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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, 2019

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

 

 

 

 

001-11255

AMERCO

88-0106815

 

(A Nevada Corporation)

 

 

5555 Kietzke Lane Suite 100

 

 

Reno NV 89511

 

 

Telephone 775 688-6300

 

 

 

 

 

N/A

 

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.25 par value

UHAL

NASDAQ Global Select Market

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, every Interactive Data File required to be submitted 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 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 definitions 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 [ ]  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 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 1, 2019.

 

 


 

 

 

TABLE OF CONTENTS

 

 

Page

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a) Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and March 31, 2019

 

1

 

 

b) Condensed Consolidated Statements of Operations for the Quarters Ended September 30, 2019 and 2018 (unaudited)

 

2

 

 

c) Condensed Consolidated Statements of Operations for the Six Months Ended September 30, 2019 and 2018 (unaudited)

 

3

 

 

d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Six Months Ended September 30, 2019 and 2018 (unaudited)

 

4

 

 

e) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Quarter Ended September 30, 2019 and 2018 (unaudited)

 

5

 

 

f) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended September 30, 2019 and 2018 (unaudited)

 

6

 

 

g) Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 2018 (unaudited)

 

7

 

 

h) Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

Item 2

 

.

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

 

44

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

61

Item 4.

Controls and Procedures

63

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

64

Item 1A.

Risk Factors

64

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

64

 

 


 

Part i Financial information

Item 1. Financial Statements

AMERCO AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED balance sheets

 

 

September 30,

 

March 31,

 

 

2019

 

2019

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

525,231

$

673,701

Reinsurance recoverables and trade receivables, net

 

222,481

 

224,785

Inventories and parts, net

 

102,357

 

103,504

Prepaid expenses

 

194,250

 

174,100

Investments, fixed maturities and marketable equities

 

2,413,350

 

2,235,397

Investments, other

 

320,992

 

300,736

Deferred policy acquisition costs, net

 

111,708

 

136,276

Other assets

 

72,432

 

78,354

Right of use assets - financing, net

 

1,185,629

 

0

Right of use assets - operating

 

105,298

 

Related party assets

 

12,902

 

30,889

 

 

5,266,630

 

3,957,742

Property, plant and equipment, at cost:

 

 

 

 

Land

 

1,016,918

 

976,454

Buildings and improvements

 

4,371,637

 

4,003,726

Furniture and equipment

 

716,287

 

689,780

Rental trailers and other rental equipment

 

495,264

 

590,039

Rental trucks

 

3,560,034

 

4,762,028

 

 

10,160,140

 

11,022,027

Less: Accumulated depreciation

 

(2,570,568)

 

(3,088,056)

Total property, plant and equipment, net

 

7,589,572

 

7,933,971

Total assets

$

12,856,202

$

11,891,713

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

546,260

$

556,873

Notes, loans and finance/capital leases payable, net

 

4,497,912

 

4,163,323

Operating lease liability

 

104,832

 

0

Policy benefits and losses, claims and loss expenses payable

 

1,022,134

 

1,011,183

Liabilities from investment contracts

 

1,720,995

 

1,666,742

Other policyholders' funds and liabilities

 

10,911

 

15,047

Deferred income

 

35,926

 

35,186

Deferred income taxes, net

 

859,164

 

750,970

Total liabilities

 

8,798,134

 

8,199,324

 

 

 

 

 

Commitments and contingencies (notes 4, 8, 9 and 10)

 

 

 

 

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, 2019

 

 

 

 

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

 

 

 

 

issued and outstanding as of September 30 and March 31, 2019

 

 

 

 

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, 2019

 

 

 

 

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, 2019

 

10,497

 

10,497

Additional paid-in capital

 

453,761

 

453,326

Accumulated other comprehensive income (loss)

 

17,151

 

(66,698)

Retained earnings

 

4,255,906

 

3,976,962

Cost of common stock in treasury, net (22,377,912 shares as of September 30 and March 31, 2019)

 

(525,653)

 

(525,653)

Cost of preferred stock in treasury, net (6,100,000 shares as of September 30 and March 31, 2019)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(1,597)

 

(4,048)

Total stockholders' equity

 

4,058,068

 

3,692,389

Total liabilities and stockholders' equity

$

12,856,202

$

11,891,713

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

1


AMERCO AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED Statements of operations

 

 

Quarter Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

804,325

$

781,713

Self-storage revenues

 

104,965

 

91,493

Self-moving and self-storage products and service sales

 

73,121

 

72,913

Property management fees

 

7,233

 

7,192

Life insurance premiums

 

32,355

 

35,920

Property and casualty insurance premiums

 

18,365

 

16,283

Net investment and interest income

 

33,098

 

28,227

Other revenue

 

76,752

 

70,766

Total revenues

 

1,150,214

 

1,104,507

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

565,413

 

529,350

Commission expenses

 

86,099

 

85,334

Cost of sales

 

43,930

 

46,402

Benefits and losses

 

45,825

 

45,773

Amortization of deferred policy acquisition costs

 

6,515

 

5,899

Lease expense

 

6,356

 

8,170

Depreciation, net of gains on disposal of ($17,999 and $12,036, respectively)

 

151,553

 

132,625

Net (gains) losses on disposal of real estate

 

(217)

 

10

Total costs and expenses

 

905,474

 

853,563

 

 

 

 

 

Earnings from operations

 

244,740

 

250,944

Other components of net periodic benefit costs

 

(264)

 

(254)

Interest expense

 

(39,122)

 

(35,030)

Pretax earnings

 

205,354

 

215,660

Income tax expense

 

(49,028)

 

(52,118)

Earnings available to common stockholders

$

156,326

$

163,542

Basic and diluted earnings per common stock

$

7.97

$

8.35

Weighted average common stock outstanding: Basic and diluted

 

19,602,566

 

19,591,312

 

Related party revenues for the second quarter of fiscal 2020 and 2019, net of eliminations, were $7.2 million.

Related party costs and expenses for the second quarter of fiscal 2020 and 2019, net of eliminations, were $19.3 million and $19.0 million, respectively.

Please see Note 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.

2

 


AMERCO AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED Statements of operations

 

 

Six Months Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,552,921

$

1,498,315

Self-storage revenues

 

203,239

 

177,705

Self-moving and self-storage products and service sales

 

153,147

 

152,154

Property management fees

 

14,389

 

14,608

Life insurance premiums

 

65,065

 

72,808

Property and casualty insurance premiums

 

31,789

 

29,064

Net investment and interest income

 

68,847

 

52,832

Other revenue

 

140,066

 

126,598

Total revenues

 

2,229,463

 

2,124,084

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

1,099,885

 

1,025,904

Commission expenses

 

166,998

 

164,591

Cost of sales

 

92,859

 

96,283

Benefits and losses

 

94,831

 

94,327

Amortization of deferred policy acquisition costs

 

12,579

 

11,930

Lease expense

 

13,392

 

16,339

Depreciation, net of gains on disposal of ($34,677 and $28,331 respectively)

 

292,153

 

259,052

Net (gains) losses on disposal of real estate

 

(1,839)

 

10

Total costs and expenses

 

1,770,858

 

1,668,436

 

 

 

 

 

Earnings from operations

 

458,605

 

455,648

Other components of net periodic benefit costs

 

(527)

 

(507)

Interest expense

 

(78,010)

 

(70,284)

Pretax earnings

 

380,068

 

384,857

Income tax expense

 

(91,320)

 

(93,466)

Earnings available to common stockholders

$

288,748

$

291,391

Basic and diluted earnings per common stock

$

14.73

$

14.87

Weighted average common stock outstanding: Basic and diluted

 

19,600,211

 

19,590,946

 

Related party revenues for the first six months of fiscal 2020 and 2019, net of eliminations, were $14.4 million and $14.6 million, respectively.

Related party costs and expenses for the first six months of fiscal 2020 and 2019, net of eliminations, were $37.1 million and $36.2 million, respectively.

Please see Note 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.

3


AMERCO AND CONSOLIDATED SUBSIDIARIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

Quarter Ended September 30, 2019

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

205,354

$

(49,028)

$

156,326

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

629

 

 

 

629

Unrealized net gain on investments

 

52,651

 

(11,346)

 

41,305

Change in fair value of cash flow hedges

 

(840)

 

207

 

(633)

Amounts reclassified into earnings on hedging activities

 

(366)

 

89

 

(277)

Total comprehensive income

$

257,428

$

(60,078)

$

197,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2018

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

215,660

$

(52,118)

$

163,542

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,113

 

 

 

1,113

Unrealized net loss on investments

 

(22,280)

 

4,679

 

(17,601)

Change in fair value of cash flow hedges

 

477

 

(117)

 

360

Amounts reclassified into earnings on hedging activities

 

(191)

 

47

 

(144)

Total comprehensive income

$

194,779

$

(47,509)

$

147,270

 

Six Months Ended September 30, 2019

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

380,068

$

(91,320)

$

288,748

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

3,611

 

 

 

3,611

Unrealized net gain on investments

 

104,478

 

(22,385)

 

82,093

Change in fair value of cash flow hedges

 

(2,034)

 

500

 

(1,534)

Amounts reclassified into earnings on hedging activities

 

(425)

 

104

 

(321)

Total comprehensive income

$

485,698

$

(113,101)

$

372,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2018

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

384,857

$

(93,466)

$

291,391

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(980)

 

 

 

(980)

Unrealized net loss on investments

 

(72,498)

 

15,225

 

(57,273)

Change in fair value of cash flow hedges

 

1,701

 

(418)

 

1,283

Amounts reclassified into earnings on hedging activities

 

(855)

 

210

 

(645)

Total comprehensive income

$

312,225

$

(78,449)

$

233,776

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

4

 


 

 

Amerco and consolidated subsidiaries

condensed consolidated statements of changes in stockholders’ equity

Description

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Other Comprehensive

Income (Loss)

 

Retained Earnings

 

Less: Treasury Common Stock

 

Less: Treasury Preferred Stock

 

Less: Unearned Employee Stock Ownership Plan Shares

 

Total Stockholders' Equity

 

(In thousands)

Balance as of June 30, 2019

$

10,497

$

453,535

$

(23,873)

$

4,109,384

$

(525,653)

$

(151,997)

$

(2,870)

$

3,869,023

Increase in market value of released ESOP shares

 

0

 

226

 

0

 

0

 

0

 

0

 

0

 

226

Release of unearned ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

1,347

 

1,347

Purchase of ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

(74)

 

(74)

Foreign currency translation

 

0

 

0

 

629

 

0

 

0

 

0

 

0

 

629

Unrealized net gain on investments, net of tax

 

0

 

0

 

41,305

 

0

 

0

 

0

 

0

 

41,305

Change in fair value of cash flow hedges, net of tax

 

0

 

0

 

(633)

 

0

 

0

 

0

 

0

 

(633)

Amounts reclassified into earnings on hedging activities

 

 

 

 

 

(277)

 

 

 

 

 

 

 

 

 

(277)

Net earnings

 

0

 

0

 

0

 

156,326

 

0

 

0

 

0

 

156,326

Common stock dividends: ($0.50 per share for fiscal 2020)

 

0

 

0

 

0

 

(9,804)

 

0

 

0

 

0

 

(9,804)

Net activity

 

0

 

226

 

41,024

 

146,522

 

0

 

0

 

1,273

 

189,045

Balance as of September 30, 2019

$

10,497

$

453,761

$

17,151

$

4,255,906

$

(525,653)

 

(151,997)

$

(1,597)

$

4,058,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2018

$

10,497

$

452,862

$

(45,966)

$

3,763,339

$

(525,653)

$

(151,997)

$

(6,937)

$

3,496,145

Increase in market value of released ESOP shares

 

0

 

144

 

0

 

0

 

0

 

0

 

0

 

144

Release of unearned ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

2,694

 

2,694

Purchase of ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

(3,292)

 

(3,292)

Foreign currency translation

 

0

 

0

 

1,113

 

0

 

0

 

0

 

0

 

1,113

Unrealized net loss on investments, net of tax

 

0

 

0

 

(17,601)

 

0

 

0

 

0

 

0

 

(17,601)

Change in fair value of cash flow hedges, net of tax

 

0

 

0

 

360

 

0

 

0

 

0

 

0

 

360

Amounts reclassified into earnings on hedging activities

 

 

 

 

 

(144)

 

 

 

 

 

 

 

 

 

(144)

Net earnings

 

0

 

0

 

0

 

163,542

 

0

 

0

 

0

 

163,542

Common stock dividends: ($0.50 per share for fiscal 2019)

 

0

 

0

 

0

 

(9,794)

 

0

 

0

 

0

 

(9,794)

Net activity

 

0

 

144

 

(16,272)

 

153,748

 

0

 

0

 

(598)

 

137,022

Balance as of September 30, 2018

$

10,497

$

453,006

$

(62,238)

$

3,917,087

$

(525,653)

$

(151,997)

$

(7,535)

$

3,633,167

 

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

5

 

 

 

 

 

 

 

 

Amerco and consolidated subsidiaries

condensed consolidated statements of changes in stockholders’ equity

 

Description

 

Common Stock

 

Additional Paid-In Capital

 

Accumulated Other Comprehensive

Income (Loss)

 

Retained Earnings

 

Less: Treasury Common Stock

 

Less: Treasury Preferred Stock

 

Less: Unearned Employee Stock Ownership Plan Shares

 

Total Stockholders' Equity

 

(In thousands)

Balance as of March 31, 2019

$

10,497

$

453,326

$

(66,698)

$

3,976,962

$

(525,653)

$

(151,997)

$

(4,048)

$

3,692,389

Increase in market value of released ESOP shares

 

0

 

435

 

0

 

0

 

0

 

0

 

0

 

435

Release of unearned ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

2,656

 

2,656

Purchase of ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

(205)

 

(205)

Foreign currency translation

 

0

 

0

 

3,611

 

0

 

0

 

0

 

0

 

3,611

Unrealized net gain on investments, net of tax

 

0

 

0

 

82,093

 

0

 

0

 

0

 

0

 

82,093

Change in fair value of cash flow hedges, net of tax

 

0

 

0

 

(1,534)

 

0

 

0

 

0

 

0

 

(1,534)

Amounts reclassified into earnings on hedging activities

 

 

 

 

 

(321)

 

 

 

 

 

 

 

 

 

(321)

Net earnings

 

0

 

0

 

0

 

288,748

 

0

 

0

 

0

 

288,748

Common stock dividends: ($0.50 per share for fiscal 2020)

 

0

 

0

 

0

 

(9,804)

 

0

 

0

 

0

 

(9,804)

Net activity

 

0

 

435

 

83,849

 

278,944

 

0

 

0

 

2,451

 

365,679

Balance as of September 30, 2019

$

10,497

$

453,761

$

17,151

$

4,255,906

$

(525,653)

 

(151,997)

$

(1,597)

$

4,058,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2018

$

10,497

$

452,746

$

(4,623)

$

3,635,561

$

(525,653)

$

(151,997)

$

(7,823)

$

3,408,708

Increase in market value of released ESOP shares

 

0

 

260

 

0

 

0

 

0

 

0

 

0

 

260

Release of unearned ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

5,388

 

5,388

Purchase of ESOP shares

 

0

 

0

 

0

 

0

 

0

 

0

 

(5,100)

 

(5,100)

Foreign currency translation

 

0

 

0

 

(980)

 

0

 

0

 

0

 

0

 

(980)

Unrealized net loss on investments, net of tax

 

0

 

0

 

(57,273)

 

0

 

0

 

0

 

0

 

(57,273)

Change in fair value of cash flow hedges, net of tax

 

0

 

0

 

1,283

 

0

 

0

 

0

 

0

 

1,283

Amounts reclassified into earnings on hedging activities

 

 

 

 

 

(645)

 

 

 

 

 

 

 

 

 

(645)

Adjustment for adoption of ASU 2016 - 01

 

0

 

0

 

0

 

9,724

 

0

 

0

 

0

 

9,724

Net earnings

 

0

 

0

 

0

 

291,391

 

0

 

0

 

0

 

291,391

Common stock dividends: ($1.00 per share for fiscal 2019)

 

0

 

0

 

0

 

(19,589)

 

0

 

0

 

0

 

(19,589)

Net activity

 

0

 

260

 

(57,615)

 

281,526

 

0

 

0

 

288

 

224,459

Balance as of September 30, 2018

$

10,497

$

453,006

$

(62,238)

$

3,917,087

$

(525,653)

$

(151,997)

$

(7,535)

$

3,633,167

 

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

6

 


 

AMERCO AND CONSOLIDATED subsidiaries

Condensed consolidatED statements of cash flows

 

 

Six Months Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

Net earnings

$ 

288,748

$ 

291,391

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

326,830

 

287,383

Amortization of deferred policy acquisition costs

 

12,579

 

11,930

Amortization of premiums and accretion of discounts related to investments, net

 

6,481

 

6,457

Amortization of debt issuance costs

 

2,100

 

2,013

Interest credited to policyholders

 

26,584

 

17,726

Change in allowance for losses on trade receivables

 

(113)

 

309

Change in allowance for inventories and parts reserves

 

537

 

1,148

Net gains on disposal of personal property

 

(34,677)

 

(28,331)

Net (gains) losses on disposal of real estate

 

(1,839)

 

10

Net (gains) losses on sales of investments

 

(7,595)

 

55

Net (gains) losses on equity investments

 

(2,553)

 

1,344

Deferred income taxes

 

83,708

 

88,485

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

2,471

 

(14,453)

Inventories and parts

 

613

 

(4,347)

Prepaid expenses

 

(21,908)

 

(17,709)

Capitalization of deferred policy acquisition costs

 

(10,370)

 

(12,926)

Other assets

 

525

 

58,139

Related party assets

 

(5,019)

 

6,181

Accounts payable and accrued expenses

 

60,587

 

57,744

Policy benefits and losses, claims and loss expenses payable

 

10,709

 

(49,774)

Other policyholders' funds and liabilities

 

(4,136)

 

3,302

Deferred income

 

2,077

 

(124)

Related party liabilities

 

1,425

 

(3,276)

Net cash provided by operating activities

 

737,764

 

702,677

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Escrow deposits

 

5,573

 

1,362

Purchases of:

 

 

 

 

Property, plant and equipment

 

(1,589,371)

 

(1,114,544)

Short term investments

 

(20,380)

 

(22,335)

Fixed maturities investments

 

(178,626)

 

(239,972)

Equity securities

 

(83)

 

(957)

Preferred stock

 

0

 

(81)

Real estate

 

(368)

 

(218)

Mortgage loans

 

(19,660)

 

(24,132)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

401,451

 

429,910

Short term investments

 

17,282

 

24,568

Fixed maturities investments

 

127,683

 

64,651

Preferred stock

 

0

 

1,125

Real estate

 

311

 

Mortgage loans

 

4,299

 

12,912

Net cash used by investing activities

 

(1,251,889)

 

(867,711)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

658,745

 

313,299

Principal repayments on credit facilities

 

(143,634)

 

(182,955)

Payment of debt issuance costs

 

(2,301)

 

(1,420)

Finance/capital lease payments

 

(180,902)

 

(147,913)

Employee stock ownership plan stock

 

(206)

 

(137)

Common stock dividends paid

 

(19,600)

 

(29,385)

Net contribution from (to) related party

 

21,600

 

0

Investment contract deposits

 

105,846

 

179,608

Investment contract withdrawals

 

(78,177)

 

(71,228)

Net cash provided (used) by financing activities

 

361,371

 

59,869

 

 

 

 

 

Effects of exchange rate on cash

 

4,284

 

(1,783)

 

 

 

 

 

Decrease in cash and cash equivalents

 

(148,470)

 

(106,948)

Cash and cash equivalents at the beginning of period

 

673,701

 

759,388

Cash and cash equivalents at the end of period

$ 

525,231

$ 

652,440

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

7

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a second fiscal quarter that ends on the 30th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 30th 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 material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2019 and 2018 correspond to fiscal 2020 and 2019 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, 2019 and the related condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity for the second quarter and first six months of fiscal 2020 and 2019 and cash flows for the six months of fiscal 2020 and 2019 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, 2019.

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”);

Repwest Insurance Company (“Repwest”); and

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

AMERCO has three (3) reportable segments. They are Moving and Storage, Property and Casualty Insurance and Life Insurance.

The Moving and Storage operating segment (“Moving and Storage”) includes 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 towing 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.

8

The Property and Casualty Insurance operating segment (“Property and Casualty Insurance”) includes Repwest 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 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 16,128 as of September 30, 2018. As of September 30, 2019, all of these shares have been released.

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 $29.4 million and $30.8 million as of September 30, 2019 and March 31, 2019, respectively.

Available-for-Sale Investments

Available-for-sale investments as of September 30, 2019 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

$

133,938

$ 

7,673

$ 

(148)

$ 

0

$ 

141,463

U.S. government agency mortgage-backed securities

 

40,588

 

694

 

(2)

 

0

 

41,280

Obligations of states and political subdivisions

 

296,325

 

20,642

 

(155)

 

0

 

316,812

Corporate securities

 

1,654,981

 

77,467

 

(2,329)

 

(176)

 

1,729,943

Mortgage-backed securities

 

150,143

 

5,529

 

(1)

 

(49)

 

155,622

Redeemable preferred stocks

 

1,493

 

74

 

0

 

0

 

1,567

 

$

2,277,468

$ 

112,079

$ 

(2,635)

$ 

(225)

$ 

2,386,687

 

9

Available-for-sale investments at March 31, 2019 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

$

136,010

$ 

2,409

$ 

(2,104)

$ 

(447)

$ 

135,868

U.S. government agency mortgage-backed securities

 

31,101

 

433

 

(146)

 

(19)

 

31,369

Obligations of states and political subdivisions

 

298,955

 

8,079

 

(233)

 

(905)

 

305,896

Corporate securities

 

1,613,199

 

14,777

 

(14,257)

 

(24,986)

 

1,588,733

Mortgage-backed securities

 

148,203

 

880

 

(285)

 

(903)

 

147,895

Redeemable preferred stocks

 

1,493

 

20

 

0

 

(45)

 

1,468

 

$

2,228,961

$ 

26,598

$ 

(17,025)

$ 

(27,305)

$ 

2,211,229

 

The available-for-sale tables 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 $124.8 million during the first six months of fiscal 2020. The gross realized gains on these sales totaled $3.6 million. The gross realized losses on these sales totaled $0.2 million.

The unrealized losses of more than twelve months in the available-for-sale tables 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 recognize these write-downs, if any, through earnings. There were no write-downs in the second quarter or first six months of fiscal 2020 or 2019.

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 any 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) (“AOCI”) for the first six months of fiscal 2020 and fiscal 2019, respectively.

10

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

 

 

September 30, 2019

 

March 31, 2019

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

 

 

(In thousands)

Due in one year or less

$

83,028

$

83,337

$

71,987

$

71,954

Due after one year through five years

 

521,038

 

536,225

 

541,195

 

540,658

Due after five years through ten years

 

694,348

 

729,026

 

621,031

 

614,485

Due after ten years

 

827,418

 

880,910

 

845,052

 

834,769

 

 

2,125,832

 

2,229,498

 

2,079,265

 

2,061,866

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

150,143

 

155,622

 

148,203

 

147,895

Redeemable preferred stocks

 

1,493

 

1,567

 

1,493

 

1,468

 

$

2,277,468

$

2,386,687

$

2,228,961

$

2,211,229

 

As of September 30, 2019 and March 31, 2019, our common stock and non-redeemable preferred stock that are included in Investments, fixed maturities and marketable equities on our balance sheet are stated in the table below. The changes in the fair value of these equity investments are recognized through Net investment and interest income.

Equity investments of common stock and non-redeemable preferred stock were as follows:

 

 

September 30, 2019

 

March 31, 2019

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Common stocks

$

10,123

$

19,207

$

10,123

$

17,379

Non-redeemable preferred stocks

 

7,451

 

7,456

 

7,451

 

6,789

 

$

17,574

$

26,663

$

17,574

$

24,168

 

11

4. Borrowings

Long Term Debt

Long term debt was as follows:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

March 31,

 

2020 Rates (a)

 

 

Maturities

 

2019

 

2019

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

 

 

 

3.55

%

 

 

 

2023

$

97,913

$ 

102,913

Senior mortgages

3.36

%

-

6.62

%

 

2021

-

2038

 

1,876,499

 

1,741,652

Real estate loans (revolving credit)

3.03

%

-

3.61

%

 

2022

-

2024

 

435,000

 

429,400

Fleet loans (amortizing term)

1.95

%

-

4.66

%

 

2020

-

2027

 

262,984

 

263,209

Fleet loans (revolving credit)

3.25

%

-

3.27

%

 

2022

-

2024

 

570,000

 

530,000

Finance/capital leases (rental equipment)

1.92

%

-

5.04

%

 

2019

-

2026

 

861,751

 

1,042,652

Finance liability (rental equipment)

2.97

%

-

4.22

%

 

2024

-

2026

 

339,387

 

0

Other obligations

2.75

%

-

8.00

%

 

2019

-

2048

 

83,503

 

82,417

Notes, loans and finance/capital leases payable

 

 

 

 

 

 

 

 

 

4,527,037

 

4,192,243

Less: Debt issuance costs

 

 

 

 

 

 

 

 

 

 

(29,125)

 

(28,920)

Total notes, loans and finance/capital leases payable, net

 

 

 

 

$

4,497,912

$ 

4,163,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Interest rates as of September 30, 2019, including the effect of applicable hedging instruments.

 

 

 

 

Real Estate Backed Loans

Real Estate Loan

Real Estate and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a real estate loan (the “Real Estate 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 properties owned by the borrowers. 

The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. As of September 30, 2019, the applicable LIBOR was 2.05% and the applicable margin was 1.50%, the sum of which was 3.55%. 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 Real Estate and U-Haul are borrowers under certain senior mortgages. 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 3.36% and 6.62%. 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. Real Estate and U-Haul 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.

12

Real Estate Loans (Revolving Credit)

Various subsidiaries of Real Estate are borrowers under asset-backed real estate loans with an aggregate borrowing capacity of $335.0 million. As of September 30, 2019, the outstanding balance of these loans in the aggregate was $335.0 million. These loans are secured by certain properties owned by the borrowers. The loan agreements provide for term loans, subject to the terms of the loan agreements. The final maturity of the loans is between June 2022 and February 2024. The loans require monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The interest rate, per the provision of the loan agreements, is the applicable LIBOR plus the applicable margin. As of September 30, 2019, the applicable LIBOR was 2.11% and the margin was between 1.25% and 1.50%, the sum of which was between 3.36% and 3.61%. Certain loans have interest rate swaps fixing the rate between 3.03% and 3.14% based on current margins. AMERCO is the guarantor of these loans. 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 a real estate loan. The current maximum credit commitment is $150.0 million, which can be increased to $300.0 million by bringing in other lenders. As of September 30, 2019, the outstanding balance was $100.0 million. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. The final maturity of this loan is September 2022. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. As of September 30, 2019, the applicable LIBOR was 2.11% and the margin was 1.38%, the sum of which was 3.49%. 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

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 carried at fixed rates ranging between 1.95% and 4.66%. Additionally, one of these loans is carried at a variable rate with the applicable LIBOR plus the applicable margins. As of September 30, 2019, the applicable LIBOR was 2.03% and applicable margin was 1.75% with a sum of 3.78%. The interest rate is hedged with an interest rate swap fixing the rate at 2.82% based on current margins.

AMERCO, and in some cases U-Haul, is guarantor 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 Revolvers

Various subsidiaries of U-Haul entered into three revolving fleet loans with an aggregate borrowing capacity of $580.0 million. The interest rates, per the provision of the loan agreements, are the applicable LIBOR plus the applicable margin. As of September 30, 2019, the applicable LIBOR was between 2.10% and 2.12%, and the margin was 1.15%, the sum of which was between 3.25% and 3.27%. Only interest is paid on the loans until the last nine months of the respective loan terms when principal becomes due monthly.

Finance/Capital Leases

The Finance/Capital Lease balance represents our sale-leaseback transactions of rental equipment that were entered into and classified as capital leases prior to the adoption of ASC 842 on April 1, 2019. The historical capital lease balance was reclassified to ROU assets-finance, net and have an outstanding balance of $861.8 million as of September 30, 2019. The agreements are generally 7 year terms with interest rates ranging from 1.92% to 5.04%.  All of our finance leases are collateralized by our rental fleet. There were no new financing leases, as assessed under the new leasing guidance, entered into during the six months ended September 30, 2019.

13

Finance Liability

Finance Liabilities represent our rental equipment financing transactions that have historically been accounted for as capital leases prior to the adoption of ASC 842 on April 1, 2019, which substantially changed the accounting for sale-leasebacks going forward. In accordance with the new leasing guidance, we assess if sale-leaseback transactions qualify as a sale at initiation by determining if a transfer of ownership occurs.  We have determined that our equipment sale-leasebacks do not qualify as a sale, as the buyer-lessors do not obtain control of the assets in our ongoing sale-leaseback arrangements. As a result, we expect future sale-leasebacks to be accounted for as a financial liability and the leased assets will be capitalized at cost.  As of September 30, 2019, we have failed sale-leasebacks transactions totaling $339.4 million.  Our finance liabilities have an average term of 7 years and interest rates ranging from 2.97% to 4.22%. These finance liabilities are collateralized by our rental fleet. 

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.

As of September 30, 2019, the aggregate outstanding principal balance of the U-Notes® issued was $86.5 million, of which $3.0 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 2.75% and 8.00% and maturity dates range between 2019 and 2048.

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, 2019, the deposits had an aggregate balance of $60.0 million, for which Oxford pays fixed interest rates between 1.67% and 2.95% with maturities between September 29, 2019 and March 29, 2021. As of March 31, 2019, available-for-sale investments held with the FHLB totaled $131.1 million, of which $68.8 million were pledged as collateral to secure the outstanding deposits. The balances of these deposits are included within Liabilities from investment contracts on the condensed consolidated balance sheets.

Annual Maturities of Notes, Loans and Finance/Capital Leases Payable

The annual maturities of our notes, loans and finance/capital leases payable, as of September 30, 2019 for the next five years and thereafter are as follows:

 

 

Year Ended September 30,

 

 

2020

 

2021

 

2022

 

2023

 

2024

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and finance/capital leases payable, secured

$

491,098

$

401,307

$

907,853

$

525,138

$

770,782

$

1,430,859

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

44,743

$

36,220

Capitalized interest

 

(6,669)

 

(2,227)

Amortization of transaction costs

 

1,047

 

881

Interest expense resulting from cash flow hedges

 

1

 

156

Total interest expense

$

39,122

$

35,030

 

 

 

Six Months Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

88,074

$

70,416

Capitalized interest

 

(12,168)

 

(2,646)

Amortization of transaction costs

 

2,100

 

1,842

Interest expense resulting from cash flow hedges

 

4

 

672

Total interest expense

$

78,010

$

70,284

 

 

Interest paid in cash, including payments related to derivative contracts, amounted to $45.4 million and $36.6 million for the second quarter of fiscal 2020 and 2019, respectively, and $85.9 million and $71.1 million for the first six months of fiscal 2020 and 2019, respectively.

Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

 

Quarter Ended September 30,

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

(In thousands, except interest rates)

 

Weighted average interest rate during the quarter

 

3.50

%

3.06

%

Interest rate at the end of the quarter

 

3.36

%

2.81

%

Maximum amount outstanding during the quarter

$

1,015,000

$

705,000

 

Average amount outstanding during the quarter

$

1,004,348

$

585,924

 

Facility fees

$

45

$

128

 

 

 

 

Revolving Credit Activity

 

 

 

Six Months Ended September 30,

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

 

 

(In thousands, except interest rates)

 

Weighted average interest rate during the period

 

3.61

%

3.08

%

Interest rate at the end of the period

 

3.36

%

2.81

%

Maximum amount outstanding during the period

$

1,015,000

$

705,000

 

Average amount outstanding during the period

$

985,954

$

542,186

 

Facility fees

$

107

$

272

 

 

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 with 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. The following is a summary of our interest rate swap agreements as of September 30, 2019:

15

The derivative fair values reflected in prepaid expense and accounts payable and accrued expenses in the balance sheet were as follows:

 

 

Derivatives Fair Values as of

 

 

September 30, 2019

 

March 31, 2019

 

 

(Unaudited)

 

 

(In thousands)

Interest rate contracts designated as hedging instruments:

 

 

 

 

Assets

$

24

$

139

Liabilities

$

2,348

$

0

Notional amount

$

249,063

$

22,792

 

 

 

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

 

 

 

 

September 30, 2019

 

September 30, 2018

 

 

(Unaudited)

 

 

(In thousands)

(Gain) loss recognized in AOCI on interest rate contracts

$

1,206

$

(286)

Loss reclassified from AOCI into income

$

366

$

191

 

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 2020, we recognized a decrease in the fair value of our cash flow hedges of $1.9 million, net of taxes. During the first six months of fiscal 2020 we reclassified $0.4 million from AOCI to interest expense. As of September 30, 2019, we expect to reclassify $0.8 million of net gains on interest rate contracts from AOCI 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, 2019

$

(56,612)

$ 

(7,259)

$ 

107

$ 

(2,934)

$ 

(66,698)

Foreign currency translation

 

3,611

 

0

 

0

 

0

 

3,611

Unrealized net gain on investments

 

0

 

82,093

 

0

 

0

 

82,093

Change in fair value of cash flow hedges

 

0

 

0

 

(1,534)

 

0

 

(1,534)

Amounts reclassified into earnings on hedging activities

 

 

 

 

 

(321)

 

 

 

(321)

Other comprehensive income (loss)

 

3,611

 

82,093

 

(1,855)

 

0

 

83,849

Balance at September 30, 2019

$

(53,001)

$ 

74,834

$ 

(1,748)

$ 

(2,934)

$ 

17,151

 

 

16

7. Stockholders’ Equity

The  dividends declared or paid during the first six months of fiscal 2020 were as follows:

Common Stock Dividends

Declared Date

 

Per Share Amount

 

Record Date

 

Dividend Date

 

 

 

 

 

 

 

March 6, 2019

$

0.50

 

March 21, 2019

 

April 4, 2019

August 22, 2019

 

0.50

 

September 9, 2019

 

September 23, 2019

 

On June 8, 2016, our stockholders’ approved the 2016 AMERCO Stock Option Plan (Shelf Stock Option Plan). As of September 30, 2019, no awards had been issued under this plan.

 

8. Leases

Lessor

We have determined that revenues derived by providing self-moving equipment rentals, self-storage rentals and certain other revenues, including U-Box rentals, are within the scope of the accounting guidance contained in Topic 842. Our self-moving equipment rental related revenues have been accounted for under the revenue accounting standard Topic 606, until the adoption of Topic 842.

For the periods after April 1, 2019, we combined all lease and non-lease components of lease contracts for which the timing and pattern of transfer are the same and the lease component meets the classification of an operating lease, and account for them in accordance with Topic 842. The revenue streams accounted for in accordance with Topic 842 are recognized evenly over the period of rental. Please see Note 15, Revenue Recognition, of the Notes to Condensed Consolidated Financial Statements.

Lessee

We determine if an arrangement is a lease at inception. Operating leases, which are comprised primarily of storage rental locations, are included in Right-of-Use (“ROU“) assets - operating and operating lease liability in our balance sheet dated September 30, 2019. Finance leases, which are comprised primarily of rental equipment leases, are included in ROU assets - financing, net, and notes, loans and finance/capital leases payable, net in our balance sheet dated September 30, 2019.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected remaining lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease, which are included in the calculation of ROU assets when it is reasonably certain that we will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally not accounted for separately. Additionally, for certain leases, we apply a portfolio approach to account for the operating lease ROU assets and liabilities as the leases are similar in nature and have nearly identical contract provisions.

Adoption of this standard resulted in most of our operating lease commitments being recognized as operating lease liabilities and ROU assets, which increased total assets and total liabilities by approximately $105.4 million related to property operating leases. In addition, we reclassified a net amount $948.2 million related to vehicle financing leases from property, plant, and equipment, net to ROU assets financing, net.

The standard also changed the manner by which we account for our equipment sale/leaseback transactions.  Based on our assessment, the lease transactions are classified as financing leases, and therefore the transactions do not qualify as a sale.  Pursuant to the guidance, new sale leaseback transactions that fail to qualify as a sale will be accounted for as a financial liability.  Please see Note 4, Borrowings, of the Notes to Condendsed Consolidated Finanical Statements for additional information.

17

The following table shows the components of our right-of-use assets:

 

 

As of September 30, 2019

 

 

Finance

 

Operating

 

Total

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

 

 

Buildings and improvements

$

0

$

114,696

$

114,696

Furniture and equipment

 

27,414

 

0

 

27,414

Rental trailers and other rental equipment

 

125,747

 

0

 

125,747

Rental trucks

 

1,759,118

 

0

 

1,759,118

Right-of-use assets, gross

 

1,912,279

 

114,696

 

2,026,975

Less: Accumulated depreciation

 

(726,650)

 

(9,398)

 

(736,048)

Right-of-use assets, net

$

1,185,629

$

105,298

$

1,290,927

 

 

 

Finance

 

Operating

 

 

 

(Unaudited)

 

Weighted average remaining lease term (years)

 

5 Years

 

15 Years

 

Weighted average discount rate

 

3.41

%

4.60

%

 

For the first six months ended September 30, 2019, cash paid for leases included in our operating and financing cash flow activities were $13.0 million and $180.9 million, respectively.

The components of lease costs were as follows:

 

 

Six Months Ended

 

 

September 30, 2019

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

Operating lease costs

$

13,664

 

 

 

Finance lease cost:

 

 

Amortization of right-of-use assets

$

98,200

Interest on lease liabilities

 

16,740

Total finance lease cost

$

114,940

 

18

Maturities of lease liabilities were as follows:

 

 

Finance leases

 

Operating leases

 

 

(Unaudited)

Year ending September 30,

 

(In thousands)

 

 

 

 

 

2020

$

246,596

$

21,776

2021

 

184,010

 

19,336

2022

 

143,983

 

18,298

2023

 

122,112

 

17,607

2024

 

83,369

 

13,545

Thereafter

 

81,681

 

70,411

Total lease payments

 

861,751

 

160,973

Less: imputed interest

 

0

 

(56,141)

Present value of lease liabilities

$

861,751

$

104,832

 

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.

10. Related Party Transactions

As set forth in the Company’s Audit Committee Charter and consistent with NASDAQ 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.

19

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, Galaxy Investments, L.P. and 2015 SAC self-storage are substantially controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly owned by Willow Grove Holdings LP (“WGHLP”), which is owned by Mark V. Shoen (a significant stockholder), and various trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant stockholder) and Mark V. Shoen.

Related Party Revenue

 

 

Quarter Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

U-Haul management fee revenue from Blackwater

$

6,318

$

6,278

U-Haul management fee revenue from Mercury

 

915

 

914

 

$

7,233

$

7,192

 

 

 

Six Months Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

U-Haul management fee revenue from Blackwater

$

12,567

$

12,478

U-Haul management fee revenue from Mercury

 

1,822

 

2,130

 

$

14,389

$

14,608

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 management fees, exclusive of reimbursed expenses, of $16.3 million and $17.4 million from the above-mentioned entities during the first six months of fiscal 2020 and 2019, 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 owned indirectly by James P. Shoen and various trusts benefitting Edward J. Shoen and James P. Shoen or their descendants.  Mercury holds the option to purchase a portfolio of properties currently leased by Mercury and a U-Haul subsidiary, which option is exercisable in 2024.

Related Party Costs and Expenses

 

 

Quarter Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to Blackwater

$

658

$

670

U-Haul commission expenses to Blackwater

 

18,617

 

18,348

 

$

19,275

$

19,018

 

 

 

Six Months Ended September 30,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to Blackwater

$

1,316

$

1,340

U-Haul commission expenses to Blackwater

 

35,819

 

34,833

 

$

37,135

$

36,173

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.

As of September 30, 2019, subsidiaries of Blackwater acted as independent dealers. The financial and other terms of the dealership contracts 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 with subsidiaries of Blackwater, excluding Dealer Agreements, provided revenues of $12.6 million, expenses of $1.3 million and cash flows of $11.3 million during the first six months of fiscal 2020. Revenues and commission expenses related to the Dealer Agreements were $169.6 million and $35.8 million, respectively, during the first six months of fiscal 2020.

Management determined that we do not have a variable interest pursuant to the variable interest entity (“VIE”) model under Accounting Standards Codification (“ASC”) 810 – Consolidation (“ASC 810”) in the holding entities of Blackwater based upon management agreements which are with the individual operating entities; therefore, we are precluded from consolidating these entities.

Related Party Assets

 

 

September 30,

 

March 31,

 

 

2019

 

2019

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul receivable from Blackwater

$

27,828

$

25,158

U-Haul receivable from Mercury

 

5,673

 

7,234

Other (a)

 

(20,599)

 

(1,503)

 

$

12,902

$

30,889

(a)      Timing differences for intercompany balances with insurance subsidiaries resulting from the three-month difference in reporting periods.  Our credit balance as of September 30, 2019, was due to a timing difference for a dividend paid by Repwest to AMERCO of $21.6 million.

 

21

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)

11. Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of September 30, 2019 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

Cash and cash equivalents

$

498,984

$

11,576

$

14,671

$

0

 

$

525,231

Reinsurance recoverables and trade receivables, net

 

91,985

 

96,690

 

33,806

 

0

 

 

222,481

Inventories and parts, net

 

102,357

 

0

 

0

 

0

 

 

102,357

Prepaid expenses

 

194,250

 

0

 

0

 

0