UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2012
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________ to __________________
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Commission File Number |
Registrant, State of Incorporation, Address and Telephone Number |
I.R.S. Employer Identification No. |
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1-11255 |
AMERCO |
88-0106815 |
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(A Nevada Corporation) |
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1325 Airmotive Way, Ste. 100 |
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Reno, Nevada 89502-3239 |
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Telephone (775) 688-6300 |
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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 þ 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 þ No £
Indicate by check mark whether the regist rant is a large accelerated 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.
L arge accelerated filer £ Accelerated filer þ
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 þ
19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 201 3 .
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PART I FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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a) Condensed Consolidated Balance Sheets as of Dec ember 3 1 , 201 2 (unaudited) and March 31, 201 2 |
1 |
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2 |
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3 |
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4 |
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5 |
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f) Notes to Condensed Consolidated Financial Statements (unaudited) |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
3 8 |
Item 3. |
58 |
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Item 4. |
59 |
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PART II OTHER INFORMATION |
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Item 1. |
59 |
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Item 1A. |
59 |
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Item 2. |
60 |
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Item 3. |
60 |
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Item 4. |
60 |
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Item 5. |
60 |
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Item 6. |
60 |
AMERCO AND CONSOLIDATED ENTITIES
CONDENSED CONSOLIDATED balance sheets
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December 31, |
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March 31, |
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2012 |
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2012 |
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(Unaudited) |
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(In thousands, except share data) |
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ASSETS |
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Cash and cash equivalents |
$ |
586,124 |
$ |
357,180 |
Reinsurance recoverables and trade receivables, net |
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226,340 |
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297,974 |
Inventories, net |
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55,989 |
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58,735 |
Prepaid expenses |
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55,148 |
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41,858 |
Investments, fixed maturities and marketable equities |
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1,019,968 |
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766,792 |
Investments, other |
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270,191 |
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258,551 |
Deferred policy acquisition costs, net |
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93,533 |
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63,914 |
Other assets |
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101,889 |
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120,525 |
Related party assets |
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175,175 |
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316,157 |
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2,584,357 |
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2,281,686 |
Property, plant and equipment, at cost: |
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Land |
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338,598 |
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281,140 |
Buildings and improvements |
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1,155,754 |
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1,087,119 |
Furniture and equipment |
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316,772 |
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308,120 |
Rental trailers and other rental equipment |
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303,379 |
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255,010 |
Rental trucks |
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2,044,639 |
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1,856,433 |
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4,159,142 |
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3,787,822 |
Less: Accumulated depreciation |
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(1,524,194) |
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(1,415,457) |
Total property, plant and equipment |
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2,634,948 |
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2,372,365 |
Total assets |
$ |
5,219,305 |
$ |
4,654,051 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Liabilities: |
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Accounts payable and accrued expenses |
$ |
326,182 |
$ |
335,326 |
Notes, loans and leases payable |
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1,667,008 |
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1,486,211 |
Policy benefits and losses, claims and loss expenses payable |
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1,115,823 |
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1,145,943 |
Liabilities from investment contracts |
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486,502 |
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240,961 |
Other policyholders' funds and liabilities |
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6,348 |
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7,273 |
Deferred income |
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27,840 |
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31,525 |
Deferred income taxes |
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399,103 |
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370,992 |
Total liabilities |
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4,028,806 |
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3,618,231 |
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Commitments and contingencies (notes 4, 8, 9 and 10) |
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– |
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– |
Stockholders' equity: |
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Series preferred stock, with or without par value, 50,000,000 shares authorized: |
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Series A preferred stock, with no par value, 6,100,000 shares authorized; |
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6,100,000 shares issued and none outstanding as of December 31 and March 31, 2012 |
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– |
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– |
Series B preferred stock, with no par value, 100,000 shares authorized; none |
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issued and outstanding as of December 31 and March 31, 2012 |
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– |
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– |
Series common stock, with or without par value, 150,000,000 shares authorized: |
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Series A common stock of $0.25 par value, 10,000,000 shares authorized; |
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none issued and outstanding as of December 31 and March 31, 2012 |
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– |
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– |
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700 |
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issued and 19,607,788 outstanding as of December 31 and March 31, 2012 |
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10,497 |
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10,497 |
Additional paid-in capital |
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436,926 |
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433,743 |
Accumulated other comprehensive loss |
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(22,192) |
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(45,436) |
Retained earnings |
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1,444,757 |
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1,317,064 |
Cost of common shares in treasury, net (22,377,912 shares as of December 31 and March 31, 2012) |
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(525,653) |
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(525,653) |
Cost of preferred shares in treasury, net (6,100,000 shares as of December 31 and March 31, 2012) |
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(151,997) |
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(151,997) |
Unearned employee stock ownership plan shares |
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(1,839) |
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(2,398) |
Total stockholders' equity |
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1,190,499 |
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1,035,820 |
Total liabilities and stockholders' equity |
$ |
5,219,305 |
$ |
4,654,051 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERCO AND CONSOLIDATED ENTITIES
CONDENSED CONSOLIDATED Statements of operations
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Quarter Ended December 31, |
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2012 |
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2011 |
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(Unaudited) |
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(In thousands, except share and per share amounts) |
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Revenues: |
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Self-moving equipment rentals |
$ |
394,945 |
$ |
375,744 |
Self-storage revenues |
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39,111 |
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33,846 |
Self-moving and self-storage products and service sales |
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44,491 |
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43,206 |
Property management fees |
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6,085 |
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5,368 |
Life insurance premiums |
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43,248 |
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132,643 |
Property and casualty insurance premiums |
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9,816 |
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9,429 |
Net investment and interest income |
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18,927 |
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15,234 |
Other revenue |
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22,188 |
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17,619 |
Total revenues |
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578,811 |
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633,089 |
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Costs and expenses: |
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Operating expenses |
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290,285 |
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269,834 |
Commission expenses |
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51,130 |
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47,864 |
Cost of sales |
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23,153 |
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24,505 |
Benefits and losses |
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38,932 |
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173,748 |
Amortization of deferred policy acquisition costs |
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3,391 |
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3,666 |
Lease expense |
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27,575 |
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32,325 |
Depreciation, net of (gains) on disposals of (($1,831) and ($699), respectively) |
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62,399 |
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56,274 |
Total costs and expenses |
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496,865 |
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608,216 |
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Earnings from operations |
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81,946 |
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24,873 |
Interest expense |
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(22,076) |
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(22,744) |
Pretax earnings |
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59,870 |
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2,129 |
Income tax expense |
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(23,024) |
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(1,401) |
Earnings available to common shareholders |
$ |
36,846 |
$ |
728 |
Basic and diluted earnings per common share |
$ |
1.89 |
$ |
0.04 |
Weighted average common shares outstanding: Basic and diluted |
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19,523,794 |
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19,481,614 |
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Related party revenues for the third quarter of fiscal 2013 and 2012 , net of eliminations, were $ 9,422 thousand and $ 11,595 thousand , respectively.
Related party costs and expenses for the third quarter of fiscal 2013 and 2012 , net of eliminations, were $ 10,372 thousand and $ 10,992 thousand , respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERCO AND CONSOLIDATED ENTITIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Nine Months Ended December 31, |
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2012 |
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2011 |
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(Unaudited) |
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(In thousands, except share and per share amounts) |
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Revenues: |
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Self-moving equipment rentals |
$ |
1,400,300 |
$ |
1,333,918 |
Self-storage revenues |
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111,825 |
|
99,682 |
Self-moving and self-storage products and service sales |
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173,399 |
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167,352 |
Property management fees |
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15,847 |
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14,929 |
Life insurance premiums |
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137,341 |
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229,839 |
Property and casualty insurance premiums |
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26,006 |
|
25,076 |
Net investment and interest income |
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44,237 |
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48,398 |
Other revenue |
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76,589 |
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60,041 |
Total revenues |
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1,985,544 |
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1,979,235 |
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Costs and expenses: |
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Operating expenses |
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883,892 |
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836,149 |
Commission expenses |
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180,801 |
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168,865 |
Cost of sales |
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86,292 |
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89,729 |
Benefits and losses |
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130,682 |
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268,140 |
Amortization of deferred policy acquisition costs |
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9,290 |
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10,716 |
Lease expense |
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89,962 |
|
99,271 |
Depreciation, net of (gains) on disposals of (($14,879) and ($18,326), respectively) |
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177,478 |
|
148,696 |
Total costs and expenses |
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1,558,397 |
|
1,621,566 |
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Earnings from operations |
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427,147 |
|
357,669 |
Interest expense |
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(67,680) |
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(68,340) |
Pretax earnings |
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359,467 |
|
289,329 |
Income tax expense |
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(132,632) |
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(109,367) |
Net earnings |
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226,835 |
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179,962 |
Less: Excess of redemption value over carrying value of preferred shares redeemed |
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– |
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(5,908) |
Less: Preferred stock dividends |
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– |
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(2,913) |
Earnings available to common shareholders |
$ |
226,835 |
$ |
171,141 |
Basic and diluted earnings per common share |
$ |
11.62 |
$ |
8.79 |
Weighted average common shares outstanding: Basic and diluted |
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19,512,974 |
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19,470,886 |
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Related party revenues for the first nine months of fiscal 2013 and 2012 , net of eliminations, were $ 26,344 thousand and $ 33,549 thousand , respectively.
Related party costs and expenses for the first nine months of fiscal 2013 and 2012 , net of eliminations, were $ 36,584 thousand and $ 34,906 thousand , respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERCO AN D CONSOLIDATED ENTITIES
Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)
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Pre-tax |
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Tax |
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Net |
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(Unaudited) |
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(In thousands) |
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Comprehensive income: |
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Net earnings |
$ |
59,870 |
$ |
(23,024) |
$ |
36,846 |
Other comprehensive income (loss): |
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|
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Foreign currency translation |
|
(1,068) |
|
– |
|
(1,068) |
Unrealized net gain on investments |
|
18,368 |
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(6,574) |
|
11,794 |
Change in fair value of cash flow hedges |
|
4,248 |
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(1,614) |
|
2,634 |
Total comprehensive income |
$ |
81,418 |
$ |
(31,212) |
$ |
50,206 |
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Quarter Ended December 31, 2011 |
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Pre-tax |
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Tax |
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Net |
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(Unaudited) |
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(In thousands) |
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Comprehensive income: |
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|
|
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Net earnings |
$ |
2,129 |
$ |
(1,401) |
$ |
728 |
Other comprehensive income (loss): |
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|
|
|
|
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Foreign currency translation |
|
1,578 |
|
– |
|
1,578 |
Unrealized net gain on investments |
|
14,079 |
|
(4,901) |
|
9,178 |
Change in fair value of cash flow hedges |
|
2,977 |
|
(1,131) |
|
1,846 |
Total comprehensive income |
$ |
20,763 |
$ |
(7,433) |
$ |
13,330 |
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|
|
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|
|
|
|
|
|
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Nine Months Ended December 31, 2012 |
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Pre-tax |
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Tax |
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Net |
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(Unaudited) |
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(In thousands) |
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Comprehensive income: |
|
|
|
|
|
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Net earnings |
$ |
359,467 |
$ |
(132,632) |
$ |
226,835 |
Other comprehensive income (loss): |
|
|
|
|
|
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Foreign currency translation |
|
462 |
|
– |
|
462 |
Unrealized net gain on investments |
|
30,914 |
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(10,923) |
|
19,991 |
Change in fair value of cash flow hedges |
|
4,501 |
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(1,710) |
|
2,791 |
Total comprehensive income |
$ |
395,344 |
$ |
(145,265) |
$ |
250,079 |
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|
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|
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|
|
|
|
|
|
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Nine Months Ended December 31, 2011 |
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Pre-tax |
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Tax |
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Net |
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(Unaudited) |
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(In thousands) |
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Comprehensive income: |
|
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|
|
|
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Net earnings |
$ |
289,329 |
$ |
(109,367) |
$ |
179,962 |
Other comprehensive income (loss): |
|
|
|
|
|
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Foreign currency translation |
|
(4,179) |
|
– |
|
(4,179) |
Unrealized net gain on investments |
|
7,328 |
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(2,159) |
|
5,169 |
Change in fair value of cash flow hedges |
|
(13,133) |
|
4,991 |
|
(8,142) |
Total comprehensive income |
$ |
279,345 |
$ |
(106,535) |
$ |
172,810 |
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|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
AMERCO AND CONSOLIDATED ENTITIES
Condensed consolidatED statements of cash flows
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Nine Months Ended December 31, |
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2012 |
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2011 |
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(Unaudited) |
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(In thousands) |
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Cash flow from operating activities: |
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Net earnings |
$ |
226,835 |
$ |
179,962 |
Adjustments to reconcile net earnings to cash provided by operations: |
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|
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Depreciation |
|
192,357 |
|
167,022 |
Amortization of deferred policy acquisition costs |
|
9,290 |
|
10,716 |
Change in allowance for losses on trade receivables |
|
(73) |
|
(89) |
Change in allowance for inventory reserves |
|
2,050 |
|
3,005 |
Net gain on sale of real and personal property |
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(14,879) |
|
(18,326) |
Net gain on sale of investments |
|
(1,050) |
|
(5,454) |
Deferred income taxes |
|
17,757 |
|
94,581 |
Net change in other operating assets and liabilities: |
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|
|
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Reinsurance recoverables and trade receivables |
|
71,709 |
|
(145,727) |
Inventories |
|
696 |
|
173 |
Prepaid expenses |
|
(13,283) |
|
2,666 |
Capitalization of deferred policy acquisition costs |
|
(43,085) |
|
(19,072) |
Other assets |
|
22,712 |
|
3,623 |
Related party assets |
|
138,042 |
|
(5,357) |
Accounts payable and accrued expenses |
|
(872) |
|
7,428 |
Policy benefits and losses, claims and loss expenses payable |
|
(30,226) |
|
221,797 |
Other policyholders' funds and liabilities |
|
(925) |
|
(3,333) |
Deferred income |
|
(3,704) |
|
1,070 |
Related party liabilities |
|
2,970 |
|
2,965 |
Net cash provided by operating activities |
|
576,321 |
|
497,650 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Purchases of: |
|
|
|
|
Property, plant and equipment |
|
(422,840) |
|
(421,743) |
Short term investments |
|
(289,773) |
|
(169,313) |
Fixed maturities investments |
|
(308,290) |
|
(172,570) |
Equity securities |
|
(3,130) |
|
(9,048) |
Preferred stock |
|
(2,761) |
|
(1,617) |
Real estate |
|
(1,053) |
|
(5,201) |
Mortgage loans |
|
(50,583) |
|
(94,111) |
Proceeds from sale of: |
|
|
|
|
Property, plant and equipment |
|
166,904 |
|
139,852 |
Short term investments |
|
280,856 |
|
186,941 |
Fixed maturities investments |
|
85,132 |
|
116,609 |
Equity securities |
|
– |
|
10,210 |
Preferred stock |
|
5,728 |
|
1,252 |
Real estate |
|
671 |
|
146 |
Mortgage loans |
|
49,215 |
|
40,883 |
Net cash used by investing activities |
|
(489,924) |
|
(377,710) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Borrowings from credit facilities |
|
251,319 |
|
234,562 |
Principal repayments on credit facilities |
|
(234,698) |
|
(166,615) |
Debt issuance costs |
|
(2,352) |
|
(1,788) |
Capital lease payments |
|
(18,310) |
|
(5,962) |
Leveraged Employee Stock Ownership Plan - repayments from loan |
|
559 |
|
827 |
Securitization deposits |
|
(1,729) |
|
40,500 |
Preferred stock redemption paid |
|
– |
|
(144,289) |
Preferred stock dividends paid |
|
– |
|
(2,913) |
Common stock dividends paid |
|
(97,421) |
|
– |
Contribution to related party |
|
– |
|
(518) |
Investment contract deposits |
|
268,478 |
|
10,810 |
Investment contract withdrawals |
|
(22,937) |
|
(21,419) |
Net cash provided (used) by financing activities |
|
142,909 |
|
(56,805) |
|
|
|
|
|
Effects of exchange rate on cash |
|
(362) |
|
(306) |
|
|
|
|
|
Increase in cash and cash equivalents |
|
228,944 |
|
62,829 |
Cash and cash equivalents at the beginning of period |
|
357,180 |
|
382,514 |
Cash and cash equivalents at the end of period |
$ |
586,124 |
$ |
445,343 |
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 third fiscal quarter that ends on the 31 st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30 th of September 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 r equired by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material even ts occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2012 and 2011 correspond to fiscal 2013 and 2012 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 December 31, 2012 and the related condensed consolidated statements of operations and comprehensive income for the thir d quarter and the first nine months and the cash flows f or the first nine months ended fiscal 2013 and 2012 are unaudited.
In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been inclu ded. 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”) sh ould 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, 2012 .
Intercompany accounts and transactions have been eliminated.
Description of Legal Entities
AMERCO is the holding company for:
U-Haul International, Inc. (“U-Haul”),
Amerco Real Estate Company (“Real Estate”),
Rep w est Insura nce 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
AMERCO has three rep ortable 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, and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate. Operations con sist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane, and the rental of fixed and mobile self -storage spaces to the “do-it-yourself” mover and management of self- storage properties owned by othe rs. Operations are conducted under the registered trade name U-Haul ® throughout the United States and Canada.
The Property and Casualty Insurance operating segment includes Rep w est and its wholly-owned subsidiaries and ARCOA risk retention group (“ARCOA”). The Property and Casualty Insurance operating segment provides loss adjusting and claims handling for U-Haul through regional offices a cross North America. The Property and Casualty Insurance operating segment also underwrites components of the Safemove, Safetow, Super Safemove and Safestor protection packages to U-Haul customers. The business plan for the Property and Casualty Insurance operating segment 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 t o provide insurance products related to the moving and storage business .
The Life Insurance operating segment includes Oxford and its wholly-owned subsidiaries. Oxford provides life and health insurance products primarily to the senior market through the d irect writing or reinsuring of life insurance, Medicare supplement and annuity policies.
2. Earnings per Share
Net earnings for purposes of computing earnings per common share for the third quarter and first nine months of fiscal 2012 are net earnings less preferred stock dividends paid, adjusted for the price paid by us for the redemption of our p referred stock less its carrying value on our balance sheet at that time . Preferred stoc k dividends include accrued dividends of AMERCO. Preferred stock dividends paid to or accrued for entities that are part of the consolidated group are eliminated in consolidation .
The weighted average common shares outstanding exclude post-1992 shares of the employee stock ownership plan that have not be en committed to be released. The unreleased shares , net of shares committed to be released , were 75,657 and 120,725 as of December 31, 2012 and December 31, 2011 , respectiv ely.
On June 1, 2011 , we redeemed all 6,100,000 shares of our issued and outstanding Series A 8½% Preferred Stock (“Series A Preferred”) at a redemption price of $ 25 per share plus accrued dividends through that date. Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 – Earnings Per Share (“ASC 260”), for earnings per share purposes, we recognize the deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares.
The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $ 146.3 million prior to the redemption. We paid $ 1 52.5 million to redeem the shares on June 1, 2011 of which $ 7.7 million was paid to our insurance subsidiaries in exchange for their holdings. The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings wa s $ 5.9 million. This amount was recognized as a reduction to our earnings available to our common shareholders for the purposes of computing earnings per share for the first nine months of fiscal 2012 .
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 pe nalties.
We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $ 16.3 million at December 31, 2012 .
Available-for-Sale Investments
Available-for-sale investments at December 31, 2012 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 |
$ |
21,201 |
$ |
2,910 |
$ |
(3) |
$ |
– |
$ |
24,108 |
U.S. government agency mortgage-backed securities |
|
41,010 |
|
4,427 |
|
(7) |
|
(1) |
|
45,429 |
Obligations of states and political subdivisions |
|
149,644 |
|
16,073 |
|
(2) |
|
(54) |
|
165,661 |
Corporate securities |
|
662,087 |
|
52,067 |
|
(650) |
|
(1,131) |
|
712,373 |
Mortgage-backed securities |
|
24,597 |
|
774 |
|
(25) |
|
(30) |
|
25,316 |
Redeemable preferred stocks |
|
21,353 |
|
1,208 |
|
(342) |
|
(11) |
|
22,208 |
Common stocks |
|
30,866 |
|
99 |
|
(6,092) |
|
– |
|
24,873 |
|
$ |
950,758 |
$ |
77,558 |
$ |
(7,121) |
$ |
(1,227) |
$ |
1,019,968 |
|
|
|
|
|
|
The table above includes 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 $ 90.7 million during the first nine months of fiscal 2013 . The gross realized gains on these sales totaled $ 1.9 million. The gross realized losses on these sales totaled $ 0.6 million.
The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. The majority of this unrealized lo ss is related to our long term investments in 1.8 million shares of Bank of America common stock. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments including obtaining corroborati ng 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 d these write-downs through earnings . Our insurance subsidiaries recognized $ 0.1 million in other-than-temporary impairments for the first nine months of fiscal 2012 . There were no write downs in the third quarter of fiscal 2013 and 2012 or for the first nine months of fiscal 2013 .
The investment portfolio primarily consists of corporate securities and U.S. government securities. We believe we monitor our investments as appropriate. Our methodology of assessing other-than-temporary impairments is based on security-specific analysis a s of the balance sheet date and considers various factors including the length of time to maturity, the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. Nothing has come to management’s attention that would lead to the belief that each issuer would not have the ability to meet the remaining contractual obligations of the security, inc luding 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 securit ies credit losses include the time frame for principal recovery and the subordination and value of the underlying collateral.
Credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehen sive income were as follows:
|
Credit Loss |
|
|
|
(Unaudited) |
|
|
(In thousands) |
Balance at March 31, 2012 |
$ |
552 |
Additions: |
|
|
Other-than-temporary impairment not previously recognized |
|
– |
Balance at December 31, 2012 |
$ |
552 |
|
|
|
The adjusted cost and estimated market value of available-for-sale investments at December 31, 2012 , by contractual maturity, were as follows:
Long-Term Debt
Long-term debt was as follows:
|
|
|
|
December 31, |
|
March 31, |
|
|
2013 Rate (a) |
|
Maturities |
|
2012 |
|
2012 |
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
(In thousands) |
||
Real estate loan (amortizing term) |
6.93% |
|
2018 |
$ |
237,500 |
$ |
245,000 |
Real estate loan (revolving credit) |
– |
|
2018 |
|
– |
|
– |
Real estate loan (amortizing term) |
2.11% |
|
2016 |
|
24,779 |
|
25,451 |
Real estate loan (revolving credit) |
– |
|
2013 |
|
– |
|
23,920 |
Senior mortgages |
4.90% - 5.75% |
|
2015 - 2038 |
|
560,775 |
|
459,822 |
Working capital loan (revolving credit) |
– |
|
2013 |
|
– |
|
– |
Fleet loans (amortizing term) |
1.75% - 6.92% |
|
2012 - 2020 |
|
360,690 |
|
384,888 |
Fleet loans (securitization) |
4.90% - 5.56% |
|
2014 - 2017 |
|
196,179 |
|
228,655 |
Capital leases (rental equipment) |
2.37% - 9.57% |
|
2015 - 2019 |
|
274,394 |
|
109,689 |
Other obligations |
3.00% - 8.00% |
|
2013 - 2042 |
|
12,691 |
|
8,786 |
Total notes, loans and leases payable |
|
|
|
$ |
1,667,008 |
$ |
1,486,211 |
|
|
|
|
|
|
|
|
(a) Interest rate as of December 31, 2012, 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. The loan has a final maturity date of August 2018. The loan is comprised of a term loan facility with initial availability of $ 300.0 million and a revolving credit facility with current availability of $ 177.7 million. As of December 31, 2012 , the outstanding balance on the Real Estate Loan was $ 237.5 million and we had the full $ 177.7 million available to be drawn. U-Haul International, Inc. is a guarantor of this loan.
The amortizing term port ion of the Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The revolving credit portion of the Real Estate Loan requires monthly interest payments when drawn, with the unpaid loan balance and any accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers.
The interest rate for the amortizing term portion, per the provisions of the amended l oan a gre ement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At December 31, 2012 , the applicable LIBOR was 0.22% and the applicable margin was 1.50% , the sum of which was 1.72% . The rate on the term facility portion of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin.
The interest rate for the revolving credit facility, per the provision of the amended l oan a greement, is the applicable LIBOR plus the applicable margin. The margin ranges from 1.50% to 2.00% .
The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. T here are limited restrictions regarding our use of the funds.
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan effective June 29, 2006. This loan was modified and extended on June 2 7 , 2011 . Th is loan is now comprised of a term loan facility with an initial availability of $ 26.1 million and a final maturity of
June 2016. As of December 31, 2012 , the outstanding balance was $ 24.8 million.
This Real Estate Loan requires monthly principal and interest payments , with the unpaid loan balance and any accrued and unpaid interest due at maturity. The interes t rate, per the provision of this loan a greement, is the applicable LIBOR plus a margin of 1.90% . At December 31, 2012 , the applicable LIBOR was 0.21% and the margin was 1.90% , the sum of which was 2.11% . U-Haul International, Inc. and AMERCO are 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 covenants.
On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a revolvin g credit agreement for $ 100.0 million. This agreement was amended in March 2012 and the maturity extended to April 201 3 with an option for a one year extension. As of December 31, 2012 , we had the full $ 100.0 milli on available to be drawn. The interest rate is the applicable LIBOR plus a m argin 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 sta ndard 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 December 31, 2012 were in the aggregate amount of $ 560.8 million and mature between 2015 and 2038 . The s enior m ortgages require average monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of the senior mortgages, range between 4.90% and 5.75% . Amerco Real Estate Company and U-Haul International, Inc . have provided limited guarantees of the senior mortgages. The default provisions of the senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding o ur use of the funds.
Working Capital 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 December 31, 2012 , we had the full $ 25.0 million available to be drawn. This loan is secured by certain properties owned by the b orrower. Th is loan agreement provides for revolving loans, subject to the terms of the loan agreement . This agreement was amended in Marc h 2012 and the maturity extended to November 201 3 with an option for a one year extension . Th is loan requires monthly interest payments with the unpaid loan balance 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 covenants. The interest rate, per the provision of th is loan a greement, 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 December 31, 2012 was $ 245.7 million with the final maturities between July 201 3 and January 20 20 .
The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus a margin between 0.90% and 2.63% . At December 31, 2012 , the applicable LIBOR was between 0.21% and 0 .22% and applic able margins were between 0.90% and 2.63% . The interest rates are hedged with interest rate swaps fixing the rates between 1.75% and 6.92% based on current margins. Additionally, $ 31.1 million of these loans are carried at fixed rate s betwee n 2.59% to 3.94% .
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.
On December 31, 2009 , a subsidiary of U-Haul International, Inc. entered into an $ 85.0 million term note that was used to fund cargo van and pickup acquisitions for the pas t t wo years. This term note was amended on August 26, 2011. The amount of the term note was increased to $ 95.0 million. On December 22, 2011, we entered into another term loan for $ 20.0 million. The final maturity date of these notes is August 2016 . The agreement s contain options to extend the maturity through May 2017 . The se note s are secured by the purchas ed equipment and the corresponding operating cash flows associated with their operation. These notes have fixed interest rates between 3.52% and 3.53% . At December 31, 2012 , the outstanding balance was $ 115.0 mill ion.
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
U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $ 217.0 million asset-backed note (“2007 Box Truck Note”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the secu ritized transaction were used to finance new box truck purchases throughout fiscal 2008. U.S. Bank, NA acts as the trustee for this securitization.
The 2007 Box Truck Note has a fixed interest rate of 5.56% with an expected final maturity of February 2014. At December 31, 2012 , the outstanding balance was $ 84.6 million. The note is secured by the box trucks that were purchased and the corresponding operating cash flows associated with their operation.
The 2007 Box Truck Note has the benefit of a financial guaranty insurance policy which guarantees the timely payment of interest on and the ultimate payment of the principal of this note.
2010 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 net proceeds from the securitized transaction were used to finance new box truck purchases. U.S. Bank, NA acts as the trustee for this securitization.
The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At December 31, 2012 , the outstanding balance was $ 111.6 million. The note is secur ed by the box trucks being purchased and the corresponding operating cash flows associated with their operation.
The 2007 Box Truck Note and 2010 Box Truck Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of these notes include non-payment of principal o r interest and other standard reporting and change-in-control covenants.
Capital Leases
We entered into capital leases for new equipment between April 2008 and December 2012, with terms of the leases between 5 and 7 years . At December 31, 2012 , the outstanding balance of these leases was $ 274.4 million.
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 provide for the issuance of notes (“U-Notes”) by us directly to investors over our proprietary website, uhaulinvestorsclub.com . T he U-Notes are secured by various types of collateral including rental equipment and real estate. U-Notes are issued in smaller series that vary as to principal amount, interest rate and maturity. U-Notes are obligations of the Company and secured by the associated collateral; they are not guaranteed by any of the Company’s affiliates or subsidiaries.
At December 31, 2012 , the aggregate outstanding principal balance of the U-N otes issued was $ 19.0 million of whic h $ 6.3 million is with our insurance subsidiaries with interest rates between 3.00% and 8.00% and maturity dates between 2013 and 2042.
Annual Maturities of Notes, Loans and Leases Payable
The annual maturities of long-term debt as of December 31, 2012 for the next five years and thereafter are as follows:
|
Year Ending December 31, |
|||||||||||
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
Thereafter |
|
|
(Unaudited) |
||||||||||
|
|
(In thousands) |
||||||||||
Notes, loans and leases payable, secured |
$ |
128,987 |
$ |
203,900 |
$ |
530,297 |
$ |
282,227 |
$ |
172,932 |
$ |
348,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Borrowings
Interest Expense
Components of interest expense include the following:
|
Quarter Ended December 31, |
|||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Interest expense |
$ |
16,540 |
$ |
16,009 |
Capitalized interest |
|
(119) |
|
(76) |
Amortization of transaction costs |
|
1,014 |
|
1,198 |
Interest expense resulting from derivatives |
|
4,641 |
|
5,613 |
Total interest expense |
$ |
22,076 |
$ |
22,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Interest expense |
$ |
48,715 |
$ |
47,888 |
Capitalized interest |
|
(290) |
|
(154) |
Amortization of transaction costs |
|
3,149 |
|
3,292 |
Interest expense resulting from derivatives |
|
16,106 |
|
17,314 |
Total interest expense |
$ |
67,680 |
$ |
68,340 |
|
|
|
|
|
Interest paid in cash including payments related to derivative contracts, amounted to $ 20.8 million and $ 21.7 million for the third quarter of fiscal 2013 and 2012 , respectively and $ 63.3 million and $ 66.0 million for the first nine months of fiscal 2013 and 2012 , respectively.
Interest rates and Company borrowings were as follows:
|
Revolving Credit Activity |
|||
|
|
Quarter Ended December 31, |
||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands, except interest rates) |
||
Weighted average interest rate during the quarter |
|
1.57% |
|
1.80% |
Interest rate at the end of the quarter |
|
1.61% |
|
1.77% |
Maximum amount outstanding during the quarter |
$ |
25,000 |
$ |
38,920 |
Average amount outstanding during the quarter |
$ |
24,185 |
$ |
37,779 |
Facility fees |
$ |
115 |
$ |
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Activity |
||
|
|
Nine Months Ended December 31, |
||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands, except interest rates) |
||
Weighted average interest rate during the first nine months |
|
1.67% |
|
1.72% |
Interest rate at the end of the first nine months |
|
1.61% |
|
1.77% |
Maximum amount outstanding during the first nine months |
$ |
48,920 |
$ |
38,920 |
Average amount outstanding during the first nine months |
$ |
24,830 |
$ |
24,685 |
Facility fees |
$ |
399 |
$ |
416 |
|
|
|
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, th e designated benchmark interest rate being hedged on certain of our LIBOR indexed variable rate debt and a variable rate operating lease . The interest rate swaps effectively fix our interest payments on certain LIBOR indexed variable rate debt. We monitor our positions and the credit ratings of our counterparties and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes.
Original variable rate debt amount |
|
Agreement Date |
|
Effective Date |
|
Expiration Date |
|
Designated cash flow hedge date |
||
|
(Unaudited) |
|||||||||
|
(In millions) |
|||||||||
$ |
50.0 |
|
|
6/21/2006 |
|
7/10/2006 |
|
7/10/2013 |
|
6/9/2006 |
|
300.0 |
|
|
8/16/2006 |
|
8/18/2006 |
|
8/10/2018 |
|
8/4/2006 |
|
30.0 |
|
|
2/9/2007 |
|
2/12/2007 |
|
2/10/2014 |
|
2/9/2007 |
|
20.0 |
|
|
3/8/2007 |
|
3/12/2007 |
|
3/10/2014 |
|
3/8/2007 |
|
20.0 |
|
|
3/8/2007 |
|
3/12/2007 |
|
3/10/2014 |
|
3/8/2007 |
|
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 |
|
7/1/2011 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) forward swap |
|
|
|
|
|
|
|
|
|
|
(b) operating lease |
|
|
|
|
|
|
|
|
|
As of December 31, 2012 , the total notional amount of our variable interest rate swaps on debt and an operating lease was $ 417.3 million and $ 14.1 million , respectively .
The derivative fair values located in a ccounts payable and accrued expenses in the balance sheets were as fol lows:
|
Liability Derivatives Fair Values as of |
|||
|
|
December 31, 2012 |
|
March 31, 2012 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
||
Interest rate contracts designated as hedging instruments |
$ |
56,089 |
$ |
59,313 |
|
|
|
|
|
|
|
The Effect of Interest Rate Contracts on the Statements of Operations |
||
|
|
December 31, 2012 |
|
December 31, 2011 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Loss recognized in income on interest rate contracts |
$ |
16,106 |
$ |
17,314 |
(Gain) loss recognized in AOCI on interest rate contracts (effective portion) |
$ |
(4,501) |
$ |
13,133 |
Loss reclassified from AOCI into income (effective portion) |
$ |
14,828 |
$ |
17,984 |
(Gain) loss recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing) |
$ |
1,277 |
$ |
(670) |
Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At December 31, 2012 , we expect to reclassify $ 16.6 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the next twelve months.
6. Stockholders ’ Equity
On June 1, 2011 , we redeemed all 6,100,000 shares of our issued and outstanding Series A Preferred at a redemption price of $ 25 per share plus accrued dividends through that date. Pursuant to ASC 260 , for earnings per share purposes, we recognized the deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares.
The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $ 146.3 mi llion prior to the redemption. We paid $ 152.5 million to redeem the shares on June 1, 2011 of which $ 7.7 million was paid to our insurance subsidiaries i n exch ange for their holdings. The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings was $ 5.9 million. This amount was recognized as a reduction to our earnings a vailable to our common shareholders for the purposes of computing earnings per share for the first nine months of fiscal 2012 .
On November 7, 2012, we declared a special cash dividend on o ur Common Stock of $ 5.00 per share to holders of record on November 19, 2012. The dividend was paid on November 30, 2012.
7. Comprehensive Income (Loss)
A summary of accumulated other comprehensive income (loss) components, net of tax, were as follows:
8. Contingent Liabilities and Commitments
We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 201 9 . As of December 31, 2012 , AMERCO has guaranteed $ 124.3 million of residual values for these rental equipment ass ets 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 ha ve 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. AMERCO has been leasing equipment since 1987 and has experienced no material losses relating to these types of residual va lue guarantees.
Lease commitments for leases having terms of more than one year were as follows:
9. Contingencies
Shoen
In September 2002, Paul F. Shoen filed a shareholder derivative lawsuit in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al ., CV 02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as Defendants. AMERCO is named as a nominal Defendant in the case. The complai nt alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC prior to the filing of the complaint. The complaint seeks a declaration that such transfers are void as well as unspecified damages. In October 2002, the Defendants filed motions to dismiss the complaint. Also in October 2002, Ron Belec filed a deri vative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al ., CV 02-06331 and in January 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial Dis trict Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et al ., CV 03-00386. Two additional derivative suits were also filed against these parties. Each of these suits is substantially similar to the Paul F. Shoen case. The Court consolidated the five cases and thereafter dismissed these actions in May 2003, concluding that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Boar d. Plaintiffs appealed this decision and, in July 2006, the Nevada Supreme Court reversed the ruling of the trial court and remanded the case to the trial court for proceedings consistent with its ruling, allowing the Plaintiffs to file an amended complain t and plead in addition to substantive claims, demand futility.
In November 2006, the Plaintiffs filed an amended complaint. In December 2006, the Defendants filed motions to dismiss, based on various legal theories. In March 2007, the Court denied AMERCO’s motion to dismiss regarding the issue of demand futility, stating that “Plaintiffs have satisfied the heightened pleading requirements of demand futility by showing a majority of the members of the AMERCO Board of Directors were interested parties in the SAC transactions.” The Court heard oral argument on the remainder of the Defendants’ motions to dismiss, including the motion (“Goldwasser Motion”) based on the fact that the subject matter of the lawsuit had been settled and dismissed in earlier l itigation known as Goldwasser v. Shoen , C.V.N.-94-00810-ECR (D.Nev), Washoe County , Nevada . In addition, in September and October 2007, the Defendants filed Motions for Judgment on the Pleadings or in the Alternative Summary Judgment, based on the fact tha t the stockholders of the Company had ratified the underlying transactions at the 2007 annual meeting of stockholders of AMERCO. In December 2007, the Court denied this motion. This ruling does not preclude a renewed motion for summary judgment after disco very and further proceedings on these issues. On April 7, 2008, the litigation was dismissed, on the basis of the Goldwasser Motion. On May 8, 2008, the
Plaintiffs filed a notice of appeal of such dismissal to the Nevada Supreme Court (the “Court”) . On M ay 20, 2008, AMERCO filed a cross appeal relating to the denial of its Motion to Dismiss in regard to demand futility.
On May 12, 2011, the Nevada Supreme Court affirmed in part, reversed in part, and remanded the case for further proceedings. First, the Court ruled that the Goldwasser settlement did not release claims that arose after the agreement and, therefore, reversed the trial court’s dismissal of the Complaint on that ground. Second, the Court affirmed the district court’s determination that the in pari delicto defense is available in a derivative suit and reversed and remanded to the district court to determine if the defense applies to this matter. Third, the Court remanded to the district court to conduct an evidentiary hearing to determine whet her demand upon the AMERCO Board was, in fact, futile. Fourth, the Court invited AMERCO to seek a ruling from the district court as to the legal effect of the AMERCO Shareholders’ 2008 ratification of the underlying AMERCO/SAC transactions.
Last, as to individual claims for relief, the Court affirmed the district court’s dismissal of the breach of fiduciary duty of loyalty claims as to all defendants except Mark Shoen. The Court affirmed the district court’s dismissal of the breach of fiduciary duty: ul tra vires Acts claim as to all defendants. The Court reversed the district court’s dismissal of aiding and abetting a breach of fiduciary duty and unjust enrichment claims against the SAC entities. The Court reversed the trial court’s dismissal of the cla im for wrongful interference with prospective economic advantage as to all defendants.
On remand, on July 22, 2011, AMERCO filed a Motion for Summary Judgment based upon the Shareholder’s Ratification of the SAC transactions. In addition, on August 29, 201 1, certain defendants filed a Motion to Dismiss Plaintiffs’ Claim for Wrongful Interference with Prospective Economic Advantage. On August 31, 2011, the trial court held a status conference and entered an order setting forth the briefing schedule for the t wo motions. On December 23, 2011, the trial court denied AMERCO’s motion for summary judgment and certain defendants’ motion to dismiss. The court set a discovery schedule on the limited issue of demand futility. A four day evidentiary hearing on demand f utility was scheduled to begin on August 20, 2012.
On August 6, 2012, Max Belec and Glenbrook Capital Limited Partnership, voluntarily dismissed their complaint with prejudice. On August 20, 2012, the remaining plaintiffs, Paul Shoen and Alan Kahn, dismiss ed their complaint with prejudice. AMERCO paid none of plaintiffs ’ attorneys’ fees or costs. In return, AMERCO released plaintiffs from further related litigation based on plaintiffs’ conduct in this litigation. Moreover, Paul Shoen, Alan Kahn, Grover Wick ersham and numerous individuals and entities related to Paul Shoen and Grover Wickersham agreed to sell all of their AMERCO securities in the open market and not sue AMERCO or any of the other defendants for 20 years. If the plaintiffs or the related parti es breach this agreement, Paul Shoen will be responsible for $5 ,000,000 in liquidated damages. The parties filed a final Mutual Release Agreement with the Court on October 16, 2012, thereby terminating the case in its entirety, with prejudice.
Environmental
Compliance with environmental requirements of federal, state and local governments has the potential to significantly affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into th e 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 wit h 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 availab le 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
The Company is 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 the Company’s financial position and result s of operations.
10. 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 transactions which are req uired to be disclosed under the Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, all such related party transactions are submitted to the Audit Committee for ongoing review and oversight. We believe that our internal processes 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 those that would p revail 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 management agreements. In the past, we have sold various self-storage properties to SAC Holdings, and such sales provided significant cash flows to us .
Management believes that the sales of self-storage properties to SAC Holdings has provided a unique structure for the Company to earn moving equipment rental revenues and property management fee revenues from the SAC Holdings self-storage properties that the Company manage s .
Related Party Revenue
|
Quarter Ended December 31, |
|||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul interest income revenue from SAC Holdings |
$ |
1,981 |
$ |
4,863 |
U-Haul interest income revenue from Private Mini |
|
1,356 |
|
1,364 |
U-Haul management fee revenue from SAC Holdings |
|
3,585 |
|
3,440 |
U-Haul management fee revenue from Private Mini |
|
580 |
|
558 |
U-Haul management fee revenue from Mercury |
|
1,920 |
|
1,370 |
|
$ |
9,422 |
$ |
11,595 |
|
|
|
|
|
During the first nine months of fiscal 2013 , 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 is wholly-owned by Mark V. Shoen, a significant shareholder of AMERCO. W e do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $ 10.7 million and $ 13.4 million, from SAC Holdings during the first nine months of fiscal 201 3
and 2012 , respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2012 was $ 195.4 million and the aggregate notes receivable balance at December 31, 2012 was $ 72.6 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2019 and 2024. We received repayments of $ 127.3 million during the first quarter of fiscal 2013 on these notes and interest receivables.
During the first nine months of fiscal 2013 , 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 controll ed by Blackwater. We received cash interest payments of $ 4.1 million and $ 4.0 million from Private Mini during the first nine months of fiscal 2013 and 2012 , respec tively. The largest aggregate amount outstanding during the first nine months of fiscal 2013 was $ 66.3 million and t he aggregate notes receivable balance at December 31, 2012 was $ 66.0 million.
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 Mini 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 $ 19.1 million and $ 18.0 million from the above mentioned entities during the first nine months of fiscal 2013 and 2012 . This management fee is consistent with the fee received for other properties we previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mar k V. Shoen. James P. Shoen, a significant shareholder and director of AMERCO, has an interest in Mercury.
Related Party Costs and Expenses
|
Quarter Ended December 31, |
|||
|
|
2012 |
|
2011 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul lease expenses to SAC Holdings |
$ |
655 |
$ |
636 |
U-Haul commission expenses to SAC Holdings |
|
9,142 |
|
9,764 |
U-Haul commission expenses to Private Mini |
|
575 |
|
592 |
|
$ |
10,372 |
$ |
10,992 |
|
|
|
|
|
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 December 31, 2012 , 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 us 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 $ 23.5 million, expenses of $ 2.0 million and cash flows of $ 152.7 million during the first nine months of fiscal 2013 . Revenues and commission expenses related to the Dealer Agreements were $ 158.4 million and $ 34.6 million , respectively during the first ni ne months of fiscal 2013 .
Pursuant to the variable interest entity model under ASC 810 - Consolidation (“ASC 810”), Management determined that the junior notes of SAC Holdings and Private Mini as well as the management agreement s 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 of these variable interest entit ie s (“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 impact their economic performance.
Management determined that they do not have a variable interest in the holding entities 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. Additionally, after a redetermination caused by the SAC Holding II repayment of t he outstanding principal on its junior notes with AMERCO during the first quarter of fiscal 2013 , Management has determined that the Company does not have a variable interest in the SAC Holding II holding entity.
We have junior de bt with the holding en tities 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 over 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.
We do not have the power to direct the activ ities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul. There are no fees or penalties disclosed in the management agreement for termination of the agreement. Through control of the holding entities assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most significantly i mpact each of the individual holding entities and the individual operating entities’ performance. As a result, we ha ve no basis under ASC 810 to consolidate these entities.
We have not provided financial or other support explicitly or implicitly during the first nine months ended December 31, 2012 to any of these entities that we were not previously contractually required to provide. In addition, we currently have no plan t o 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 s to our variable interests in the aforementioned entities are as follows, which a pproximate the maximum exposure to loss as a result of our involvement with these related party entities:
Related Party Assets
|
December 31, |
|
March 31, |
|
|
|
2012 |
|
2012 |
|
|
(Unaudited) |
|
|
|
|
(In thousands) |
||
U-Haul notes, receivables and interest from Private Mini |
$ |
70,706 |
$ |
68,798 |
U-Haul notes receivable from SAC Holdings |
|
72,634 |
|
195,426 |
U-Haul interest receivable from SAC Holdings |
|
14,407 |
|
18,667 |
U-Haul receivable from SAC Holdings |
|
14,753 |
|
30,297 |
U-Haul receivable from Mercury |
|
3,601 |
|
3,195 |
Other (a) |
|
(926) |
|
(226) |
|
$ |
175,175 |
$ |
316,157 |
|
|
|
|
|
|
|
|
|
|
(a) Timing difference for intercompany balances with insurance subsidiaries |
|
|
|
|
11. Consolidating Financial Information by Industry Segment
AMERCO’s three reportable segments are:
• Moving and Storage , comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,
• Property and Casualty Insurance, comprised of Rep w est and its subsidiaries and ARCOA, and
• Life Insurance, comprised of Oxford and its subsidiaries.
Management trac ks 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 pres ent these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.
The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries.
Investments in subsidiaries are accounted for by the parent using the equity method of accounting.
11. Financial Information by Consolidating Industry Segment:
Consolidating balance sheets by industry segment as of December 31, 2012 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) |
||||||||||||||||||
Assets: |
|
|
||||||||||||||||||
Cash and cash equivalents |
$ |
351,755 |
$ |
185,624 |
$ |
1,504 |
$ |
– |
|
$ |
538,883 |
$ |
14,490 |
$ |
32,751 |
$ |
– |
|
$ |
586,124 |
Reinsurance recoverables and trade receivables, net |
|
– |
|
24,882 |
|
– |
|
– |
|
|
24,882 |
|
172,370 |
|
29,088 |
|
– |
|
|
226,340 |
Inventories, net |
|
– |
|
55,989 |
|
– |
|
– |
|
|
55,989 |
|
– |
|
– |
|
– |
|
|
55,989 |
Prepaid expenses |
|
12,578 |
|
42,030 |
|
540 |
|
– |
|
|
55,148 |
|
– |
|
– |
|
– |
|
|
55,148 |
Investments, fixed maturities and marketable equities |
|
20,472 |
|
– |
|
– |
|
– |
|
|
20,472 |
|
123,777 |
|
875,719 |
|
– |
|
|
1,019,968 |
Investments, other |
|
– |
|
– |
|
43,125 |
|
– |
|
|
43,125 |
|
101,495 |
|
125,571 |
|
– |
|
|
270,191 |
Deferred policy acquisition costs, net |
|
– |
|
– |
|
– |
|
– |
|
|
– |
|
– |
|
93,533 |
|
– |
|
|
93,533 |
Other assets |
|
480 |
|
71,517 |
|
29,191 |
|
– |
|
|
101,188 |
|
487 |
|
214 |
|
– |
|
|
101,889 |
Related party assets |
|
1,008,820 |
|
121,303 |
|
7 |
|
(951,978) |
(c) |
|
178,152 |
|
8,738 |
|
516 |
|
(12,231) |
(c) |
|
175,175 |
|
|
1,394,105 |
|
501,345 |
|
74,367 |
|
(951,978) |
|
|
1,017,839 |
|
421,357 |
|
1,157,392 |
|
(12,231) |
|
|
2,584,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
217,615 |
|
– |
|
– |
|
152,561 |
(b) |
|
370,176 |
|
– |
|
– |
|
(370,176) |
(b) |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
– |
|
106,859 |
|
231,739 |
|
– |
|
|
338,598 |
|
– |
|
– |
|
– |
|
|
338,598 |
Buildings and improvements |
|
– |
|
182,051 |
|
973,703 |
|
– |
|
|
1,155,754 |
|
– |
|
– |
|
– |
|
|
1,155,754 |
Furniture and equipment |
|
140 |
|
298,282 |
|
18,350 |
|
– |
|
|
316,772 |
|
– |
|
– |
|
– |
|
|
316,772 |
Rental trailers and other rental equipment |
|
– |
|
303,379 |
|
– |
|
– |
|
|
303,379 |
|
– |
|
– |
|
– |
|
|
303,379 |
Rental trucks |
|
– |
|
2,044,639 |
|
– |
|
– |
|
|
2,044,639 |
|
– |
|
– |
|
– |
|
|
2,044,639 |
|
|
140 |
|
2,935,210 |
|
1,223,792 |
|
– |
|
|
4,159,142 |
|
– |
|
– |
|
– |
|
|
4,159,142 |
Less: Accumulated depreciation |
|
(119) |
|
(1,154,751) |
|
(369,324) |
|
– |
|
|
(1,524,194) |
|
– |
|
– |
|
– |
|
|
(1,524,194) |
Total property, plant and equipment |
|
21 |
|
1,780,459 |
|
854,468 |
|
– |
|
|
2,634,948 |
|
– |
|
– |
|
– |
|
|
2,634,948 |
Total assets |
$ |
1,611,741 |
$ |
2,281,804 |
$ |
928,835 |
$ |
(799,417) |
|
$ |
4,022,963 |
$ |
421,357 |
$ |
1,157,392 |
$ |
(382,407) |
|
$ |
5,219,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Balances as of September 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Eliminate investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Eliminate intercompany receivables and payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating balance sheets by industry segment as of December 31, 2012 are as follows:
|
Moving & Storage |
|
|
|
|
AMERCO Legal Group |
|
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AMERCO |
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U-Haul |
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Real Estate |
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Eliminations |
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Moving & Storage Consolidated |
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Property & Casualty Insurance (a) |
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Life Insurance (a) |
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Eliminations |
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AMERCO Consolidated |
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(Unaudited) |
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(In thousands) |
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Liabilities: |
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Accounts payable and accrued expenses |
$ |
511 |
$ |
315,935 |
$ |
4,157 |
$ |
– |
|
$ |
320,603 |
$ |
– |
$ |
5,579 |
$ |
– |
|
$ |
326,182 |
Notes, loans and leases payable |
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– |
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880,542 |
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786,466 |
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– |
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1,667,008 |
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– |
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– |
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– |
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1,667,008 |
Policy benefits and losses, claims and loss expenses payable |
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– |
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388,726 |
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– |
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– |
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388,726 |
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322,548 |
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404,549 |
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– |
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1,115,823 |
Liabilities from investment contracts |
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– |
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– |
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– |
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– |
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– |
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– |
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486,502 |
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– |
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486,502 |
Other policyholders' funds and liabilities |
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– |
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– |
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– |
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– |
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– |
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2,853 |
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3,495 |
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– |
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6,348 |
Deferred income |
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– |
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27,840 |
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– |
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– |
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27,840 |
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– |
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– |
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– |
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27,840 |
Deferred income taxes |
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418,892 |
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– |
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– |
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– |
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418,892 |
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(39,054) |
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19,265 |
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– |
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399,103 |
Related party liabilities |
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– |
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679,544 |
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281,829 |
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(951,978) |
(c) |
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9,395 |
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2,181 |
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655 |
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(12,231) |
(c) |
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– |
Total liabilities |
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419,403 |
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2,292,587 |
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1,072,452 |
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(951,978) |
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2,832,464 |
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288,528 |
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920,045 |
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(12,231) |
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4,028,806 |
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Stockholders' equity: |
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Series preferred stock: |
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Series A preferred stock |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
Series B preferred stock |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
Series A common stock |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
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– |
Common stock |
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10,497 |
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540 |
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1 |
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(541) |
(b) |
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10,497 |
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3,301 |
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2,500 |
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(5,801) |
(b) |
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10,497 |
Additional paid-in capital |
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437,136 |
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121,230 |
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147,941 |
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(269,171) |
(b) |
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437,136 |
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91,120 |
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26,271 |
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(117,601) |
(b) |
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