change in allowance for inventory reserves

 

2,953

 

800

Net gain on sale of real and personal property

 

(9,845)

 

(28,258)

Net gain on sale of investments

 

(3,059)

 

(4,645)

Deferred income taxes

 

63,065

 

114,724

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

(15,895)

 

(8,102)

Inventories

 

(21,036)

 

(2,674)

Prepaid expenses

 

41,486

 

46,248

Capitalization of deferred policy acquisition costs

 

(15,154)

 

(14,360)

Other assets

 

16,615

 

(8,695)

Related party assets

 

8,958

 

5,195

Accounts payable and accrued expenses

 

69,550

 

45,162

Policy benefits and losses, claims and loss expenses payable

 

12,057

 

16,922

Other policyholders' funds and liabilities

 

10,305

 

1,563

Deferred income

 

3,660

 

5,034

Related party liabilities

 

(3,662)

 

232

Net cash provided by operating activities

 

709,677

 

753,095

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(754,052)

 

(761,277)

Short term investments

 

(34,765)

 

(409,925)

Fixed maturities investments

 

(219,620)

 

(168,817)

Equity securities

 

(662)

 

(489)

Preferred stock

 

(1,000)

 

Real estate

 

(118)

 

(15,788)

Mortgage loans

 

(50,817)

 

(136,682)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

259,450

 

310,409

Short term investments

 

38,927

 

386,508

Fixed maturities investments

 

70,792

 

120,525

Equity securities

 

 

Preferred stock

 

988

 

2,651

Real estate

 

2,664

 

831

Mortgage loans

 

9,584

 

105,731

Net cash used by investing activities

 

(678,629)

 

(566,323)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

285,532

 

331,787

Principal repayments on credit facilities

 

(214,354)

 

(158,479)

Debt issuance costs

 

(3,413)

 

(2,085)

Capital lease payments

 

(150,302)

 

(83,414)

Employee Stock Ownership Plan

 

(3,960)

 

(4,653)

Securitization deposits

 

(186)

 

245

Common stock dividends paid

 

(19,587)

 

(19,586)

Investment contract deposits

 

232,752

 

130,166

Investment contract withdrawals

 

(97,262)

 

(49,555)

Net cash provided by financing activities

 

29,220

 

144,426

 

 

 

 

 

Effects of exchange rate on cash

 

10,277

 

(10,517)

 

 

 

 

 

Increase in cash and cash equivalents

 

70,545

 

320,681

Cash and cash equivalents at the beginning of period

 

697,806

 

600,646

Cash and cash equivalents at the end of period

$  

768,351

$  

921,327

The accompanying notes are an integral part of these condensed consolidated financial statements.


AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a second fiscal quarter that ends on the 30 th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 3 0 th of June 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 presentation of financial position or results of operations. We disclose any material events , if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 201 7 and 20 16 correspond to fiscal 201 8 and 201 7 for AMERCO.

Accounts denominated in non-U.S. currencies have been translated into U.S. dollars. Certain amounts reported in previous years have been reclassified to conform to the current presentation.

The condensed consolidated balance sheet as of September 30 , 201 7 and the related condensed consolidated statements of operations , comprehensive income (loss) for the second quarter and first six months and cash flows for the first six months of fiscal 201 8 and 201 7 are unaudited.

In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (“Quarterly Report”) should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 201 7 .

Intercompany accounts and transactions have been eliminated.

Description of Legal Entities

AMERCO is the holding company for:

U-Haul International, Inc. (“U-Haul”),

Amerco Real Estate Company (“Real Estate”),

Rep w est Insurance Company (“Rep w est”), and

Oxford Life Insurance Company (“Oxford”).

Unless the context otherwise requires, the term s “Company,” “we,” “us” or “our” refer to AMERCO and all of its legal subsidiaries.

Description of Operating Segments

AMERCO has three reportable segments. They are Moving and Storage, Property and Casualty Insurance and Life Insurance.

The Moving and Storage operati ng segment (“Moving and Storage”) include s AMERCO, U-Haul, and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate. Operations consist of the rental of trucks and trailers, sales of moving supplies, sales of towin g accessories, sales of propane and the rental of fixed and portable moving and storage units to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul ® throughout the United States and Canada.


AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

The Property and Casualty Insurance operating segment (“Property and Casualty Insurance”) includes Rep w est and its wholly-owned subsidiaries and ARCOA R isk R etention G roup (“ARCOA”). Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul ® through regional offices in the United States and Canada . Property and Casualty Insurance also underwrites components of the Safemove ® , Safetow ® , Safemove Plus ® , Safestor ® and Safestor Mobile ® protection packages to U-Haul customers. The business plan for Property and Casualty Insurance includes offering property and casualty insurance products in other U-Haul related programs. ARCOA is a group captive insurer owned by us and our wholly-owned subsidiaries whose purpose is to provide insurance products related to our moving and storage business.

The Life Insurance operating segment (“Life Insurance”) includes Oxford and its wholly-owned subsidiaries. Life Insurance provides life and health insurance products primarily to the senior market through the direct writing and reinsuring of life insurance, Medicare supplement and annuity policies.

2. Earnings per Share

Our earnings per share is calculated by dividing our earnings available to common stockholders by the weighted average common shares outstanding, basic and diluted.

The weighted average common shares outstanding exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares , net of shares committed to be released , were 18,885 and 21,219 as of September 30 , 201 7 and 201 6 , respectively.

3. Investments

Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $ 28.2 million and $16.8 million at September 30 , 201 7 and March 31, 2017, respectively .

Available-for-Sale Investments

Available-for-sale investments at September 30 , 201 7 were as follows:

 

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses More than 12 Months

 

Gross

Unrealized

Losses Less than 12 Months

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

(In thousands)

U.S. treasury securities and government obligations

$

123,503

$

3,468

$

$

(1,176)

$  

125,795

U.S. government agency mortgage-backed securities

 

26,812

 

1,355

 

(2)

 

(2)

 

28,163

Obligations of states and political subdivisions

 

174,665

 

10,626

 

(10)

 

(223)

 

185,058

Corporate securities

 

1,332,938

 

48,148

 

(3,786)

 

(3,631)

 

1,373,669

Mortgage-backed securities

 

89,858

 

1,958

 

 

 

91,816

Redeemable preferred stocks

 

13,789

 

539

 

 

(25)

 

14,303

Common stocks

 

15,732

 

9,242

 

(10)

 

 

24,964

 

$

1,777,297

$

75,336

$

(3,808)

$

(5,057)

$  

1,843,768

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Available-for-sale investments at March 31 , 201 7 were as follows:

 

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses More than 12 Months

 

Gross

Unrealized

Losses Less than 12 Months

 

Estimated

Market

Value

 

 

 

 

 

(In thousands)

U.S. treasury securities and government obligations

$

123,474

$

2,892

$

$

(1,675)

$  

124,691

U.S. government agency mortgage-backed securities

 

27,908

 

1,070

 

(6)

 

(377)

 

28,595

Obligations of states and political subdivisions

 

159,417

 

9,466

 

(23)

 

(424)

 

168,436

Corporate securities

 

1,263,703

 

32,901

 

(5,731)

 

(13,837)

 

1,277,036

Mortgage-backed securities

 

26,577

 

515

 

 

(5)

 

27,087

Redeemable preferred stocks

 

13,789

 

168

 

 

(468)

 

13,489

Common stocks

 

15,732

 

8,728

 

(10)

 

(16)

 

24,434

 

$

1,630,600

$

55,740

$

(5,770)

$

(16,802)

$  

1,663,768

The available-for-sale table s include gross unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

We sold available-for-sale securities with a fair value of $68.5 million during the first six months of fiscal 201 8 . The gross realized gains on these sales totaled $2.6 million. The gross realized losses on these sales totaled $0.1 million .

The unrealized losses of more than twelve months in the available-for-sale table s are considered temporary declines. We track each investment with an unrealized loss and evaluate it on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognize these write-downs , if any, through earnings . There were no write downs in the second quarter or for the first six months of fiscal 201 8 or 201 7 .

The investment portfolio primarily consists of corporate securities and obligations of states and political subdivisions . We believe we monitor our investments as appropriate. Our methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity, the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. Nothing has come to management’s attention that would lead to the belief that each issuer would not have the ability to meet the remaining contractual obligations of the security, including payment at maturity. We have the ability and intent not to sell our fixed maturity and common stock investments for a period of time sufficient to allow us to recover our costs.

The portion of other-than-temporary impairment related to a credit loss is recognized in earnings. The significant inputs utilized in the evaluation of mortgage backed securities credit losses include ratings, delinquency rates, and prepayment activity. The significant inputs utilized in the evaluation of asset backed securities credit losses include the time frame for principal recovery and the subordination and value of the underlying collateral.

There were no credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income (loss) for the second quarter or first six months of fiscal 2018 and fiscal 2017, respectively.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


The adjusted cost and estimated market value of available-for-sale investments by contractual maturity were as follows:

 

 

September 30, 2017

 

March 31, 2017

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

 

 

(In thousands)

Due in one year or less

$

40,057

$

40,428

$

35,399

$

35,795

Due after one year through five years

 

366,506

 

377,028

 

324,286

 

333,016

Due after five years through ten years

 

609,614

 

628,689

 

598,232

 

607,184

Due after ten years

 

641,741

 

666,540

 

616,585

 

622,763

 

 

1,657,918

 

1,712,685

 

1,574,502

 

1,598,758

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

89,858

 

91,816

 

26,577

 

27,087

Redeemable preferred stocks

 

13,789

 

14,303

 

13,789

 

13,489

Common stocks

 

15,732

 

24,964

 

15,732

 

24,434

 

$

1,777,297

$

1,843,768

$

1,630,600

$

1,663,768

4. Borrowings

Long term Debt

Long term debt was as follows:

 

 

 

 

 

September 30,

 

March 31,

 

2018 Rate (a)

 

Maturities

 

2017

 

2017

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

2.74% - 6.93%

 

2023

$

140,287

$

169,289

Senior mortgages

3.72% - 5.50%

 

2022 - 2038

 

1,405,702

 

1,292,160

Working capital loans (revolving credit)

2.74%

 

2018

 

55,000

 

85,000

Fleet loans (amortizing term)

1.95% - 4.76%

 

2018 - 2024

 

319,631

 

324,977

Fleet loans (securitization)

4.90%

 

2017

 

47,183

 

52,112

Fleet loans (revolving credit)

2.39%

 

2020 - 2021

 

446,000

 

417,000

Capital leases (rental equipment)

1.92% - 4.86%

 

2017 - 2024

 

962,140

 

876,828

Other obligations

2.75% - 8.00%

 

2017 - 2047

 

72,005

 

69,867

Notes, loans and leases payable

 

 

 

 

3,447,948

 

3,287,233

Less: Debt issuance costs

 

 

 

 

(25,871)

 

(24,353)

Total notes, loans and leases payable

 

 

 

$

3,422,077

$

3,262,880

 

 

 

 

 

 

 

 

(a) Interest rate as of September 30, 2017, including the effect of applicable hedging instruments.

 

 

 

 

Real Estate Backed Loans

Real Estate Loan

Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. As of September 30, 2017 , the outstanding balance on the Real Estate Loan was $140.3 million .   The Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers. The final maturity of the term loan is April 20 23

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At September 30, 2017 , the applicable LIBOR was 1.24 % and the applicable margin was 1.50 %, the sum of which was 2.74 % , which was applied to $77.2 million of the Real Estate Loan . The rate of the remaining balance of $63.1 million of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. The interest rate swap expires in August 2018, after which date the remaining balance will incur interest at a rate of LIBOR plus a margin of 1.50%. The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of September 30, 2017 were in the aggregate amount of $ 1,405.7 million and mature between 20 22 and 2038. The senior mortgages require monthly principal and interest payments. The senior mortgages are secured by certain properties owned by the borrowers. The fixed interest rates, per the provisions of the senior mortgages, range between 3.72% and 5.50 %. Certain senior mortgages have an anticipated repayment date and a maturity date. If these senior mortgages are not repaid by the anticipated repayment date, the interest rate on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarantees of the senior mortgages. The default provisions of the senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.  

Working Capital Loans

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $ 5 5.0 million. At September 3 0 , 201 7 , the outstanding balance was $ 55.0 million. This loan is secured by certain properties owned by the borrower s . This loan agreement provides for term loans, subject to the terms of the loan agreement. The final maturity of the loan is November 2018. This loan requires monthly interest payments with the unpaid loan balance and accrued and u n paid interest due at maturity. The interest rate, per the provision of the loan agreement, is the applicable LIBOR plus the applicable margin. At September 3 0 , 201 7 , the applicable LIBOR was 1.24 % and the margin was 1.50%, the sum of which was 2.74 %. AMERCO is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

AMERCO is a borrower under working capital loan. The current maximum credit commitment is $150.0 million , which can be increased to $300.0 million by bringing in other lenders . At September 30, 2017, the full $150.0 million was available to be drawn. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. The final maturity of this loan is September 2020. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The interest rate is the a pplicable LIBOR plus a margin between 1.38% and 1.50% depending on the amount outstanding . The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There is a 0.30% fee charged for unused capacity.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The aggregate balance of the loans as of September 30, 2017 was $ 319.6 million with the final maturities between June 2018 and June 2024 .

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus the applicable margin s . At September 30, 2017 , the applicable LIBOR was between 1.23 % and 1.24 % and applicable margins were between 1.72% and 2.38 %. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 4.76% based on current margins. Additionally, $ 260.7 million of these loans are carried at fixed rates ranging between 1.95% and 3.94%.

AMERCO and , in some cases, U-Haul International, Inc. are guarantors of these loans. The default provisions of these loans include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Rental Truck Securitizations

2010 U-Haul S Fleet and its subsidiaries (collectively, “2010 USF”) issued a $155.0 million asset-backed note (“2010 Box Truck Note”). 2010 USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the securitized transaction were used to finance new box truck purchases. U.S. Bank, NA acts as the trustee for this securitization.

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At September 30, 2017 , the outstanding balance was $ 47.2 million . In October 2017, the note was repaid in full. The note is secur ed by the box trucks purchased and the corresponding operating cash flows associated with their operation.

The 2010 Box Truck Note is subject to certain covenants with respect to liens, additional indebtedness of the special purpose entity , the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of this note include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Rental Truck Revolvers

Various subsidiaries of U-Haul International, Inc. entered into three revolving fleet loans in aggregate for $4 9 0.0 million, which can be increased to a maximum of $565 .0 million. These loans mature between March 2020 and November 2021. The interest rate, per the provision of the Loan Agreements, is the applicable LIBOR plus the applicable margin. At September 30, 2017, the applicable LIBOR was 1.24% and the margin was 1.15%, the sum of which was 2.39%. Only interest is paid on the loans until the last nine months when principal is due monthly. As of September 30, 2017, the outstanding balance of the loans was $446.0 million.

Capital Leases

We regularly enter into capital leases for new equipment with the terms of the leases between five and seven years. During the first six months of fiscal 2018, we entered into $233.9 million of new capital leases. At September 30, 2017 and March 31, 2017 , the balance of our capital leases was $ 962.1 million and $876.8 million, respectively . The net book value of the corresponding capitalized assets was $ 1,367.0 million and $1,233.3 million at September 30, 2017 and March 31, 2017, respectively.

Other Obligations

In February 2011 , AMERCO and U . S . Bank, NA (the “Trustee”) entered into the U-Haul Investors Club ® Indenture.   AMERCO and the Trustee entered into this indenture to provide for the issuance of notes by us directly to investors over our proprietary website, uhaulinvestorsclub.com (“ U-Notes ® ”). The U-Notes ® are secured by various types of collateral including , but not limited to, rental equipment and real estate.   U-Notes ® are issued in smaller series that vary as to principal amount, interest rate and maturity.   U-Notes ® are obligations of the Company and secured by the associated collateral; they are not guaranteed by any of the Company’s affiliates or subsidiaries.

At September 30, 2017, the aggregate outstanding principal balance of the U-Notes ® issued was $76.1 million of which $ 4.1 million is held by our insurance subsidiaries and eliminated in consolidation. I nterest rates range between 2 . 75 % and 8.00% and maturity dates range between 2017 and 204 7 .

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made deposits with Oxford. As of June 30, 2017, one deposit balance was $ 45.0 million , for which Oxford pays a fixed interest rate of 1.00%, due on the maturity date of September 29 , 2017. As of June 30, 2017, the other deposit amount was $ 15.0 million with a maturity of March 30, 2020 at an interest rate of 1.75%. As of June 30, 2017, available-for-sale investments held with the FHLB totaled $130.2 million, of which $69.3 million was pledged as collateral to secure the outstanding deposits. The balances of these deposits are included within Liabilities from investment contracts on the consolidated balance sheet.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long term debt , including capital leases and excluding debt issuance costs, as of September 30 , 201 7 for the next five years and thereafter are as follows:

 

 

Twelve Months Ending September 30,

 

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

451,564

$

490,060

$

404,931

$

497,718

$

273,441

$

1,330,234

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

31,863

$

25,879

Capitalized interest

 

(1,929)

 

(985)

Amortization of transaction costs

 

1,014

 

804

Interest expense resulting from derivatives

 

1,075

 

2,291

Total interest expense

 

32,023

 

27,989

 

 

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

61,492

$

49,964

Capitalized interest

 

(3,694)

 

(2,298)

Amortization of transaction costs

 

1,946

 

1,647

Interest expense resulting from derivatives

 

2,624

 

5,102

Total interest expense

 

62,368

 

54,415

Interest paid in cash , including payments related to derivative contracts, amounted to $ 32.4 million and $ 28.1 million for the second quarter of fiscal 201 8 and 201 7, respectively and $63.4 million and $55.3 million for the first six months of fiscal 2018 and 2017, respectively.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

2.43%

 

1.73%

Interest rate at the end of the quarter

 

2.43%

 

1.73%

Maximum amount outstanding during the quarter

$

538,000

$

462,000

Average amount outstanding during the quarter

$

516,946

$

431,815

Facility fees

$

49

$

49

 

 

 

Revolving Credit Activity

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the period

 

2.34%

 

1.73%

Interest rate at the end of the period

 

2.43%

 

1.73%

Maximum amount outstanding during the period

$

538,000

$

462,000

Average amount outstanding during the period

$

508,350

$

400,896

Facility fees

$

125

$

89

 

5 . Derivatives

We manage exposure to changes in market interest rates. Our use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on certain of our LIBOR indexed variable rate debt and a variable rate operating lease . The interest rate swaps effectively fix our interest payments on certain LIBOR indexed variable rate debt. We monitor our positions and the credit ratings of our counterparties and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes.

 

Original variable rate debt amount

 

Agreement Date

 

Effective Date

 

Expiration Date

 

Designated cash flow hedge date

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(In millions)

 

 

 

 

 

 

 

 

 

$

300.0

 

 

8/16/2006

 

8/18/2006

 

8/10/2018

 

8/4/2006

 

25.0

(a)

 

4/26/2011

 

6/1/2011

 

6/1/2018

 

6/1/2011

 

50.0

(a)

 

7/29/2011

 

8/15/2011

 

8/15/2018

 

7/29/2011

 

20.0

(a)

 

8/3/2011

 

9/12/2011

 

9/10/2018

 

8/3/2011

 

15.1

(b)

 

3/27/2012

 

3/28/2012

 

3/28/2019

 

3/26/2012

 

25.0

 

 

4/13/2012

 

4/16/2012

 

4/1/2019

 

4/12/2012

 

44.3

 

 

1/11/2013

 

1/15/2013

 

12/15/2019

 

1/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

As of September 30, 2017 , the total notional amount of our variable interest rate swaps on debt and an operating lease was $ 123.2 million and $7.0 million, respectively .

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


 

 

Liability Derivatives Fair Values as of

 

 

September 30, 2017

 

March 31, 2017

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

2,167

$

4,903

The derivative fair values located in A ccounts payable and accrued expenses in the balance sheets were as follows:

 

 

The Effect of Interest Rate Contracts on the Statements of Operations for the Six Months Ended

 

 

 

 

September 30, 2017

 

September 30, 2016

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

2,624

$

5,102

Gain recognized in AOCI on interest rate contracts (effective portion)

$

(2,744)

$

(5,186)

Loss reclassified from AOCI into income (effective portion)

$

2,618

$

5,107

(Gain) loss recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing)

$

6

$

(5)

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. During the first six months of fiscal 201 8, we recognized a net increase in the fair value of our cash flow hedges of $1.7 million, net of taxes. Embedded in this change was $2.6 million of losses reclassified from accumulated other comprehensive income (loss) to interest expense during the first six months of fiscal 2018. At September 30, 2017, we expect to reclassify $2.4 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the next twelve months.

6 . Accumulated Other Comprehensive Income (Loss)

A summary of accumulated other comprehensive income (loss) components, net of tax, were as follows:

 

 

Foreign Currency Translation

 

Unrealized Net Gain on Investments

 

Fair Market Value of Cash Flow Hedges

 

Postretirement Benefit Obligation Net Loss

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2017

$

(69,505)

$

23,099

$

(3,059)

$

(1,771)

$

(51,236)

Foreign currency translation

 

21,034

 

 

 

 

21,034

Unrealized net gain on investments

 

 

16,968

 

 

 

16,968

Change in fair value of cash flow hedges

 

 

 

4,318

 

 

4,318

Amounts reclassified from AOCI

 

 

 

(2,618)

 

 

(2,618)

Other comprehensive income (loss)

 

21,034

 

16,968

 

1,700

 

 

39,702

Balance at September 30, 2017

$

(48,471)

$

40,067

$

(1,359)

$

(1,771)

$

(11,534)

7 . Stockholders’ Equity

On July 5, 2017, we declared a cash dividend on our Common Stock of $1.00 per share to holders of record on July 20, 2017. The dividend was paid on August 3, 2017.

On June 8, 2016, the stockholder’s approved the 2016 AMERCO Stock Option Plan (Shelf Stock Option Plan). As of September 30, 2017, no awards had been issued under this plan.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


8 . Contingent Liabilities and Commitments

We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2019 . As of September 30, 2017 , we have guaranteed $ 16.5 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, we have the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. We have been leasing equipment since 1987 and ha ve experienced no material losses relating to these types of residual value guarantees.  

Operating and ground l ease commitments for leases having terms of more than one year were as follows:

 

 

Property, Plant and Equipment

 

Rental

Equipment

 

 

 

 

Ground

 

Operating

 

Operating

 

Total

 

 

(Unaudited)

 

 

(In thousands)

Year-ended September 30:

 

 

 

 

 

 

 

 

2018

$

957

$

16,264

$

10,372

$

27,593

2019

 

1,024

 

15,395

 

5,414

 

21,833

2020

 

1,024

 

15,838

 

 

16,862

2021

 

1,027

 

15,015

 

 

16,042

2022

 

1,030

 

14,903

 

 

15,933

Thereafter

 

46,396

 

26,972

 

 

73,368

Total

$

51,458

$

104,387

$

15,786

$

171,631

9 . Contingencies

Environmental

Compliance with environmental requirements of federal, state and local governments may significantly affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.

Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to result in a material adverse effect on AMERCO’s financial position or results of operations.

Other

We are named as a defendant in various other litigation and claims arising out of the normal course of business. In management’s opinion, none of these other matters will have a material effect on our financial position and results of operations.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10 . Related Party Transactions

As set forth in the Company’s Audit Committee Charter and consistent with N ASDAQ Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required to be disclosed under the Securities and Exchange Commission (“SEC”) rules and regulations and in accordance with generally accepted accounting principles (“GAAP”) . Accordingly, all such related party transactions are submitted to the Audit Committee for ongoing review and oversight. Our internal processes are designed to ensure that our legal and finance departments identify and monitor potential related party transactions that may require disclosure and Audit Committee oversight.

AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were completed on terms substantially equivalent to those that would prevail in arm’s-length transactions.

SAC Holding Corporation and SAC Holding II Corporation (collectively “SAC Holdings”) were established in order to acquire and develop self-storage properties. These properties are being managed by us pursuant to management agreements. In the past, we sold real estate and various self-storage properties to SAC Holdings, and such sales provided significant cash flows to us . SAC Holdings, 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”) are substantially controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Willow Grove Holdings LP, which is owned by Mark V. Shoen (a significant shareholder), and various trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant shareholder) and Mark V. Shoen.

Related Party Revenue

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holding Corporation

$

1,213

$

1,232

U-Haul management fee revenue from Blackwater

 

6,231

 

6,120

U-Haul management fee revenue from Mercury

 

600

 

592

 

$

8,044

$

7,944

 

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holding Corporation

$

2,418

$

2,455

U-Haul management fee revenue from Blackwater

 

12,393

 

12,140

U-Haul management fee revenue from Mercury

 

1,200

 

1,176

 

$

16,011

$

15,771

During the first six months of fiscal 201 8 , a subsidiary of ours held a junior unsecured note from SAC Holding Corporation . We do not have an equity ow nership interest in SAC Holding Corporation . We received cash interest payments of $ 2.2 million and $2.3 million from SAC Holding Corporation during the first six months of fiscal 201 8 and 201 7, respectively . The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 201 8 was $ 48.1 million and the aggregate notes receivable balance at September 30 , 201 7 was $ 47.5 million. In accordance with the terms of th i s note, SAC Holding Corporation may prepay the note without penalty or premium at any time . We are currently negotiating to extend this note. T he scheduled maturity of th i s note is 2017.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


We currently manage the self-storage properties owned or leased by Blackwater and Mercury Partners, L.P. (“Mercury”) pursuant to a standard form of management agreement, under which we receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. We received cash payments for management fees, exclusive of reimbursed expenses, of $17.0 million and $ 15.5 million from the above mentioned entities during the first six months of fiscal 201 8 and 201 7, respectively . This management fee is consistent with the fee received for other properties we previously managed for third parties. Mark V. Shoen controls the general partner of Mercury . The limited partner interests of Mercury are indirectly owned by Mark V. Shoen , James P. Shoen, ( a significant share holder ) and a trust benefitting the children and grandchild of Edward J. Shoen .

Related Party Costs and Expenses

 

 

Quarter Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to Blackwater

$

675

$

684

U-Haul commission expenses to Blackwater

 

17,556

 

17,128

 

$

18,231

$

17,812

 

 

 

Six Months Ended September 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to Blackwater

$

1,356

$

1,372

U-Haul commission expenses to Blackwater

 

33,442

 

32,881

 

$

34,798

$

34,253

We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of Blackwater . The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to us .

At September 30 , 201 7 , subsidiaries of Blackwater 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 our other independent dealers whereby commissions are paid by us based upon equipment rental revenues .

These agreements and note with subsidiaries of Blackwater , excluding Dealer Agreements, provided revenues of $14.8 million, expenses of $ 1.4 million and cash flows of $ 13.7 million during the first six months of fiscal 201 8 . Revenues and commission expenses related to the Dealer Agreements were $ 155.2 million and $ 33.4 million, respectively during the first six months of fiscal 201 8 .

Pursuant to the variable interest entity (“VIE”) model under Accounting Standards Codification (“ ASC ”) 810 – Consolidation (“ASC 810”) , m anagement determined that the junior note of SAC Holding Corporation as well as the management agreements with subsidiaries of Blackwater represent s potential variable interests for us. Management evaluated whether it should be identified as the primary beneficiary of one or more of these VIEs using a two - step approach in which management (i) identified all other parties that hold interests in the VIEs, and (ii) determined if any variable interest holder has the power to direct the activities of the VIEs that most significantly impact their economic performance.

Management determined that we do not have a variable interest in the holding entities of Blackwater, except for SAC Holding Corporation based upon management agreements which are with the individual operating entities or through the issuance of junior debt ; therefore , we are precluded from consolidating these entities.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


We have junior debt with the holding entity SAC Holding Corporation which represents a variable interest in the entity . Though we have certain protective rights within th is debt agreement, we have no present influence or control over th i s holding entit y unless the protective rights become exercisable, which management considers unlikely based on their payment history. As a result, we have no basis under ASC 810 to consolidate th i s entit y .

We do not have the power to direct the activities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul. There are no fees or penalties disclosed in the management agreement for termination of the agreement. Through control of the holding entities ' assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most significantly impact each of the individual holding entities and the individual operating entities’ performance.  As a result, we have no basis under ASC 810 to consolidate these entities.

We have not provided financial or other support explicitly or implicitly during the quarter ended September 3 0 , 201 7 to any of these entities that we were not previously contractually required to provide. In addition, we currently have no plan to provide any financial support to any of these entities in the future. The carrying amount and classification of the assets and liabilities in our balance sheet s that relate to our variable interests in the aforementioned entities are as follows, which approximate the maximum exposure to loss as a result of our involvement with these entities:

Related Party Assets

 

 

September 30,

 

March 31,

 

 

2017

 

2017

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes receivable from SAC Holding Corporation

 

47,460

 

48,098

U-Haul interest receivable from SAC Holding Corporation

 

5,614

 

5,397

U-Haul receivable from Blackwater

 

22,357

 

23,202

U-Haul receivable from Mercury

 

4,938

 

9,195

Other (a)

 

554

 

276

 

$

80,923

$

86,168

(a) Timing differences for intercompany balances with insurance subsidiaries resulting from the three month difference in reporting periods .

1 1 . Consolidating Financial Information by Industry Segment

AMERCO’s three reportable segments are:

  • Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,
  • Property and Casualty Insurance, comprised of Rep w est and its subsidiaries and ARCOA, and
  • Life Insurance , comprised of Oxford and its subsidiaries.

Management tracks revenues separately, but does not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.

The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries.

Investments in subsidiaries are accounted for by the parent using the equity method of accounting.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


1 1 . Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of September 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

745,923

$

10,791

$

11,637

$

 

$

768,351

Reinsurance recoverables and trade receivables, net

 

63,187

 

101,476

 

29,468

 

 

 

194,131

Inventories, net

 

100,693

 

 

 

 

 

100,693

Prepaid expenses

 

83,673

 

 

 

 

 

83,673

Investments, fixed maturities and marketable equities

 

 

273,399

 

1,570,369

 

 

 

1,843,768

Investments, other

 

25,436

 

67,520

 

302,371

 

 

 

395,327

Deferred policy acquisition costs, net

 

 

 

125,936

 

 

 

125,936

Other assets

 

98,471

 

746

 

2,550

 

 

 

101,767

Related party assets

 

82,894

 

8,592

 

18,395

 

(28,958)

(c)

 

80,923

 

 

1,200,277

 

462,524

 

2,060,726

 

(28,958)

 

 

3,694,569

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

508,201

 

 

 

(508,201)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

Land

 

684,729

 

 

 

 

 

684,729

Buildings and improvements

 

2,826,712

 

 

 

 

 

2,826,712

Furniture and equipment

 

564,033

 

 

 

 

 

564,033

Rental trailers and other rental equipment

 

526,603

 

 

 

 

 

526,603

Rental trucks

 

4,337,308

 

 

 

 

 

4,337,308

 

 

8,939,385

 

 

 

 

 

8,939,385

Less:  Accumulated depreciation

 

(2,551,064)

 

 

 

 

 

(2,551,064)

Total property, plant and equipment

 

6,388,321

 

 

 

 

 

6,388,321

Total assets

$

8,096,799

$

462,524

$

2,060,726

$

(537,159)

 

$

10,082,890

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by industry segment as of September 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

431,088

$

5,209

$

4,713

$

 

$

441,010

Notes, loans and leases payable

 

3,422,077

 

 

 

 

 

3,422,077

Policy benefits and losses, claims and loss expenses payable

 

416,479

 

239,377

 

443,741

 

 

 

1,099,597

Liabilities from investment contracts

 

 

 

1,263,107

 

 

 

1,263,107

Other policyholders' funds and liabilities

 

 

9,868

 

10,586

 

 

 

20,454

Deferred income

 

32,443

 

 

 

 

 

32,443

Deferred income taxes

 

876,195

 

12,224

 

23,361

 

 

 

911,780

Related party liabilities

 

26,095

 

2,829

 

34

 

(28,958)

(c)

 

Total liabilities

 

5,204,377

 

269,507

 

1,745,542

 

(28,958)

 

 

7,190,468

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

Common stock

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

452,684

 

91,120

 

26,271

 

(117,601)

(b)

 

452,474

Accumulated other comprehensive income (loss)

 

(11,534)

 

10,683

 

29,384

 

(40,067)

(b)

 

(11,534)

Retained earnings

 

3,123,942

 

87,913

 

257,029

 

(344,732)

(b)

 

3,124,152

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

(5,517)

 

 

 

 

 

(5,517)

Total stockholders' equity

 

2,892,422

 

193,017

 

315,184

 

(508,201)

 

 

2,892,422

Total liabilities and stockholders' equity

$

8,096,799

$

462,524

$

2,060,726

$

(537,159)

 

$

10,082,890

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by industry segment as of March 31, 201 7 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

 

Assets:

 

(In thousands)

Cash and cash equivalents

$

671,665

$

12,725

$

13,416

$

 

$

697,806

Reinsurance recoverables and trade receivables, net

 

41,234

 

107,757

 

29,090

 

 

 

178,081

Inventories, net

 

82,439

 

 

 

 

 

82,439

Prepaid expenses

 

124,728

 

 

 

 

 

124,728

Investments, fixed maturities and marketable equities

 

 

248,816

 

1,414,952

 

 

 

1,663,768

Investments, other

 

35,342

 

63,086

 

269,402

 

 

 

367,830

Deferred policy acquisition costs, net

 

 

 

130,213

 

 

 

130,213

Other assets

 

93,197

 

1,922

 

2,406

 

 

 

97,525

Related party assets

 

88,829

 

11,496

 

18,465

 

(32,622)

(c)

 

86,168

 

 

1,137,434

 

445,802

 

1,877,944

 

(32,622)

 

 

3,428,558

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

477,058

 

 

 

(477,058)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

Land

 

648,757

 

 

 

 

 

648,757

Buildings and improvements

 

2,618,265

 

 

 

 

 

2,618,265

Furniture and equipment

 

510,415

 

 

 

 

 

510,415

Rental trailers and other rental equipment

 

492,280

 

 

 

 

 

492,280

Rental trucks

 

4,091,598

 

 

 

 

 

4,091,598

 

 

8,361,315

 

 

 

 

 

8,361,315

Less:  Accumulated depreciation

 

(2,384,033)

 

 

 

 

 

(2,384,033)

Total property, plant and equipment

 

5,977,282

 

 

 

 

 

5,977,282

Total assets

$

7,591,774

$

445,802

$

1,877,944

$

(509,680)

 

$

9,405,840

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by indus try segment as of March 31, 2017 are as follows:

 

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

441,667

$

1,926

$

6,948

$

 

$

450,541

Notes, loans and leases payable

 

3,262,880

 

 

 

 

 

3,262,880

Policy benefits and losses, claims and loss expenses payable

 

399,181

 

244,980

 

442,161

 

 

 

1,086,322

Liabilities from investment contracts

 

 

 

1,112,498

 

 

 

1,112,498

Other policyholders' funds and liabilities

 

 

4,184

 

5,966

 

 

 

10,150

Deferred income

 

28,696

 

 

 

 

 

28,696

Deferred income taxes

 

809,566

 

11,243

 

14,200

 

 

 

835,009

Related party liabilities

 

30,040

 

2,539

 

43

 

(32,622)

(c)

 

Total liabilities

 

4,972,030

 

264,872

 

1,581,816

 

(32,622)

 

 

6,786,096

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

Common stock

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

452,382

 

91,120

 

26,271

 

(117,601)

(b)

 

452,172

Accumulated other comprehensive income (loss)

 

(51,236)

 

6,166

 

16,933

 

(23,099)

(b)

 

(51,236)

Retained earnings

 

2,892,683

 

80,343

 

250,424

 

(330,557)

(b)

 

2,892,893

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

(6,932)

 

 

 

 

 

(6,932)

Total stockholders' equity

 

2,619,744

 

180,930

 

296,128

 

(477,058)

 

 

2,619,744

Total liabilities and stockholders' equity

$

7,591,774

$

445,802

$

1,877,944

$

(509,680)

 

$

9,405,840

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables