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 4

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)

 

 

1325 Airmotive Way, Ste. 100

 

 

Reno, Nevada 89502-3239

 

 

Telephone (775) 688-6300

 

 

 

 

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 suc h 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 accel erated filer, an accelerated filer, a non-accelerated filer , or a smaller reporting company. See the definition s of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 [ ]

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 1, 201 4


TABLE OF CONTENTS

 

 

Page  

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a) Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and March 31, 2014

1

 

b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 2014 and 2013 (unaudited)

2

 

c) Condensed Consolidated Statement of Operations for the Six Months ended September 30, 2014 and 2013 (unaudited)

3

 

d ) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Six Months ended September 30, 2014 and 2013 (unaudited)

4

 

e ) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2014 and 2013 (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 4

Item 4.

Controls and Procedures

5 6

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

5 7

Item 1A.

Risk Factors

5 7

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

5 7

Item 3.

Defaults Upon Senior Securities

5 7

Item 4.

Mine Safety Disclosures

5 7

Item 5.

Other Information

5 7

Item 6.

Exhibits

5 8

 



 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

September 30,

 

March 31,

 

 

2014

 

2014

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

849,146

$

495,112

Reinsurance recoverables and trade receivables, net

 

186,145

 

199,322

Inventories, net

 

69,240

 

67,020

Prepaid expenses

 

41,176

 

55,269

Investments, fixed maturities and marketable equities

 

1,260,131

 

1,138,275

Investments, other

 

261,814

 

248,850

Deferred policy acquisition costs, net

 

113,943

 

118,707

Other assets

 

115,307

 

97,588

Related party assets

 

166,999

 

169,624

 

 

3,063,901

 

2,589,767

Property, plant and equipment, at cost:

 

 

 

 

Land

 

446,347

 

405,177

Buildings and improvements

 

1,568,504

 

1,430,330

Furniture and equipment

 

332,859

 

322,088

Rental trailers and other rental equipment

 

418,590

 

373,325

Rental trucks

 

2,873,062

 

2,610,797

 

 

5,639,362

 

5,141,717

Less: Accumulated depreciation

 

(1,833,472)

 

(1,732,506)

Total property, plant and equipment

 

3,805,890

 

3,409,211

Total assets

$

6,869,791

$

5,998,978

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

387,844

$

357,954

Notes, loans and leases payable

 

2,382,323

 

1,942,359

Policy benefits and losses, claims and loss expenses payable

 

1,078,379

 

1,082,598

Liabilities from investment contracts

 

664,221

 

616,725

Other policyholders' funds and liabilities

 

9,343

 

7,988

Deferred income

 

33,332

 

31,390

Deferred income taxes

 

472,096

 

432,596

Total liabilities

 

5,027,538

 

4,471,610

 

 

 

 

 

Commitments and contingencies (notes 4, 7, 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, 2014

 

 

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

 

 

 

 

issued and outstanding as of September 30 and March 31, 2014

 

 

Series common stock, with or without par value, 150,000,000 shares authorized:

 

 

 

 

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

 

 

 

 

none issued and outstanding as of September 30 and March 31, 2014

 

 

Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700

 

 

 

 

issued and 19,607,788 outstanding as of September 30 and March 31, 2014

 

10,497

 

10,497

Additional paid-in capital

 

447,485

 

444,210

Accumulated other comprehensive loss

 

(23,201)

 

(53,923)

Retained earnings

 

2,086,174

 

1,805,453

Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2014)

 

(525,653)

 

(525,653)

Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2014)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(1,052)

 

(1,219)

Total stockholders' equity

 

1,842,253

 

1,527,368

Total liabilities and stockholders' equity

$

6,869,791

$

5,998,978

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,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

653,534

$

598,931

Self-storage revenues

 

52,986

 

45,572

Self-moving and self-storage products and service sales

 

68,043

 

65,379

Property management fees

 

5,796

 

5,292

Life insurance premiums

 

39,041

 

39,448

Property and casualty insurance premiums

 

12,463

 

10,867

Net investment and interest income

 

21,856

 

19,960

Other revenue

 

52,772

 

53,774

Total revenues

 

906,491

 

839,223

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

383,970

 

361,551

Commission expenses

 

76,160

 

70,099

Cost of sales

 

39,836

 

34,532

Benefits and losses

 

39,558

 

37,992

Amortization of deferred policy acquisition costs

 

4,290

 

6,057

Lease expense

 

19,775

 

25,818

Depreciation, net of (gains) on disposals of (($21,541) and ($9,311), respectively)

 

67,066

 

63,208

Total costs and expenses

 

630,655

 

599,257

 

 

 

 

 

Earnings from operations

 

275,836

 

239,966

Interest expense

 

(24,877)

 

(23,118)

Fees and amortization on early extinguishment of debt

 

(4,081)

 

Pretax earnings

 

246,878

 

216,848

Income tax expense

 

(90,631)

 

(78,857)

Earnings available to common stockholders

$

156,247

$

137,991

Basic and diluted earnings per common share

$

7.98

$

7.06

Weighted average common shares outstanding: Basic and diluted

 

19,584,194

 

19,554,633

 

Related party revenues for the second quarter of fiscal 201 5 and 201 4 , net of eliminations, were $ 8.9 million and $ 8.4 million , respectively.

Related party costs and expenses for the second quarter of fiscal 201 5 and 201 4 , net of eliminations, were $ 16.4 million and $ 15.9 million , respectively.

Please see note 9, Related Party Transactions of the Notes to Condensed Consolidated Financial Stateme nts 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,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,229,009

$

1,120,580

Self-storage revenues

 

102,120

 

87,671

Self-moving and self-storage products and service sales

 

142,522

 

136,070

Property management fees

 

11,473

 

10,453

Life insurance premiums

 

76,971

 

80,510

Property and casualty insurance premiums

 

22,081

 

18,833

Net investment and interest income

 

42,902

 

38,949

Other revenue

 

98,368

 

95,114

Total revenues

 

1,725,446

 

1,588,180

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

747,269

 

680,515

Commission expenses

 

142,500

 

131,389

Cost of sales

 

81,464

 

70,102

Benefits and losses

 

80,342

 

80,625

Amortization of deferred policy acquisition costs

 

8,474

 

9,740

Lease expense

 

42,245

 

52,825

Depreciation, net of (gains) on disposals of (($44,500) and ($20,876), respectively)

 

128,117

 

120,642

Total costs and expenses

 

1,230,411

 

1,145,838

 

 

 

 

 

Earnings from operations

 

495,035

 

442,342

Interest expense

 

(49,025)

 

(46,446)

Fees and amortization on early extinguishment of debt

 

(4,081)

 

Pretax earnings

 

441,929

 

395,896

Income tax expense

 

(161,208)

 

(144,937)

Earnings available to common stockholders

$

280,721

$

250,959

Basic and diluted earnings per common share

$

14.34

$

12.84

Weighted average common shares outstanding: Basic and diluted

 

19,580,997

 

19,550,128

 

Related party revenues for the first six months of fiscal 201 5 and 201 4 , net of eliminations, were $ 17.6 million and $ 16.8 million , respectively.

Related party costs and expenses for the first six months of fiscal 201 5 and 201 4 , net of eliminations, were $31.4 million and $ 29.9 million , respectively.

Please see note 9, 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 statemen ts.

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

 

Quarter Ended September 30, 2014

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

246,878

$

(90,631)

$

156,247

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(6,282)

 

 

(6,282)

Unrealized net gain on investments

 

20,530

 

(7,186)

 

13,344

Change in fair value of cash flow hedges

 

4,492

 

(1,707)

 

2,785

Total comprehensive income

$

265,618

$

(99,524)

$

166,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

216,848

$

(78,857)

$

137,991

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,557

 

 

1,557

Unrealized net loss on investments

 

(41,095)

 

14,322

 

(26,773)

Change in fair value of cash flow hedges

 

1,946

 

(740)

 

1,206

Total comprehensive income

$

179,256

$

(65,275)

$

113,981

 

Six Months Ended September 30, 2014

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

441,929

$

(161,208)

$

280,721

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(3,539)

 

 

(3,539)

Unrealized net gain on investments

 

47,142

 

(16,500)

 

30,642

Change in fair value of cash flow hedges

 

5,837

 

(2,218)

 

3,619

Total comprehensive income

$

491,369

$

(179,926)

$

311,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

395,896

$

(144,937)

$

250,959

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(2,205)

 

 

(2,205)

Unrealized net loss on investments

 

(41,006)

 

14,254

 

(26,752)

Change in fair value of cash flow hedges

 

12,142

 

(4,614)

 

7,528

Total comprehensive income

$

364,827

$

(135,297)

$

229,530

 

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,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$  

280,721

$  

250,959

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

172,617

 

141,518

Amortization of deferred policy acquisition costs

 

8,474

 

9,740

Change in allowance for losses on trade receivables

 

(219)

 

(6)

Change in allowance for inventory reserves

 

(960)

 

716

Net gain on sale of real and personal property

 

(44,500)

 

(20,876)

Net gain on sale of investments

 

(2,788)

 

(4,060)

Deferred income taxes

 

23,212

 

63,947

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

13,396

 

24,561

Inventories

 

(1,260)

 

(5,750)

Prepaid expenses

 

14,012

 

2,323

Capitalization of deferred policy acquisition costs

 

(13,728)

 

(16,289)

Other assets

 

(7,885)

 

(4,370)

Related party assets

 

2,170

 

8,650

Accounts payable and accrued expenses

 

35,919

 

24,866

Policy benefits and losses, claims and loss expenses payable

 

(3,918)

 

309

Other policyholders' funds and liabilities

 

1,356

 

494

Deferred income

 

1,962

 

2,191

Related party liabilities

 

375

 

4,475

Net cash provided by operating activities

 

478,956

 

483,398

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(599,351)

 

(457,671)

Short term investments

 

(130,294)

 

(154,703)

Fixed maturities investments

 

(114,112)

 

(174,593)

Equity securities

 

(3,707)

 

(388)

Preferred stock

 

(3)

 

(635)

Real estate

 

(11,312)

 

(252)

Mortgage loans

 

(21,189)

 

(14,260)

Proceeds from sale of:

 

 

 

 

Property, plant and equipment

 

260,659

 

176,453

Short term investments

 

130,326

 

162,580

Fixed maturities investments

 

48,955

 

93,050

Equity securities

 

3,030

 

6,803

Preferred stock

 

1,000

 

6,004

Real estate

 

401

 

Mortgage loans

 

18,623

 

36,415

Net cash used by investing activities

 

(416,974)

 

(321,197)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

506,792

 

138,041

Principal repayments on credit facilities

 

(208,101)

 

(122,945)

Debt issuance costs

 

(9,847)

 

(233)

Capital lease payments

 

(40,694)

 

(21,425)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

167

 

260

Investment contract deposits

 

71,571

 

74,253

Investment contract withdrawals

 

(24,075)

 

(14,721)

Net cash provided by financing activities

 

295,813

 

53,230

 

 

 

 

 

Effects of exchange rate on cash

 

(3,761)

 

401

 

 

 

 

 

Increase in cash and cash equivalents

 

354,034

 

215,832

Cash and cash equivalents at the beginning of period

 

495,112

 

463,744

Cash and cash equivalents at the end of period

$  

849,146

$  

679,576

 

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 ins urance 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 t he 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 201 4 and 20 13 correspond to fiscal 201 5 and 201 4 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 , 20 1 4 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 5 and 201 4 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 4 .

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 Estat e”),

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

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

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

The Moving and Storage operati ng segment include s AMERCO, U-Haul, 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 towing accessories, sales of propane, rental of fixed and mobile self-storage spaces 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 ope rating segment (“Property and Casualty Insurance”) includes Rep w est and its wholly-owned subsidiaries and ARCOA risk retention group (“ARCOA”). Property and Casualty Insurance 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, 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 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 the moving and storage business.

The Life Ins urance 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 s upplement 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 20,422 and 48,649 as of September 30 , 201 4 and 201 3 , respectively.

3. Investments

Expected maturities may differ from contractual maturities as borrowers m ay 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 $ 16.9 million and $16.3 million at September 30 , 201 4 and March 31, 2014, respectively .

Available-for-Sale Investments

Available-for-sale investments at September 30 , 201 4 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

$

71,987

$

3,640

$

(223)

$

(20)

$  

75,384

U.S. government agency mortgage-backed securities

 

33,291

 

2,838

 

(129)

 

(3)

 

35,997

Obligations of states and political subdivisions

 

164,887

 

9,354

 

(1,242)

 

(39)

 

172,960

Corporate securities

 

877,833

 

45,736

 

(4,294)

 

(1,275)

 

918,000

Mortgage-backed securities

 

16,817

 

518

 

(2)

 

(80)

 

17,253

Redeemable preferred stocks

 

17,448

 

646

 

(348)

 

(25)

 

17,721

Common stocks

 

17,975

 

4,841

 

 

 

22,816

 

$

1,200,238

$

67,573

$

(6,238)

$

(1,442)

$  

1,260,131

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Available-for-sale investments at March 31 , 201 4 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

$

49,883

$

1,475

$

$

(1,004)

$  

50,354

U.S. government agency mortgage-backed securities

 

36,258

 

2,558

 

(4)

 

(425)

 

38,387

Obligations of states and political subdivisions

 

166,311

 

4,834

 

(308)

 

(3,627)

 

167,210

Corporate securities

 

834,923

 

26,075

 

(3,794)

 

(25,875)

 

831,329

Mortgage-backed securities

 

12,425

 

279

 

(3)

 

(514)

 

12,187

Redeemable preferred stocks

 

18,445

 

283

 

(82)

 

(1,113)

 

17,533

Common stocks

 

17,299

 

3,987

 

(1)

 

(10)

 

21,275

 

$

1,135,544

$

39,491

$

(4,192)

$

(32,568)

$  

1,138,275

The table s above 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 $48.5 million during the first six months of fiscal 201 5 . The gross realized gains on these sales totaled $1.4 million. The gross rea lized losses on these sales totaled $0.3 million .

The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. We track each investment with an unrealized loss and evaluate them 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 recognized these write-downs through earnings. There were no write downs in the second quarter or for the first six months of fiscal 201 5 and 201 4 .

The investment portfolio primarily consists of corporate securities and U.S. governme nt securities. 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 tim e 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 matu rity 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 subordina tion 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 and first six months of fiscal 2015.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


The adjusted cost and estimated market value of available-for-sale investments at September 30 , 201 4 , by contractual maturity, were as follows:

 

 

September 30, 2014

 

March 31, 2014

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

 

 

(In thousands)

Due in one year or less

$

40,037

$

41,254

$

20,235

$

20,475

Due after one year through five years

 

225,426

 

239,240

 

185,447

 

194,563

Due after five years through ten years

 

472,125

 

495,392

 

350,048

 

350,953

Due after ten years

 

410,410

 

426,455

 

531,645

 

521,289

 

 

1,147,998

 

1,202,341

 

1,087,375

 

1,087,280

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

16,817

 

17,253

 

12,425

 

12,187

Redeemable preferred stocks

 

17,448

 

17,721

 

18,445

 

17,533

Common stocks

 

17,975

 

22,816

 

17,299

 

21,275

 

$

1,200,238

$

1,260,131

$

1,135,544

$

1,138,275

 

 

 

 

 

 

 

 

 

4. Borrowings

Long-Term Debt

Long-term debt was as follows:

 

 

 

 

 

September 30,

 

March 31,

 

2015 Rate (a)

 

Maturities

 

2014

 

2014

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

1.66% - 6.93%

 

2023

$

245,000

$

250,000

Real estate loan (revolving credit)

 

 

2015

 

 

Senior mortgages

2.16% - 5.75%

 

2015 - 2038

 

880,186

 

684,915

Working capital loan (revolving credit)

 

 

2016

 

 

Fleet loans (amortizing term)

1.95% - 5.57%

 

2015 - 2021

 

342,431

 

370,394

Fleet loans (securitization)

4.90%

 

2017

 

81,571

 

90,793

Fleet loans (revolving credit)

1.15% - 2.00%

 

2017 - 2019

 

232,000

 

89,632

Capital leases (rental equipment)

2.23% - 7.83%

 

2015 - 2021

 

558,132

 

416,750

Other obligations

3.00% - 8.00%

 

2014 - 2043

 

43,003

 

39,875

Total notes, loans and leases payable

 

 

 

$

2,382,323

$

1,942,359

 

 

 

 

 

 

 

 

(a) Interest rate as of September 30, 2014, 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, 2014 , the outstanding balance on the Real Estate Loan was $245.0 million . U-Haul International, Inc. is a guarantor of this loan.  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 propert ies 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 l oan a greement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At September 30, 2014 , the applicable LIBOR was 0.16% and the applicable margin was 1.50%, the sum of which was 1.66% which applied to $ 25.0 million of the Real Estate Loan. The rate on the remaining balance of $ 220.0 million of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. 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 o ur use of the funds.

Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $ 50 .0 million. This agreement matures in April 201 5 . As of September 30, 2014 , we had the full $50.0 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO and U-Haul International, Inc. are guarantors of this facility. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change -in-control covenants.

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, 2014 were in the aggregate amoun t of $880.2 million and mature between 2015 and 2038 . During the second quarter of fiscal 2015, we paid off approximately $127 million of our senior mortgages before their maturity in July 2015. As part of this defeasence, we incurred costs associated with the early extinguishment of debt of $3.8 million in fees and $0.3 million of transaction cost amortization related to the defeased debt.

For the six months ended September 30, 2014, we entered into $334 million of senior mortgages with rates between 2.16% and 4.81% and mature between 2017 and 2034. The senior mortgages require monthly principal and interest payments with the unpaid loan bal ance and accrued and unpaid interest due at maturity. 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 4.22% and 5.75%. Additionally, $145.6 m illion of these loans have interest rates comprised of an applicable LIBOR of 0.16% plus margins between 2.00% and 2.50%, the sum of which was between 2.16% and 2.66 %. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarante es 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 C apital Loans

Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $25.0 million. At September 30, 2014 , the full $25.0 million was available to be drawn. This loan is s ecured by certain properties owned by th e borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This agreement matures in April 201 6 . This loan requires monthly interest payments with the unpaid loan balanc e and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control cov enants. The interest rate is the applicable LIBOR plus a margin of 1. 25 %.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of September 30, 2014 was $ 227.4 million with the final maturities between August 2015 and March 2021.

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 lo ans 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, 2014 , the applicable LIBOR was between 0.15% and 0.16% and applicable margins were be tween 1.35% and 2.50%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 5.57% based on current margins. Additionally, $ 98.3 million of these loans are carried at fixed rates ranging between 1.95% and 3.94%.

AMERCO a nd 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.

A subsidiary of U-Haul International, Inc. is a bo rrower under amortizing term loans with an aggregate balance of $115.0 million that were used to fund new truck acquisitions. The final maturity date of these notes is August 2016 .   The agreement s contain options to extend the maturity through May 2017 . Th e se note s are secured by the purchased equipment and the corresponding operating cash flows associated with their operation.   These notes have fixed interest rates between 3.52% and 3.53% . At September 30, 2014, the aggregate outstanding balance was $115.0 million .

AMERCO and 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

201 0 U-Haul S Fleet and its subsidiaries (collectively, “2010 USF”) issued a $155.0 million asset-backed note (“2010 Box Truck Note”) on October 28, 2010. 2010 USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The ne t 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, 2014 , the outstanding balance was $ 81.6 million. 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 res pect 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 an d other standard reporting and change-in-control covenants.

Rental Truck Revolvers

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $75 million, which can be increased to a maximum of $225 million. The loan matures in October 2018. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin . At September 30, 2014 , the applicable LIBOR was 0.15% and the margin was 1.75%, the sum of which was 1.90%. Only interest is p aid during the first four years of the loan with principal due monthly over the last nine months. As of September 30, 2014, the outstanding balance was $75.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan fo r $100 million, which can be increased to a maximum of $125 million. The loan matures in October 2017. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin . At September 30, 2014 , the applicable LIB OR was 0.15% and the margin was 1.0 0%, the sum of which was 1. 1 5%. Only interest is paid during the first three years of the loan with principal due monthly over the last nine months. As of September 30, 2014, the outstanding balance was $100.0 million.

Va rious subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $70 million. The loan matures in May 2019 . This agreement contains an option to extend the maturity through February 2020. At September 30, 2014, the applicable LIBOR was 0.15% and the margin was 1.85%, the sum of which was 2.00% . Only interest is paid during the first five years of the loan with principal due upon maturity . As of September 30, 2014, we had $ 13.0 million available to be drawn.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Capital Leases

We entered into capital leases for new equipment between April 2008 and September 2014 , with terms of the leases between 3 and 7 years. At September 30, 2014 , the balance of these leases was $ 558.1 million . The net book value of the corresponding capitalized assets w as $670.8 million at September 30, 2014.

Other Obligations

In February 2011 , the Company and US Bank, N ational A ssociation (the “Trustee”) entered into the
U-Haul Investors Club Indenture.   The Company and the Trustee entered into this indenture to provid e 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 rental equipment and real estate.   U-Notes are issued in smaller ser ies 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, 2014, the aggre gate outstanding principal balance of the U-N otes issued was $ 49.8 million of which $ 6.8 million is held by our insurance subsidiaries and eliminated in consolidation. I nterest rates range between 3.00% and 8.00% and maturity dates between 201 4 and 2043.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of September 30 , 201 4 for the next five years and thereafter are as follows:

 

 

Twelve Months Ending September 30,

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

502,023

$

322,471

$

361,445

$

318,263

$

251,294

$

626,827

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended September 30,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

20,658

$

18,055

Capitalized interest

 

(220)

 

(128)

Amortization of transaction costs

 

801

 

843

Interest expense resulting from derivatives

 

3,638

 

4,348

Total interest expense

 

24,877

 

23,118

Write-off of transaction costs related to early extinguishment of debt

 

298

 

Fees on early extinguishment of debt

 

3,783

 

Fees and amortization on early extinguishment of debt

 

4,081

 

Total

$

28,958

$

23,118

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


 

 

Six Months Ended September 30,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

40,579

$

35,869

Capitalized interest

 

(387)

 

(270)

Amortization of transaction costs

 

1,554

 

1,694

Interest expense resulting from derivatives

 

7,279

 

9,153

Total interest expense

 

49,025

 

46,446

Write-off of transaction costs related to early extinguishment of debt

 

298

 

Fees on early extinguishment of debt

 

3,783

 

Fees and amortization on early extinguishment of debt

 

4,081

 

Total

$

53,106

$

46,446

Interest paid in cash , including payments related to derivative contracts, amounted to $ 24.1 million and $ 22.9 million for the second quarter of fiscal 201 5 and 201 4, respectively and $47.5 million and $44.9 million for the first six months of fiscal 2015 and 2014, respectively .

The costs associated with the early extinguishment of debt in the second quarter of fiscal 2015 included $3.8 million of fees and $0.3 million of transaction cost amortization related to retired debt.

Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended September 30,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

1.76%

 

1.52%

Interest rate at the end of the quarter

 

1.61%

 

1.52%

Maximum amount outstanding during the quarter

$

232,000

$

25,000

Average amount outstanding during the quarter

$

202,977

$

25,000

Facility fees

$

81

$

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Activity

 

 

Six Months Ended September 30,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the period

 

1.76%

 

1.50%

Interest rate at the end of the period

 

1.61%

 

1.52%

Maximum amount outstanding during the period

$

232,000

$

25,000

Average amount outstanding during the period

$

172,740

$

24,590

Facility fees

$

198

$

156

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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 cert ain 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 counterpartie s 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

 

19.3

(a)

 

4/8/2008

 

8/15/2008

 

6/15/2015

 

3/31/2008

 

19.0

 

 

8/27/2008

 

8/29/2008

 

7/10/2015

 

4/10/2008

 

30.0

 

 

9/24/2008

 

9/30/2008

 

9/10/2015

 

9/24/2008

 

15.0

(a)

 

3/24/2009

 

3/30/2009

 

3/30/2016

 

3/25/2009

 

14.7

(a)

 

7/6/2010

 

8/15/2010

 

7/15/2017

 

7/6/2010

 

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, 2014 , the total notional amount of our variable interest rate swaps on debt and an operating lease was $ 349.5 million and $11.6 million, respectively .

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

 

 

Liability Derivatives Fair Values as of

 

 

September 30, 2014

 

March 31, 2014

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

26,859

$

32,716

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


 

 

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

 

 

 

 

September 30, 2014

 

September 30, 2013

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

7,279

$

9,153

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

$

(5,837)

$

(12,142)

Loss reclassified from AOCI into income (effective portion)

$

7,298

$

8,685

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

$

(19)

$

468

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At September 30, 2014, we expect to reclassify $13.6 million of net losses on interest rate contracts from accumulated other comprehensive income (loss) to earnings as interest expense over the next twelve months. During the first six months of fiscal 201 5, we reclassified $7.3 million of net losses on interest rate contracts from accumulated other comprehensive income to interest expense.

6 . 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, 2014

$

(39,287)

$

5,991

$

(20,321)

$

(306)

$

(53,923)

Foreign currency translation

 

(3,539)

 

 

 

 

(3,539)

Unrealized net gain on investments

 

 

30,642

 

 

 

30,642

Change in fair value of cash flow hedges

 

 

 

(3,679)

 

 

(3,679)

Amounts reclassified from AOCI

 

 

 

7,298

 

 

7,298

Other comprehensive income (loss)

 

(3,539)

 

30,642

 

3,619

 

 

30,722

Balance at September 30, 2014

$

(42,826)

$

36,633

$

(16,702)

$

(306)

$

(23,201)

7 . 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 da tes substantially through 2019 . As of September 30, 2014 , we have guaranteed $ 72.3 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 valu e guarantees. 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Lease commitments for leases having terms of more than one year were as follows:

 

 

Property,

Plant and

Equipment

 

Rental

Equipment

 

Total

 

 

(Unaudited)

 

 

 

 

(In thousands)

 

 

Twelve Months Ended September 30:

 

 

 

 

 

 

2015

$

15,016

$

48,701

$

63,717

2016

 

14,711

 

18,888

 

33,599

2017

 

14,594

 

12,177

 

26,771

2018

 

13,856

 

10,452

 

24,308

2019

 

13,283

 

5,396

 

18,679

Thereafter

 

65,091

 

 

65,091

Total

$

136,551

$

95,614

$

232,165

 

8 . Contingencies

PODS Enterprises, Inc. v. U-Haul International, Inc.

On July 3, 2012, PODS Enterprises, Inc. (“PEI”), filed a lawsuit against U-Haul International, Inc. (“U-Haul”), in the United States District Court for the Middle District of Florida, Tampa Division, alleging (1) Federal Trademark Infri ngement under Section 32 of the Lanham Act, (2) Federal Unfair Competition under Section 43(a) of the Lanham Act, (3) Federal Trademark dilution by blurring in violation of Section 43(c) of the Lanham Act, (4) common law trademark infringement under Florid a law, (5) violation of the Florida Dilution; Injury to Business Reputation statute, (6) unfair competition and trade practices, false advertising and passing off under Florida common law, (7) violation of the Florida Deceptive and Unfair Trade Practices A ct, and (8) unjust enrichment under Florida law. 

The claims arise from U-Haul’s use of the word “pod” and “pods” as a generic term for its U-Box moving and storage product. PEI alleges that such use is an inappropriate use of its PODS mark.  Under the cl aims alleged in its Complaint, PEI seeks a Court Order permanently enjoining U-Haul from: (1) the use of the PODS mark, or any other trade name or trademark confusingly similar to the mark; and (2) the use of any false descriptions or representations or co mmitting any acts of unfair competition by using the PODS mark or any trade name or trademark confusingly similar to the mark. PEI also seeks a Court Order (1) finding all of PEI’s trademarks valid and enforceable and (2) requiring U-Haul to alter all web pages to promptly remove the PODS mark from all websites owned or operated on behalf of U-Haul. Finally, PEI seeks an award of damages in an amount to be proven at trial, but which are alleged to be approximately $70 million. PEI also seeks prejudgment int erest, trebled damages, and punitive damages.

U-Haul does not believe that PEI’s claims have merit and vigorously defend ed the lawsuit.  O n September 17, 2012, U-Haul filed its Counterclaims, seeking a Court Order declaring that: U-Haul’s use of the term “pods” or “pod” does not infringe or dilute PEI’s purported trademarks or violate any of PEI’s purported rights; (2) The purported mark “PODS” is not a valid, protectable, or registrable trademark; and (3) The purported mark “PODS PORTABLE ON DEMAND STORAG E” is not a valid, protectable, or registrable trademark. U-Haul also sought a Court Order cancelling the marks at issue in the case.

The case was tried to an 8-person jury, beginning on September 8, 2014. On September 19, 2014, the Court granted U-Haul’s motion for directed verdict on the issue of punitive damages.  The Court deferred ruling on U-Haul’s motion for directed verdict on its defense that the words “pod” and “pods” were generic terms for a container used for the moving and storage of goods at the time PEI obtained its trademark (“genericness defense”).  Closing arguments were on September 22, 2014.

On September 25, 2014, the jury returned a unanimous verdict, finding in favor of PEI and against U-Haul on all claims and counterclaims.  The jury awarded PEI $45 million in actual damages and $15.7 million in U-Haul’s profits attributable to its use of the term “pod” or “pods”. 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


U-Haul intends to file post-trial motions and, if necessary, appeal the verdict to the Eleventh Circuit Court of Appeals.   In this regard, on October 1, 2014, the Court ordered briefing on U-Haul’s oral motion for directed verdict on its genericness defense, the motion on which the Court had deferred ruling during trial.  Pursuant to the Court’s order, the parties’ briefing on that motion was completed by October 21, 2014.

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. We are aware of issues regarding hazardous substances on some of Real Estate’s properties. Real Estate regularly makes capital and operating ex penditures 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 up on 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 financi al 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 p osition and results of operations.

9 . Related Party Transactions

As set forth in the Audit Committee Charter and consistent with Nasdaq Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactio ns which are required to be disclosed under the Securities and Exchange Commission (“SEC”) rules and re gulations. 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 which 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 th ose 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 self-storage properties. These properties are being managed by us pursuant to ma nagement agreements. In the past, we have sold various self-storage properties to SAC Holdings, and such sales provided significant cash flows to the Company.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Related Party Revenue

 

 

Quarter Ended September 30,  

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,719

$

1,733

U-Haul interest income revenue from Private Mini

 

1,340

 

1,349

U-Haul management fee revenue from SAC Holdings

 

4,622

 

4,188

U-Haul management fee revenue from Private Mini

 

648

 

604

U-Haul management fee revenue from Mercury

 

526

 

500

 

$

8,855

$

8,374

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,  

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

3,423

$

3,652

U-Haul interest income revenue from Private Mini

 

2,666

 

2,686

U-Haul management fee revenue from SAC Holdings

 

9,145

 

8,262

U-Haul management fee revenue from Private Mini

 

1,284

 

1,198

U-Haul management fee revenue from Mercury

 

1,044

 

993

 

$

17,562

$

16,791

During the first six months of fiscal 201 5 , 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 Investments, Inc. (“Blackwater”). Blackwater i s wholly-owned by Mark   V. Shoen, a significant stock holder of AMERCO. We do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $ 3.3 million and $ 13.9 million from SAC Holdings during the first six months of fiscal 201 5 and 201 4 , respectively. During the first quarter of fiscal 2014, SAC Holdings made a payment of $10.4 million to reduce its outstanding deferred interest payable to AMERCO. The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 201 5 was $7 1 . 5 million and the aggregate notes receivable balance at September 30 , 201 4 was $ 71.0 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time . We received repayments of $20.2 million during the third quarter of fiscal 2015 on these notes and interest receivables. After this repayment the scheduled maturities of these notes are 2017.

During the first six months of fiscal 2015, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. We received cash interest payments of $2.7 million from Private Mini during the first six months of both fiscal 2015 and 2014. The largest aggregate amount outstanding during the first six months of fiscal 2015 was $65.5 million and the aggregate notes receivable balance at September 30, 2014 was $65.3 million.  We received repayments of $9.0 million during the third quarter of fiscal 2015 on these notes and interest receivables.

We currently manage 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 Min i 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 management fees, exclusive of reimbursed expenses, of $ 15.2 mill ion and $15.7 million from the above mentioned entities during the first six months of fiscal 201 5 and 201 4, respectively . This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Ho ldings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant stock holder and director of AMERCO and an estate planning trust benefitting Shoen children have an interest in Mercury.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Related Party Costs and Expenses

 

 

Quarter Ended September 30,  

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

655

$

655

U-Haul commission expenses to SAC Holdings

 

14,742

 

14,407

U-Haul commission expenses to Private Mini

 

972

 

893

 

$

16,369

$

15,955

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,  

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,310

$

1,310

U-Haul commission expenses to SAC Holdings

 

28,226

 

26,927

U-Haul commission expenses to Private Mini

 

1,834

 

1,688

 

$

31,370

$

29,925

We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. 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 4 , 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 our other independent dealers whereby commissions are paid by the Company based upon equipment rental revenues .

These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $16.5 million, expenses of $1.3 million and cash flows of $ 17.5 million during the first six months of fiscal 201 5 . Revenues and commission expenses related to the Dealer Agreement s were $ 138.9 million and $ 30.1 million, respectively during the first six months of fiscal 201 5 .

Pursuant to the variable interest entity model under ASC 810 – Consolidation (“ASC 810”) , Management determined that the junior notes of SAC Holdings and Priv ate Mini as well as the management agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represent potential variable interests for us. Management evaluated whether it should be identified as the primary beneficiary of one or more o f these VIE’s using a two - step approach in which management (i) identified all other parties that hold interests in the VIE’s, and (ii) determined if any variable interest holder has the power to direct the activities of the VIE’s that most significantly i mpact their economic performance.

Management determined that they do not have a variable interest in the holding entities SAC Holding II Corporation, Mercury, 4 SAC, 5 SAC, or Galaxy 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.

We have junior debt with the holding entities SAC Holding Corporation and Private Mini which represents a variable interest in each individual entity. Though we have certain protective rights within these debt agreements, we have no present influence or control o ver these holding entities unless their 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 these entities.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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 signi ficantly 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 4 to any of these entities that it was 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 ent ities:

Related Party Assets

 

 

September 30,

 

March 31,

 

 

2014

 

2014

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

68,543

$

68,451

U-Haul notes receivable from SAC Holdings

 

70,984

 

71,464

U-Haul interest receivable from SAC Holdings

 

4,533

 

4,376

U-Haul receivable from SAC Holdings

 

18,063

 

19,418

U-Haul receivable from Mercury

 

4,197

 

5,930

Other (a)

 

679

 

(15)

 

$

166,999

$

169,624

(a) Timing differences for intercompany balances with insurance subsidiaries.

1 0 . 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 Insuran ce, 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 s tatements.

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 0 . Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of September 30, 2014 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudi ted)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

511,053

$

318,572

$

3,777

$

 

$

833,402

$

8,364

$

7,380

$

 

$

849,146

Reinsurance recoverables and trade receivables, net

 

 

30,598

 

177

 

 

 

30,775

 

126,274

 

29,096

 

 

 

186,145

Inventories, net

 

 

69,240

 

 

 

 

69,240

 

 

 

 

 

69,240

Prepaid expenses

 

 

39,933

 

1,243

 

 

 

41,176

 

 

 

 

 

41,176

Investments, fixed maturities and marketable equities

 

 

 

 

 

 

 

212,586

 

1,047,545

 

 

 

1,260,131

Investments, other

 

 

 

28,227

 

 

 

28,227

 

55,109

 

178,478

 

 

 

261,814

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

113,943

 

 

 

113,943

Other assets

 

161

 

59,125

 

52,234

 

 

 

111,520

 

1,189

 

2,598

 

 

 

115,307

Related party assets

 

1,027,924

 

111,924

 

4

 

(971,095)

(c)

 

168,757

 

14,562

 

476

 

(16,796)

(c)

 

166,999

 

 

1,539,138

 

629,392

 

85,662

 

(971,095)

 

 

1,283,097

 

418,084

 

1,379,516

 

(16,796)

 

 

3,063,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

781,094

 

 

 

(361,287)

(b)

 

419,807

 

 

 

(419,807)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

64,080

 

382,267

 

 

 

446,347

 

 

 

 

 

446,347

Buildings and improvements

 

 

245,955

 

1,322,549

 

 

 

1,568,504

 

 

 

 

 

1,568,504

Furniture and equipment

 

73

 

316,724

 

16,062

 

 

 

332,859

 

 

 

 

 

332,859

Rental trailers and other rental equipment

 

 

418,590

 

 

 

 

418,590

 

 

 

 

 

418,590

Rental trucks

 

 

2,873,062

 

 

 

 

2,873,062

 

 

 

 

 

2,873,062

 

 

73

 

3,918,411

 

1,720,878

 

 

 

5,639,362

 

 

 

 

 

5,639,362

Less:  Accumulated depreciation

 

(59)

 

(1,443,431)

 

(389,982)

 

 

 

(1,833,472)

 

 

 

 

 

(1,833,472)

Total property, plant and equipment

 

14

 

2,474,980

 

1,330,896

 

 

 

3,805,890

 

 

 

 

 

3,805,890

Total assets

$

2,320,246

$

3,104,372

$

1,416,558

$

(1,332,382)

 

$

5,508,794

$

418,084

$

1,379,516

$

(436,603)

 

$

6,869,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 2014 are as follows:

 

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

556

$

375,178

$

5,483

$

 

$

381,217

$

$

6,627

$

 

$

387,844

Notes, loans and leases payable

 

 

1,314,130

 

1,068,193

 

 

 

2,382,323

 

 

 

 

 

2,382,323

Policy benefits and losses, claims and loss expenses payable

 

 

378,609

 

 

 

 

378,609

 

277,270

 

422,500

 

 

 

1,078,379

Liabilities from investment contracts

 

 

 

 

 

 

 

 

664,221

 

 

 

664,221

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

4,137

 

5,206

 

 

 

9,343

Deferred income

 

 

33,332

 

 

 

 

33,332

 

 

 

 

 

33,332

Deferred income taxes

 

476,385

 

 

 

 

 

476,385

 

(24,858)

 

20,569

 

 

 

472,096

Related party liabilities

 

 

504,853

 

480,917

 

(971,095)

(c)

 

14,675

 

1,982

 

139

 

(16,796)

(c)

 

Total liabilities

 

476,941

 

2,606,102

 

1,554,593

 

(971,095)

 

 

3,666,541

 

258,531

 

1,119,262

 

(16,796)

 

 

5,027,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

10,497

 

1

 

1

 

(2)

(b)

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

447,695

 

121,230

 

147,941

 

(269,171)

(b)

 

447,695

 

91,120

 

26,271

 

(117,601)

(b)

 

447,485

Accumulated other comprehensive income (loss)

 

(23,201)

 

(59,834)

 

 

59,834

(b)

 

(23,201)

 

7,403

 

29,231

 

(36,634)

(b)

 

(23,201)

Retained earnings (deficit)

 

2,085,964

 

437,925

 

(285,977)

 

(151,948)

(b)

 

2,085,964

 

57,729

 

202,252

 

(259,771)

(b)

 

2,086,174

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

 

(1,052)

 

 

 

 

(1,052)

 

 

 

 

 

(1,052)

Total stockholders' equity (deficit)

 

1,843,305

 

498,270

 

(138,035)

 

(361,287)

 

 

1,842,253

 

159,553

 

260,254

 

(419,807)

 

 

1,842,253

Total liabilities and stockholders' equity

$

2,320,246

$

3,104,372

$

1,416,558

$

(1,332,382)

 

$

5,508,794

$

418,084

$

1,379,516

$

(436,603)

 

$

6,869,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries