Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

		September 30,		March 31,
		2018		2018
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	652,440	$	759,388
Reinsurance recoverables and trade receivables, net		207,665		193,538
Inventories and parts, net		93,071		89,877
Prepaid expenses		183,350		166,129
Investments, fixed maturities and marketable equities		2,015,402		1,919,860
Investments, other		407,774		399,064
Deferred policy acquisition costs, net		138,938		124,767
Other assets		180,475		244,782
Related party assets		30,257		33,276
		3,909,372		3,930,681
Property, plant and equipment, at cost:
Land		899,095		827,649
Buildings and improvements		3,581,419		3,140,713
Furniture and equipment		656,389		632,803
Rental trailers and other rental equipment		562,167		545,968
Rental trucks		4,597,016		4,390,750
		10,296,086		9,537,883
Less: Accumulated depreciation		(2,881,613)		(2,721,142)
Total property, plant and equipment		7,414,473		6,816,741
Total assets	$	11,323,845	$	10,747,422
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses	$	535,185	$	511,115
Notes, loans and leases payable, net		3,686,572		3,513,076
Policy benefits and losses, claims and loss expenses payable		1,198,053		1,248,033
Liabilities from investment contracts		1,490,172		1,364,066
Other policyholders' funds and liabilities		13,342		10,040
Deferred income		34,136		34,276
Deferred income taxes, net		733,218		658,108
Total liabilities		7,690,678		7,338,714
Commitments and contingencies (notes 4, 8 and 9)
Stockholders' equity:
Series preferred stock, with or without par value, 50,000,000 shares authorized:
Series A preferred stock, with no par value, 6,100,000 shares authorized;
6,100,000 shares issued and none outstanding as of September 30 and March 31, 2018		–		–
Series B preferred stock, with no par value, 100,000 shares authorized; none
issued and outstanding as of September 30 and March 31, 2018		–		–
Serial common stock, with or without par value, 250,000,000 shares authorized:
Serial common stock of $0.25 par value, 10,000,000 shares authorized;
none issued and outstanding as of September 30 and March 31, 2018		–		–
Common stock, with $0.25 par value, 250,000,000 shares authorized:
Common stock of $0.25 par value, 250,000,000 shares authorized; 41,985,700
issued and 19,607,788 outstanding as of September 30 and March 31, 2018		10,497		10,497
Additional paid-in capital		453,006		452,746
Accumulated other comprehensive loss		(62,238)		(4,623)
Retained earnings		3,917,087		3,635,561
Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2018)		(525,653)		(525,653)
Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2018)		(151,997)		(151,997)
Unearned employee stock ownership plan shares		(7,535)		(7,823)
Total stockholders' equity		3,633,167		3,408,708
Total liabilities and stockholders' equity	$	11,323,845	$	10,747,422

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

1

 

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

		Quarter Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	781,713	$	740,558
Self-storage revenues		91,493		80,472
Self-moving and self-storage products and service sales		72,913		73,268
Property management fees		7,192		6,831
Life insurance premiums		35,920		38,862
Property and casualty insurance premiums		16,283		15,026
Net investment and interest income		28,227		26,469
Other revenue		70,766		61,200
Total revenues		1,104,507		1,042,686
Costs and expenses:
Operating expenses		529,350		492,250
Commission expenses		85,334		83,351
Cost of sales		46,402		42,866
Benefits and losses		45,773		47,109
Amortization of deferred policy acquisition costs		5,899		5,944
Lease expense		8,170		8,575
Depreciation, net of gains on disposal of ($12,036) and ($4,938), respectively		132,625		133,144
Net (gains) losses on disposal of real estate		10		(166)
Total costs and expenses		853,563		813,073
Earnings from operations		250,944		229,613
Other components of net periodic benefit costs		(254)		(232)
Interest expense		(35,030)		(32,023)
Pretax earnings		215,660		197,358
Income tax expense		(52,118)		(72,719)
Earnings available to common stockholders	$	163,542	$	124,639
Basic and diluted earnings per common share	$	8.35	$	6.36
Weighted average common shares outstanding: Basic and diluted		19,591,312		19,588,571

 

Related party revenues for the second quarter of fiscal 2019 and 2018, net of eliminations, were $7.2 million and $8.0 million, respectively.

Related party costs and expenses for the second quarter of fiscal 2019 and 2018, net of eliminations, were $19.0 million and $18.2 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

		Six Months Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	1,498,315	$	1,410,416
Self-storage revenues		177,705		157,190
Self-moving and self-storage products and service sales		152,154		152,179
Property management fees		14,608		13,593
Life insurance premiums		72,808		77,953
Property and casualty insurance premiums		29,064		26,841
Net investment and interest income		52,832		53,686
Other revenue		126,598		108,753
Total revenues		2,124,084		2,000,611
Costs and expenses:
Operating expenses		1,025,904		908,942
Commission expenses		164,591		158,716
Cost of sales		96,283		90,461
Benefits and losses		94,327		94,829
Amortization of deferred policy acquisition costs		11,930		12,265
Lease expense		16,339		16,862
Depreciation, net of gains on disposal of ($28,331) and ($10,026), respectively		259,052		259,479
Net losses on disposal of real estate		10		181
Total costs and expenses		1,668,436		1,541,735
Earnings from operations		455,648		458,876
Other components of net periodic benefit costs		(507)		(464)
Interest expense		(70,284)		(62,368)
Pretax earnings		384,857		396,044
Income tax expense		(93,466)		(145,198)
Earnings available to common stockholders	$	291,391	$	250,846
Basic and diluted earnings per common share	$	14.87	$	12.81
Weighted average common shares outstanding: Basic and diluted		19,590,946		19,588,231

 

Related party revenues for the first six months of fiscal 2019 and 2018, net of eliminations, were $14.6 million and $16.0 million, respectively.

Related party costs and expenses for the first six months of fiscal 2019 and 2018, net of eliminations, were $36.2 million and $34.8 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

Quarter Ended September 30, 2018		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	215,660	$	(52,118)	$	163,542
Other comprehensive income (loss):
Foreign currency translation		1,113		–		1,113
Unrealized net loss on investments		(22,280)		4,679		(17,601)
Change in fair value of cash flow hedges		286		(70)		216
Total comprehensive income	$	194,779	$	(47,509)	$	147,270
Quarter Ended September 30, 2017		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	197,358	$	(72,719)	$	124,639
Other comprehensive income (loss):
Foreign currency translation		12,767		–		12,767
Unrealized net gain on investments		15,473		(5,416)		10,057
Change in fair value of cash flow hedges		1,194		(454)		740
Total comprehensive income	$	226,792	$	(78,589)	$	148,203

 

Six Months Ended September 30, 2018		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	384,857	$	(93,466)	$	291,391
Other comprehensive income (loss):
Foreign currency translation		(980)		–		(980)
Unrealized net loss on investments		(72,498)		15,225		(57,273)
Change in fair value of cash flow hedges		846		(208)		638
Total comprehensive income	$	312,225	$	(78,449)	$	233,776
Six Months Ended September 30, 2017		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	396,044	$	(145,198)	$	250,846
Other comprehensive income (loss):
Foreign currency translation		21,034		–		21,034
Unrealized net gain on investments		26,104		(9,136)		16,968
Change in fair value of cash flow hedges		2,744		(1,044)		1,700
Total comprehensive income	$	445,926	$	(155,378)	$	290,548

 

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

AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

		Six Months Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands)
Cash flows from operating activities:
Net earnings	$	291,391	$	250,846
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		287,383		269,505
Amortization of deferred policy acquisition costs		11,930		12,265
Amortization of debt issuance costs		2,013		1,946
Interest credited to policyholders		17,726		15,119
Change in allowance for losses on trade receivables		309		(2)
Change in allowance for inventories and parts reserves		1,148		2,953
Net gains on disposal of personal property		(28,331)		(10,026)
Net losses on disposal of real estate		10		181
Net (gains) losses on sales of investments		55		(3,059)
Deferred income taxes		89,829		63,065
Net change in other operating assets and liabilities:
Reinsurance recoverables and trade receivables		(14,453)		(15,895)
Inventories and parts		(4,347)		(21,036)
Prepaid expenses		(17,709)		41,486
Capitalization of deferred policy acquisition costs		(12,926)		(15,154)
Other assets		58,139		(10,444)
Related party assets		6,181		8,958
Accounts payable and accrued expenses		63,582		69,550
Policy benefits and losses, claims and loss expenses payable		(49,774)		12,057
Other policyholders' funds and liabilities		3,302		10,305
Deferred income		(124)		3,660
Related party liabilities		(3,276)		(3,662)
Net cash provided by operating activities		702,058		682,618
Cash flows from investing activities:
Escrow deposits		1,362		27,059
Purchases of:
Property, plant and equipment		(1,114,544)		(754,052)
Short term investments		(22,335)		(34,765)
Fixed maturities investments		(239,972)		(219,620)
Equity securities		(957)		(662)
Preferred stock		(81)		(1,000)
Real estate		(218)		(118)
Mortgage loans		(24,132)		(50,817)
Proceeds from sales and paydowns of:
Property, plant and equipment		429,910		259,450
Short term investments		24,568		38,927
Fixed maturities investments		65,270		70,792
Preferred stock		1,125		988
Real estate		–		2,664
Mortgage loans		12,912		9,584
Net cash used by investing activities		(867,092)		(651,570)
Cash flows from financing activities:
Borrowings from credit facilities		313,299		285,532
Principal repayments on credit facilities		(182,955)		(214,354)
Payment of debt issuance costs		(1,420)		(3,413)
Capital lease payments		(147,913)		(150,302)
Employee stock ownership plan shares		(137)		(3,960)
Securitization deposits		–		(186)
Common stock dividends paid		(29,385)		(19,587)
Investment contract deposits		179,608		232,752
Investment contract withdrawals		(71,228)		(97,262)
Net cash provided by financing activities		59,869		29,220
Effects of exchange rate on cash		(1,783)		10,277
Increase (decrease) in cash and cash equivalents		(106,948)		70,545
Cash and cash equivalents at the beginning of period		759,388		697,806
Cash and cash equivalents at the end of period	$	652,440	$	768,351

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

AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a second fiscal quarter that ends on the 30 th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 30 th of June for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the presentation of financial position or results of operations. We disclose material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2018 and 2017 correspond to fiscal 2019 and 2018 for AMERCO.

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

The condensed consolidated balance sheet as of September 30, 2018 and the related condensed consolidated statements of operations, comprehensive income (loss) for the second quarter and first six months and cash flows for the first six months of fiscal 2019 and 2018 are unaudited.

In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (“Quarterly Report”) should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

Intercompany accounts and transactions have been eliminated.

Description of Legal Entities

AMERCO is the holding company for:

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

Amerco Real Estate Company (“Real Estate”),

Repwest Insurance Company (“Repwest”), and

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

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

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

AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

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

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

2. Earnings per Share

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

The weighted average common shares outstanding exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares, net of shares committed to be released, were 16,128 and 18,885 as of September 30, 2018 and 2017, respectively.

3. Investments

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

We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $31.1 million and $32.4 million as of September 30, 2018 and March 31, 2018, respectively.

Available-for-Sale Investments

Available-for-sale investments as of September 30, 2018 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	$	125,462	$	1,394	$	(1,688)	$	(1,541)	$	123,627
U.S. government agency mortgage-backed securities		62,273		628		(2)		(981)		61,918
Obligations of states and political subdivisions		204,297		6,623		(229)		(495)		210,196
Corporate securities		1,497,362		17,605		(5,695)		(27,178)		1,482,094
Mortgage-backed securities		101,647		709		–		(1,027)		101,329
Redeemable preferred stocks		1,493		63		–		–		1,556
	$	1,992,534	$	27,022	$	(7,614)	$	(31,222)	$	1,980,720

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Available-for-sale investments as of March 31, 2018 were as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses More than 12 Months		Gross Unrealized Losses Less than 12 Months		Estimated Market Value
		(In thousands)
U.S. treasury securities and government obligations	$	123,557	$	3,595	$	(1,036)	$	(203)	$	125,913
U.S. government agency mortgage-backed securities		36,416		951		(1)		(93)		37,273
Obligations of states and political subdivisions		178,702		9,938		(217)		(18)		188,405
Corporate securities		1,388,300		50,056		(3,009)		(1,826)		1,433,521
Mortgage-backed securities		94,106		2,072		–		(153)		96,025
Redeemable preferred stocks		2,118		129		–		–		2,247
	$	1,823,199	$	66,741	$	(4,263)	$	(2,293)	$	1,883,384

As of March 31, 2018, equity investments were classified as available-for-sale on our balance sheet. However, upon adoption of Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities , the updated guidance eliminated the available-for-sale balance sheet classification for equity investments. As of September 30, 2018 and March 31, 2018 we had $8.0 million and $8.6 million of preferred stock and $26.7 million and $27.9 million of common stock, respectively, that are included in Investments, fixed maturities and marketable equities on our balance sheet. The changes in the fair value of the equity investments are recognized through Net investment and interest income.

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

We sold available-for-sale securities with a fair value of $58.3 million during the first six months of fiscal 2019. The gross realized gains on these sales totaled $0.9 million. The gross realized losses on these sales totaled $0.1 million.

The unrealized losses of more than twelve months in the available-for-sale tables are considered temporary declines. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments, including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognize these write-downs, if any, through earnings. There were no write downs in the second quarter or for the first six months of fiscal 2019 or 2018.

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

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

There were no credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income (loss) (“AOCI”) for the second quarter or first six months of fiscal 2019 and fiscal 2018, respectively.

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

		September 30, 2018				March 31, 2018
		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
		(Unaudited)
		(In thousands)
Due in one year or less	$	54,102	$	54,349	$	36,446	$	36,674
Due after one year through five years		489,499		489,545		441,223		450,816
Due after five years through ten years		625,687		619,371		607,895		626,174
Due after ten years		720,106		714,570		641,411		671,448
		1,889,394		1,877,835		1,726,975		1,785,112
Mortgage backed securities		101,647		101,329		94,106		96,025
Redeemable preferred stocks		1,493		1,556		2,118		2,247
	$	1,992,534	$	1,980,720	$	1,823,199	$	1,883,384

4. Borrowings

Long Term Debt

Long term debt was as follows:

					September 30,		March 31,
	2019 Rate (a)		Maturities		2018		2018
					(Unaudited)
					(In thousands)
Real estate loan (amortizing term)	3.63%		2023	$	107,913	$	135,287
Senior mortgages	3.72% - 6.62%		2021 - 2038		1,510,404		1,487,645
Working capital loans (revolving credit)	3.45% - 3.46%		2020 - 2021		185,000		55,000
Fleet loans (amortizing term)	1.95% - 4.66%		2018 - 2025		286,987		342,971
Fleet loans (revolving credit)	3.23% - 3.26%		2021 - 2022		520,000		460,000
Capital leases (rental equipment)	1.92% - 5.04%		2018 - 2025		1,026,092		984,217
Other obligations	2.75% - 8.00%		2018 - 2047		75,200		73,579
Notes, loans and leases payable					3,711,596		3,538,699
Less: Debt issuance costs					(25,024)		(25,623)
Total notes, loans and leases payable, net				$	3,686,572	$	3,513,076
(a) Interest rate as of September 30, 2018, including the effect of applicable hedging instruments.

Real Estate Backed Loans

Real Estate Loan

Real Estate and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a real estate loan (the “Real Estate Loan”). As of September 30, 2018, the outstanding balance on the Real Estate Loan was $107.9 million.  The Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers. The final maturity of the term loan is April 2023. 

9

 

 

The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. As of September 30, 2018, the applicable LIBOR was 2.13% and the applicable margin was 1.50%, the sum of which was 3.63%. The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Senior Mortgages

Various subsidiaries of Real Estate and U-Haul are borrowers under certain senior mortgages. These senior mortgage loan balances as of September 30, 2018 were in the aggregate amount of $1,510.4 million and mature between 2021 and 2038. The senior mortgages require monthly principal and interest payments. The senior mortgages are secured by certain properties owned by the borrowers. The fixed interest rates, per the provisions of the senior mortgages, range between 3.72% and 6.62%. Certain senior mortgages have an anticipated repayment date and a maturity date. If these senior mortgages are not repaid by the anticipated repayment date, the interest rate on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule. Real Estate and U-Haul have provided limited guarantees of the senior mortgages. The default provisions of the senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Working Capital Loans

Various subsidiaries of Real Estate and U-Haul are borrowers under an asset backed working capital loan. This loan was amended in June 2018, to extend the maturity date and reduce the applicable margin. The maximum amount that can be drawn at any one time is $85.0 million. As of September 30, 2018, the outstanding balance was $85.0 million. This loan is secured by certain properties owned by the borrowers. This loan agreement provides for term loans, subject to the terms of the loan agreement. The final maturity of the loan is June 2021. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The interest rate, per the provision of the loan agreement, is the applicable LIBOR plus the applicable margin. As of September 30, 2018, the applicable LIBOR was 2.08% and the margin was 1.38%, the sum of which was 3.46%. AMERCO is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

AMERCO is a borrower under a working capital loan. The current maximum credit commitment is $150.0 million, which can be increased to $300.0 million by bringing in other lenders. As of September 30, 2018, the outstanding balance was $100.0 million. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. The final maturity of this loan is September 2020. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. As of September 30, 2018, the applicable LIBOR was 2.07% and the margin was 1.38%, the sum of which was 3.45%. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There is a 0.30% fee charged for unused capacity.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul and several of its subsidiaries are borrowers under amortizing term loans. The aggregate balance of the loans as of September 30, 2018 was $287.0 million with the final maturities between December 2018 and June 2025.

The amortizing loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the loan agreements, are the applicable LIBOR plus the applicable margins. As of September 30, 2018, the applicable LIBOR was between 2.11% and 2.16% and applicable margins were between 1.72% and 1.75%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 3.00% based on current margins. Additionally, $263.4 million of these loans are carried at fixed rates ranging between 1.95% and 4.66%.

AMERCO and, in some cases, U-Haul 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 Revolvers

Various subsidiaries of U-Haul entered into three revolving fleet loans in aggregate for $530.0 million. These loans mature between January 2021 and July 2022. The interest rates, per the provision of the loan agreements, are the applicable LIBOR plus the applicable margin. As of September 30, 2018, the applicable LIBOR was between 2.08% and 2.11%, and the margin was 1.15%, the sum of which was between 3.23% and 3.26%. Only interest is paid on the loans until the last nine months of the respective loan terms when principal becomes due monthly. As of September 30, 2018, the aggregate outstanding balance of the loans was $520.0 million.

Capital Leases

We regularly enter into capital leases for new equipment with the terms of the leases between five and seven years. During the first six months of fiscal 2019, we entered into $187.1 million of new capital leases. As of September 30, 2018 and March 31, 2018, the balance of our capital leases was $1,026.1 million and $984.2 million, respectively. The net book value of the corresponding capitalized assets was $1,499.4 million and $1,407.6 million as of September 30, 2018 and March 31, 2018, respectively.

Other Obligations

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

As of September 30, 2018, the aggregate outstanding principal balance of the U-Notes ® issued was $78.6 million, of which $3.4 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 2.75% and 8.00% and maturity dates range between 2018 and 2047.

Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made deposits with Oxford. As of June 30, 2018, the deposits had an aggregate balance of $60.0 million, for which Oxford pays fixed interest rates between 1.48% and 2.67% with maturities between September 29, 2018 and March 29, 2021. As of June 30, 2018, available-for-sale investments held with the FHLB totaled $123.4 million, of which $70.0 million were pledged as collateral to secure the outstanding deposits. The balances of these deposits are included within Liabilities from investment contracts on the condensed consolidated balance sheets.

Annual Maturities of Notes, Loans and Leases Payable, Net

The annual maturities of long term debt, including capital leases, as of September 30, 2018 for the next five years and thereafter are as follows:

		Twelve Months Ending September 30,
		2019		2020		2021		2022		2023		Thereafter
		(Unaudited)
		(In thousands)
Notes, loans and leases payable, secured	$	458,613	$	595,502	$	552,231	$	539,667	$	211,857	$	1,353,726

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

		Quarter Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands)
Interest expense	$	36,220	$	31,863
Capitalized interest		(2,227)		(1,929)
Amortization of transaction costs		881		1,014
Interest expense resulting from derivatives		156		1,075
Total interest expense		35,030		32,023

 

		Six Months Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands)
Interest expense	$	70,416	$	61,492
Capitalized interest		(2,646)		(3,694)
Amortization of transaction costs		1,842		1,946
Interest expense resulting from derivatives		672		2,624
Total interest expense		70,284		62,368

Interest paid in cash, including payments related to derivative contracts, amounted to $36.6 million and $32.4 million for the second quarter of fiscal 2019 and 2018, respectively, and $71.1 million and $63.4 million for the first six months of fiscal 2019 and 2018, respectively.

Interest Rates

Interest rates and Company borrowings were as follows:

		Revolving Credit Activity
		Quarter Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the quarter		3.06%		2.43%
Interest rate at the end of the quarter		2.81%		2.43%
Maximum amount outstanding during the quarter	$	705,000	$	538,000
Average amount outstanding during the quarter	$	585,924	$	516,946
Facility fees	$	128	$	49

 

		Revolving Credit Activity
		Six Months Ended September 30,
		2018		2017
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the period		3.08%		2.34%
Interest rate at the end of the period		2.81%		2.43%
Maximum amount outstanding during the period	$	705,000	$	538,000
Average amount outstanding during the period	$	542,186	$	508,350
Facility fees	$	272	$	125

5. Derivatives

We manage exposure to changes in market interest rates. Our use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on certain of our LIBOR indexed variable rate debt and a variable rate operating lease. The interest rate swaps effectively fix our interest payments on certain LIBOR indexed variable rate debt. We monitor our positions and the credit ratings of our counterparties and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes. The following is a summary of our interest rate swap agreements as of September 30, 2018.

	Original variable rate debt amount			Agreement Date		Effective Date		Expiration Date		Designated cash flow hedge date
	(Unaudited)
	(In millions)
$	15.1	(a)		3/27/2012		3/28/2012		3/28/2019		3/26/2012
	25.0			4/13/2012		4/16/2012		4/1/2019		4/12/2012
	44.3			1/11/2013		1/15/2013		12/15/2019		1/11/2013
	(a) operating lease

As of September 30, 2018, the total notional amount of our variable interest rate swaps on debt and an operating lease was $24.4 million and $5.4 million, respectively.

The derivative fair values were as follows:

		Derivatives Fair Values as of
		September 30, 2018		March 31, 2018
		(Unaudited)
		(In thousands)
Interest rate contracts designated as hedging instruments
Assets	$	359	$	437
Liabilities		–		(897)

 

		The Effect of Interest Rate Contracts on the Statements of Operations for the Six Months Ended
		September 30, 2018		September 30, 2017
		(Unaudited)
		(In thousands)
Loss recognized in income on interest rate contracts	$	672	$	2,624
Gain recognized in AOCI on interest rate contracts (effective portion)	$	(846)	$	(2,744)
Loss reclassified from AOCI into income (effective portion)	$	645	$	2,618
(Gain) loss recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing)	$	27	$	6

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. During the first six months of fiscal 2019, we recognized a net increase in the fair value of our cash flow hedges of $0.6 million, net of taxes. Embedded in this change was $0.6 million of losses reclassified from accumulated other comprehensive income (loss) to interest expense during the first six months of fiscal 2019. As of September 30, 2018, we expect to reclassify $0.2 million of net gains on interest rate contracts from accumulated other comprehensive income (loss) to earnings as interest expense over the next twelve months.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

6. Accumulated Other Comprehensive Income (Loss)

A summary of AOCI components, net of tax, were as follows:

		Foreign Currency Translation		Unrealized Net Gain (Loss) on Investments		Fair Market Value of Cash Flow Hedges		Postretirement Benefit Obligation Net Loss		Accumulated Other Comprehensive Income (Loss)
		(Unaudited)
		(In thousands)
Balance as of March 31, 2018	$	(54,853)	$	52,509	$	(370)	$	(1,909)	$	(4,623)
Foreign currency translation		(980)		–		–		–		(980)
Unrealized net loss on investments		–		(57,273)		–		–		(57,273)
Change in fair value of cash flow hedges		–		–		1,283		–		1,283
Amounts reclassified from AOCI		–		–		(645)		–		(645)
Other comprehensive income (loss)		(980)		(57,273)		638		–		(57,615)
Balance as of September 30, 2018	$	(55,833)	$	(4,764)	$	268	$	(1,909)	$	(62,238)

7. Stockholders’ Equity

The following table summarizes dividends declared and/or paid during fiscal 2019:

Common Stock Dividends
Declared Date		Per Share Amount		Record Date		Dividend Paid Date
August 23, 2018	$	0.50		September 10, 2018		September 24, 2018
June 6, 2018		0.50		June 21, 2018		July 5, 2018
March 8, 2018		0.50		March 23, 2018		April 6, 2018

On June 8, 2016, our stockholders’ approved the 2016 AMERCO Stock Option Plan (Shelf Stock Option Plan). As of September 30, 2018, no awards had been issued under this plan.

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 2024. As of September 30, 2018, we have guaranteed $14.2 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, we have the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. We have been leasing equipment since 1987 and have experienced no material losses relating to these types of residual value guarantees.