UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

or

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

For the transition period from __________________ to __________________

 

 

 

Commission

File Number

Registrant, State of Incorporation,

Address and Telephone Number

I.R.S. Employer

Identification No.

 

 

 

 

AMERCOlogo

 

 

 

 

1-11255

AMERCO

88-0106815

 

(A Nevada Corporation)

 

 

1325 Airmotive Way, Ste. 100

 

 

Reno, Nevada 89502-3239

 

 

Telephone (775) 688-6300

 

 

 

 

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

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

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

Large accelerated filer [x]   Accelerated filer [ ]  

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

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

19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at November 1, 2013

 

 

 


TABLE OF CONTENTS

 

 

Page 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a) Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and March 31, 2013

1

 

b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 2013 and 2012 (unaudited)

2

 

c) Condensed Consolidated Statement of Operations for the Six Months ended September 30, 2013 and 2012 (unaudited)

3

 

d) Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months ended September 30, 2013 and 2012 (unaudited)

4

 

e) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2013 and 2012 (unaudited)

5

 

f) Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

Item 4.

Controls and Procedures

60

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

61

Item 1A.

Risk Factors

61

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine and Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

61


 


Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

 

September 30,

 

March 31,

 

 

2013

 

2013

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

679,576

$

463,744

Reinsurance recoverables and trade receivables, net

 

237,235

 

261,789

Inventories, net

 

61,430

 

56,396

Prepaid expenses

 

55,129

 

57,451

Investments, fixed maturities and marketable equities

 

1,114,340

 

1,095,338

Investments, other

 

212,707

 

241,765

Deferred policy acquisition costs, net

 

109,303

 

93,043

Other assets

 

104,591

 

99,986

Related party assets

 

168,830

 

182,035

 

 

2,743,141

 

2,551,547

Property, plant and equipment, at cost:

 

 

 

 

Land

 

363,142

 

333,228

Buildings and improvements

 

1,313,963

 

1,197,875

Furniture and equipment

 

311,765

 

311,142

Rental trailers and other rental equipment

 

350,101

 

317,476

Rental trucks

 

2,330,298

 

2,154,688

 

 

4,669,269

 

4,314,409

Less: Accumulated depreciation

 

(1,636,065)

 

(1,559,355)

Total property, plant and equipment

 

3,033,204

 

2,755,054

Total assets

$

5,776,345

$

5,306,601

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

362,493

$

358,491

Notes, loans and leases payable

 

1,775,119

 

1,661,845

Policy benefits and losses, claims and loss expenses payable

 

1,115,025

 

1,115,048

Liabilities from investment contracts

 

570,321

 

510,789

Other policyholders' funds and liabilities

 

7,788

 

7,294

Deferred income

 

32,388

 

30,217

Deferred income taxes

 

451,392

 

393,658

Total liabilities

 

4,314,526

 

4,077,342

 

 

 

 

 

Commitments and contingencies (notes 4, 7, 8 and 9)

 

 

Stockholders' equity:

 

 

 

 

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

 

 

 

 

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

 

 

 

 

6,100,000 shares issued and none outstanding as of September 30 and March 31, 2013

 

 

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

 

 

 

 

issued and outstanding as of September 30 and March 31, 2013

 

 

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

 

 

 

 

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

 

 

 

 

none issued and outstanding as of September 30 and March 31, 2013

 

 

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

 

 

 

 

issued and 19,607,788 outstanding as of September 30 and March 31, 2013

 

10,497

 

10,497

Additional paid-in capital

 

440,938

 

438,168

Accumulated other comprehensive loss

 

(44,109)

 

(22,680)

Retained earnings

 

1,733,589

 

1,482,630

Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2013)

 

(525,653)

 

(525,653)

Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2013)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(1,446)

 

(1,706)

Total stockholders' equity

 

1,461,819

 

1,229,259

Total liabilities and stockholders' equity

$

5,776,345

$

5,306,601

 

 

 

 

 

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

598,931

$

538,361

Self-storage revenues

 

45,572

 

37,978

Self-moving and self-storage products and service sales

 

65,379

 

61,730

Property management fees

 

5,292

 

4,902

Life insurance premiums

 

39,448

 

47,667

Property and casualty insurance premiums

 

10,867

 

8,947

Net investment and interest income

 

19,960

 

15,853

Other revenue

 

51,042

 

28,679

Total revenues

 

836,491

 

744,117

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

350,540

 

310,214

Commission expenses

 

78,378

 

68,564

Cost of sales

 

34,532

 

30,912

Benefits and losses

 

37,992

 

48,472

Amortization of deferred policy acquisition costs

 

6,057

 

3,088

Lease expense

 

25,818

 

29,591

Depreciation, net of (gains) on disposals of (($9,311) and ($5,532), respectively)

 

63,208

 

58,954

Total costs and expenses

 

596,525

 

549,795

 

 

 

 

 

Earnings from operations

 

239,966

 

194,322

Interest expense

 

(23,118)

 

(22,113)

Pretax earnings

 

216,848

 

172,209

Income tax expense

 

(78,857)

 

(62,789)

Earnings available to common stockholders

$

137,991

$

109,420

Basic and diluted earnings per common share

$

7.06

$

5.61

Weighted average common shares outstanding: Basic and diluted

 

19,554,633

 

19,512,550

 

 

 

 

 

 

Related party revenues for the second quarter of fiscal 2014 and 2013, net of eliminations, were $8.4 million and $8.2 million, respectively.

Related party costs and expenses for the second quarter of fiscal 2014 and 2013, net of eliminations, were $15.9 million and $13.9 million, respectively.

Please see note 9, Related Party Transactions of the Notes to Condensed Consolidated Financial Statements for more information on the related party revenues and costs and expenses.

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,120,580

$

1,005,355

Self-storage revenues

 

87,671

 

72,714

Self-moving and self-storage products and service sales

 

136,070

 

128,908

Property management fees

 

10,453

 

9,762

Life insurance premiums

 

80,510

 

94,093

Property and casualty insurance premiums

 

18,833

 

16,190

Net investment and interest income

 

38,949

 

30,370

Other revenue

 

90,256

 

54,401

Total revenues

 

1,583,322

 

1,411,793

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

660,041

 

593,607

Commission expenses

 

147,005

 

129,671

Cost of sales

 

70,102

 

63,139

Benefits and losses

 

80,625

 

96,810

Amortization of deferred policy acquisition costs

 

9,740

 

5,899

Lease expense

 

52,825

 

62,387

Depreciation, net of (gains) on disposals of (($20,876) and ($13,048), respectively)

 

120,642

 

115,079

Total costs and expenses

 

1,140,980

 

1,066,592

 

 

 

 

 

Earnings from operations

 

442,342

 

345,201

Interest expense

 

(46,446)

 

(45,604)

Pretax earnings

 

395,896

 

299,597

Income tax expense

 

(144,937)

 

(109,608)

Earnings available to common shareholders

$

250,959

$

189,989

Basic and diluted earnings per common share

$

12.84

$

9.74

Weighted average common shares outstanding: Basic and diluted

 

19,550,128

 

19,507,456

 

 

 

 

 

 

Related party revenues for the first six months of fiscal 2014 and 2013, net of eliminations, were $16.8 million and $16.9 million, respectively.

Related party costs and expenses for the first six months of fiscal 2014 and 2013, net of eliminations, were $29.9 million and $26.2 million, respectively.

Please see note 9, Related Party Transactions of the Notes to Condensed Consolidated Financial Statements for more information on the related party revenues and costs and expenses.

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

 

Quarter Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

216,848

$

(78,857)

$

137,991

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,557

 

 

1,557

Unrealized net loss on investments

 

(41,095)

 

14,322

 

(26,773)

Change in fair value of cash flow hedges

 

1,946

 

(740)

 

1,206

Total comprehensive income

$

179,256

$

(65,275)

$

113,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

172,209

$

(62,789)

$

109,420

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

3,459

 

 

3,459

Unrealized net gain on investments

 

10,673

 

(3,769)

 

6,904

Change in fair value of cash flow hedges

 

768

 

(292)

 

476

Total comprehensive income

$

187,109

$

(66,850)

$

120,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

395,896

$

(144,937)

$

250,959

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(2,205)

 

 

(2,205)

Unrealized net loss on investments

 

(41,006)

 

14,254

 

(26,752)

Change in fair value of cash flow hedges

 

12,142

 

(4,614)

 

7,528

Total comprehensive income

$

364,827

$

(135,297)

$

229,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

299,597

$

(109,608)

$

189,989

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,530

 

 

1,530

Unrealized net gain on investments

 

12,546

 

(4,349)

 

8,197

Change in fair value of cash flow hedges

 

253

 

(96)

 

157

Total comprehensive income

$

313,926

$

(114,053)

$

199,873

 

 

 

 

 

 

 

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,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$

250,959

$

189,989

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

141,518

 

128,127

Amortization of deferred policy acquisition costs

 

9,740

 

5,899

Change in allowance for losses on trade receivables

 

(6)

 

(3)

Change in allowance for inventory reserves

 

716

 

1,705

Net gain on sale of real and personal property

 

(20,876)

 

(13,048)

Net gain on sale of investments

 

(4,060)

 

238

Deferred income taxes

 

63,947

 

24,926

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

24,561

 

33,416

Inventories

 

(5,750)

 

(1,629)

Prepaid expenses

 

2,323

 

422

Capitalization of deferred policy acquisition costs

 

(16,289)

 

(24,489)

Other assets

 

(4,370)

 

19,770

Related party assets

 

8,650

 

142,239

Accounts payable and accrued expenses

 

24,866

 

45,412

Policy benefits and losses, claims and loss expenses payable

 

309

 

(17,413)

Other policyholders' funds and liabilities

 

494

 

4,130

Deferred income

 

2,191

 

(671)

Related party liabilities

 

4,475

 

415

Net cash provided by operating activities

 

483,398

 

539,435

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(457,671)

 

(280,986)

Short term investments

 

(154,703)

 

(150,987)

Fixed maturities investments

 

(174,593)

 

(179,941)

Equity securities

 

(388)

 

(26)

Preferred stock

 

(635)

 

(1,200)

Real estate

 

(252)

 

(792)

Mortgage loans

 

(14,260)

 

(50,828)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

176,453

 

132,597

Short term investments

 

162,580

 

154,577

Fixed maturities investments

 

93,050

 

52,586

Equity securities

 

6,803

 

Preferred stock

 

6,004

 

1,453

Real estate

 

 

590

Mortgage loans

 

36,415

 

12,700

Net cash used by investing activities

 

(321,197)

 

(310,257)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

138,041

 

88,847

Principal repayments on credit facilities

 

(122,945)

 

(171,496)

Debt issuance costs

 

(233)

 

(1,010)

Capital lease payments

 

(21,425)

 

(9,883)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

260

 

316

Securitization deposits

 

 

(1,729)

Investment contract deposits

 

74,253

 

169,933

Investment contract withdrawals

 

(14,721)

 

(15,275)

Net cash provided (used) by financing activities

 

53,230

 

59,703

 

 

 

 

 

Effects of exchange rate on cash

 

401

 

(240)

 

 

 

 

 

Increase in cash and cash equivalents

 

215,832

 

288,641

Cash and cash equivalents at the beginning of period

 

463,744

 

357,180

Cash and cash equivalents at the end of period

$

679,576

$

645,821

The accompanying notes are an integral part of these 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 30th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 30th of June for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2013 and 2012 correspond to fiscal 2014 and 2013 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, 2013 and the related condensed consolidated statements of operations, comprehensive income for the second quarter and first six months and cash flows for the first six months of fiscal 2014 and 2013 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, 2013.

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 term “Company,” “we,” “us” or “our” refers 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 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 mobile self-storage spaces to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.


 


AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

The Property and Casualty Insurance operating segment includes Repwest 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 across North America. The Property and Casualty Insurance operating segment also underwrites components of the Safemove, Safetow, Safemove Plus, Safestor and Safestor Mobile 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 to provide insurance products related to the moving and storage business.

The Life Insurance operating segment includes Oxford and its wholly-owned subsidiaries. The Life Insurance operating segment 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 48,649 and 90,159 as of September 30, 2013 and 2012, 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 $16.4 million at September 30, 2013.

Available-for-Sale Investments

Available-for-sale investments at September 30, 2013 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

$

28,048

$

1,932

$

(3)

$

(293)

$

29,684

U.S. government agency mortgage-backed securities

 

44,735

 

2,772

 

(4)

 

(1,009)

 

46,494

Obligations of states and political subdivisions

 

162,678

 

9,304

 

(132)

 

(1,916)

 

169,934

Corporate securities

 

800,834

 

28,872

 

(1,336)

 

(22,474)

 

805,896

Mortgage-backed securities

 

5,613

 

177

 

(35)

 

 

5,755

Redeemable preferred stocks

 

18,440

 

385

 

(64)

 

(312)

 

18,449

Common stocks

 

37,356

 

2,171

 

(1,291)

 

(108)

 

38,128

 

$

1,097,704

$

45,613

$

(2,865)

$

(26,112)

$

1,114,340

 

 

 

 

 

 

 

 

 

 

 

 

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 $103.3 million during the first six months of fiscal 2014. The gross realized gains on these sales totaled $3.2 million. The gross realized losses on these sales totaled $0.9 million.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognized these write-downs through earnings. There were no write downs in the second quarter or for the first six months of fiscal 2014 and 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 as of the balance sheet date and considers various factors including the length of time to maturity, the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. Nothing has come to management’s attention that would lead to the belief that each issuer would not have the ability to meet the remaining contractual obligations of the security, including payment at maturity. We have the ability and intent not to sell our fixed maturity and common stock investments for a period of time sufficient to allow us to recover our costs.

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

Credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows:

 

 

Credit Loss

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$

552

Additions:

 

 

Other-than-temporary impairment not previously recognized

 

Balance at September 30, 2013

$

552

 

 

 

The adjusted cost and estimated market value of available-for-sale investments at September 30, 2013, by contractual maturity, were as follows:

 

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

(In thousands)

Due in one year or less

$

25,259

$

25,520

Due after one year through five years

 

186,894

 

195,909

Due after five years through ten years

 

316,233

 

320,354

Due after ten years

 

507,909

 

510,225

 

 

1,036,295

 

1,052,008

 

 

 

 

 

Mortgage backed securities

 

5,613

 

5,755

Redeemable preferred stocks

 

18,440

 

18,449

Common stocks

 

37,356

 

38,128

 

$

1,097,704

$

1,114,340

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


4. Borrowings

Long-Term Debt

Long-term debt was as follows:

 

 

 

 

 

September 30,

 

March 31,

 

2014 Rate (a)

 

Maturities

 

2013

 

2013

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

6.93%

 

2023

$

255,000

$

235,000

Real estate loan (amortizing term)

2.08%

 

2016

 

24,182

 

24,630

Real estate loan (revolving credit)

 

 

2014

 

 

Senior mortgages

4.90% - 5.75%

 

2015 - 2038

 

546,957

 

556,522

Working capital loan (revolving credit)

 

 

2015

 

 

Fleet loans (amortizing term)

1.95% - 6.14%

 

2014 - 2020

 

373,324

 

361,079

Fleet loans (securitization)

4.90% - 5.56%

 

2014 - 2017

 

170,531

 

190,801

Capital leases (rental equipment)

2.23% - 7.80%

 

2015 - 2020

 

371,754

 

273,458

Other obligations

3.00% - 8.00%

 

2013 - 2043

 

33,371

 

20,355

Total notes, loans and leases payable

 

 

 

$

1,775,119

$

1,661,845

 

 

 

 

 

 

 

 

(a) Interest rate as of September 30, 2013, 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. During the first quarter of fiscal 2014 this loan was amended. As part of the amendment the revolver component of the agreement was terminated and certain collateral was released. The final maturity date of the term loan was extended to April 2023. As of September 30, 2013, the outstanding balance on the Real Estate Loan was $255.0 million. U-Haul International, Inc. is a guarantor of this loan.  The Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers. 

The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At September 30, 2013, the applicable LIBOR was 0.19% and the applicable margin was 1.50%, the sum of which was 1.69%. 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 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.

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 27, 2011. The 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 September 30, 2013, the outstanding balance was $24.2 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 interest rate, per the provision of this loan agreement, is the applicable LIBOR plus a margin of 1.90%. At September 30, 2013, the applicable LIBOR was 0.18% and the margin was 1.90%, the sum of which was 2.08%. 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $100.0 million. This agreement was amended in February 2013 and the maturity extended to April 2014 with an option for a one year extension and the revolver commitment was reduced to $50.0 million. As of September 30, 2013, we had the full $50.0 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO and U-Haul International, Inc. are guarantors of this facility. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of September 30, 2013 were in the aggregate amount of $547.0 million and mature between 2015 and 2038. The senior mortgages 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 our 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 September 30, 2013, we had the full $25.0 million available to be drawn. This loan is secured by certain properties owned by the borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This agreement was amended in February 2013 and the maturity extended to April 2015. This 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 this loan agreement, is the applicable LIBOR plus a margin of 1.25%.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of September 30, 2013 was $258.3 million with the final maturities between February 2014 and July 2020.

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 September 30, 2013, the applicable LIBOR was between 0.18% and 0.19% and applicable margins were between 0.90% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 6.14% based on current margins. Additionally, $77.4 million of these loans are carried at fixed rates ranging between 1.95% and 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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 past two 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 agreements contain options to extend the maturity through May 2017. These notes are secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  These notes have fixed interest rates between 3.52% and 3.53%. At September 30, 2013, the outstanding balance was $115.0 million.

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

Rental Truck Securitizations

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 securitized 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 September 30, 2013, the outstanding balance was $73.1 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 September 30, 2013, the outstanding balance was $97.5 million. The note is secured 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 or interest and other standard reporting and change-in-control covenants.

Capital Leases

We entered into capital leases for new equipment between April 2008 and September 2013, with terms of the leases between 3 and 7 years. At September 30, 2013, the balance of these leases was $371.8 million.

Other Obligations

In February 2011, the Company and US Bank, National Association (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  by us directly to investors over our proprietary website, uhaulinvestorsclub.com (“U-Notes”). The U-Notes are secured by various types of collateral including rental equipment and real estate.  U-Notes are issued in smaller 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


At September 30, 2013, the aggregate outstanding principal balance of the U-Notes issued was $39.8 million of which $6.4 million is with our insurance subsidiaries with interest rates between 3.00% and 8.00% and maturity dates between 2013 and 2043.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of September 30, 2013 for the next five years and thereafter are as follows:

 

 

Year Ending September 30,

 

 

2014

 

2015

 

2016

 

2017

 

2018

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

241,914

$

565,402

$

283,133

$

116,779

$

168,456

$

399,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

18,055

$

16,529

Capitalized interest

 

(128)

 

(94)

Amortization of transaction costs

 

843

 

1,050

Interest expense resulting from derivatives

 

4,348

 

4,628

Total interest expense

$

23,118

$

22,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

35,869

$

32,175

Capitalized interest

 

(270)

 

(171)

Amortization of transaction costs

 

1,694

 

2,135

Interest expense resulting from derivatives

 

9,153

 

11,465

Total interest expense

$

46,446

$

45,604

 

Interest paid in cash, including payments related to derivative contracts, amounted to $22.9 million and $21.3 million for the second quarter of fiscal 2014 and 2013, respectively and $44.9 million and $42.5 million for the first six months of fiscal 2014 and 2013, respectively.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

1.52%

 

1.69%

Interest rate at the end of the quarter

 

1.52%

 

0.00%

Maximum amount outstanding during the quarter

$

25,000

$

48,920

Average amount outstanding during the quarter

$

25,000

$

26,374

Facility fees

$

64

$

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Activity

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the first six months

 

1.50%

 

1.71%

Interest rate at the end of the first six months

 

1.52%

 

0.00%

Maximum amount outstanding during the first six months

$

25,000

$

48,920

Average amount outstanding during the first six months

$

24,590

$

25,154

Facility fees

$

156

$

284

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


5. Derivatives

We manage exposure to changes in market interest rates. Our use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on 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)

 

 

$

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

 

44.3

 

 

1/11/2013

 

1/15/2013

 

12/15/2019

 

1/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

 

As of September 30, 2013, the total notional amount of our variable interest rate swaps on debt and an operating lease was $411.4 million and $13.0 million, respectively.

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

 

 

 

 

 

 

 

Liability Derivatives Fair Values as of

 

 

September 30, 2013

 

March 31, 2013

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

39,875

$

51,550

 

 

 

 

 

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


 

 

 

 

 

 

 

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

 

 

 

 

September 30, 2013

 

September 30, 2012

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

9,153

$

11,465

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

$

(12,142)

$

(253)

Loss reclassified from AOCI into income (effective portion)

$

8,685

$

10,225

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

$

468

$

1,240

 

 

 

 

 

 

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At September 30, 2013, we expect to reclassify $15.1 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the next twelve months. During the first six months of fiscal 2014, we reclassified $8.7 million of net losses on interest rate contracts from accumulated other comprehensive income to interest expense.

6. Comprehensive Income (Loss)

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

 

 

 

Foreign Currency Translation

 

Unrealized Net Gain (Loss) on Investments

 

Fair Market Value of Cash Flow Hedges

 

Postretirement Benefit Obligation Gain

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$

(30,153)

$

39,645

$

(32,298)

$

126

$

(22,680)

Foreign currency translation

 

(2,205)

 

 

 

 

(2,205)

Unrealized net loss on investments

 

 

(26,752)

 

 

 

(26,752)

Change in fair value of cash flow hedges

 

 

 

(1,157)

 

 

(1,157)

Amounts reclassified from AOCI

 

 

 

8,685

 

 

8,685

Other comprehensive income (loss)

 

(2,205)

 

(26,752)

 

7,528

 

 

(21,429)

Balance at September 30, 2013

$

(32,358)

$

12,893

$

(24,770)

$

126

$

(44,109)

 

 

 

 

 

 

 

 

 

 

 

 

 

7. Contingent Liabilities and Commitments

We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2019. As of September 30, 2013, we have guaranteed $110.1 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

 

 

 

 

 

 

 

 

 

Property,

Plant and

Equipment

 

Rental

Equipment

 

Total

 

 

(Unaudited)

 

 

 

 

(In thousands)

 

 

Year-ended September 30:

 

 

 

 

 

 

2014

$

10,500

$

72,044

$

82,544

2015

 

2,055

 

48,873

 

50,928

2016

 

1,945

 

18,927

 

20,872

2017

 

1,825

 

12,204

 

14,029

2018

 

1,091

 

10,473

 

11,564

Thereafter

 

4,767

 

5,409

 

10,176

Total

$

22,183

$

167,930

$

190,113

 

 

 

 

 

 

 

 

8. Contingencies

Environmental

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

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

Other

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

 

9. Related Party Transactions

As set forth in the Audit Committee Charter and consistent with Nasdaq Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required 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. 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 prevail in third party, arm’s-length transactions.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


SAC Holding Corporation and SAC Holding II Corporation, (collectively “SAC Holdings”) were established in order to acquire and develop self-storage properties. These properties are being managed by us pursuant to management agreements. Between 1994 and 2002, we sold real estate and various self-storage properties to SAC Holdings, resulting in significant cash flows to the Company.

Management believes that these sales to SAC Holdings provided a unique structure for the Company to earn additional moving equipment rental revenues and property management fee revenues from the SAC Holdings self-storage properties that the Company manages.

Related Party Revenue

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,733

$

1,981

U-Haul interest income revenue from Private Mini

 

1,349

 

1,358

U-Haul management fee revenue from SAC Holdings

 

4,189

 

3,857

U-Haul management fee revenue from Private Mini

 

604

 

573

U-Haul management fee revenue from Mercury

 

500

 

472

 

$

8,375

$

8,241

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

3,652

$

4,457

U-Haul interest income revenue from Private Mini

 

2,686

 

2,703

U-Haul management fee revenue from SAC Holdings

 

8,263

 

7,686

U-Haul management fee revenue from Private Mini

 

1,198

 

1,140

U-Haul management fee revenue from Mercury

 

993

 

936

 

$

16,792

$

16,922

 

 

 

 

 

 

During the first six months of fiscal 2014, 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 stockholder of AMERCO. We do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $13.9 million and $8.9 million from SAC Holdings during the first six months of fiscal 2014 and 2013, respectively. The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 2014 was $72.4 million and the aggregate notes receivable balance at September 30, 2013 was $72.0 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 2017 and 2019.

During the first six months of fiscal 2014, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. We received cash interest payments of $2.7 million from Private Mini during the first six months of both fiscal 2014 and 2013. The largest aggregate amount outstanding during the first six months of fiscal 2014 was $65.9 million and the aggregate notes receivable balance at September 30, 2013 was $65.7 million.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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 $15.7 million and $14.4 million from the above mentioned entities during the first six months of fiscal 2014 and 2013, respectively. This management fee is consistent with the fee received for other properties the Company 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 Mark V. Shoen. James P. Shoen, a significant stockholder and director of AMERCO and an estate planning trust benefitting Shoen children have an interest in Mercury.

Related Party Costs and Expenses

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

655

$

655

U-Haul commission expenses to SAC Holdings

 

14,407

 

12,455

U-Haul commission expenses to Private Mini

 

893

 

812

 

$

15,955

$

13,922

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,310

$

1,316

U-Haul commission expenses to SAC Holdings

 

26,927

 

23,389

U-Haul commission expenses to Private Mini

 

1,688

 

1,507

 

$

29,925

$

26,212

 

 

 

 

 

 

We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to us.

At September 30, 2013, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by the Company based upon equipment rental revenues.

These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $15.8 million, expenses of $1.3 million and cash flows of $29.3 million during the first six months of fiscal 2014. Revenues and commission expenses related to the Dealer Agreements were $131.1 million and $28.6 million, respectively during the first six months of fiscal 2014.

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 agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represent potential variable interests for us.  Management evaluated whether it should be identified as the primary beneficiary of one or more of these variable interest entity’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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Management determined that they do not have a variable interest in the holding entities Mercury, SAC Holding II Corporation, 4 SAC, 5 SAC, or Galaxy based upon management agreements which are with the individual operating entities or through the issuance of junior debt therefore, we are precluded from consolidating these entities.

We have junior debt with the holding entities SAC Holding Corporation and Private Mini which represents a variable interest in each individual entity. Though we have certain protective rights within these debt agreements, we have no present influence or control 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 activities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul. There are no fees or penalties disclosed in the management agreement for termination of the agreement. Through control of the holding entities assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most significantly impact each of the individual holding entities and the individual operating entities’ performance.  As a result, we have no basis under ASC 810 to consolidate these entities.

We have not provided financial or other support during the first six months ended September 30, 2013 to any of these entities that we were not previously contractually required to provide. In addition, we currently have no plan to provide any financial support to any of these entities in the future. The carrying amount and classification of the assets and liabilities in our balance sheets that relate to our variable interests in the aforementioned entities are as follows, which approximate the maximum exposure to loss as a result of our involvement with these entities:

Related Party Assets

 

 

September 30,

 

March 31,

 

 

2013

 

2013

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

68,772

$

68,593

U-Haul notes receivable from SAC Holding

 

71,960

 

72,397

U-Haul interest receivable from SAC Holdings

 

4,192

 

14,483

U-Haul receivable from SAC Holdings

 

17,320

 

22,336

U-Haul receivable from Mercury

 

2,452

 

3,640

Other (a)

 

4,134

 

586

 

$

168,830

$

182,035

 

 

 

 

 

 

 

 

 

 

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

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10. 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 Repwest and its subsidiaries and ARCOA, and

         Life Insurance, comprised of Oxford and its subsidiaries.

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

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

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


AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10. Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of September 30, 2013 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moivng & Storage Consolidated

 

Property & Casualty Insurance (a)

 

Life Insurance (a)

 

Eliminations

 

 

AMERCO Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

477,559

$

158,650

$

1,499

$

 

$

637,708

$

5,450

$

36,418

$

 

$

679,576

Reinsurance recoverables and trade receivables, net

 

 

26,977

 

177

 

 

 

27,154

 

181,521

 

28,560

 

 

 

237,235

Inventories, net

 

 

61,430

 

 

 

 

61,430

 

 

 

 

 

61,430

Prepaid expenses

 

11,297

 

43,034

 

798

 

 

 

55,129

 

 

 

 

 

55,129

Investments, fixed maturities and marketable equities

 

18,104

 

 

 

 

 

18,104

 

180,270

 

915,966

 

 

 

1,114,340

Investments, other

 

 

 

28,648

 

 

 

28,648

 

52,128

 

131,931

 

 

 

212,707

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

109,303

 

 

 

109,303

Other assets

 

113

 

70,229

 

33,115

 

 

 

103,457

 

902

 

232

 

 

 

104,591

Related party assets

 

992,780

 

113,254

 

9

 

(935,949)

(c)

 

170,094

 

14,417

 

489

 

(16,170)

(c)

 

168,830

 

 

1,499,853

 

473,574

 

64,246

 

(935,949)

 

 

1,101,724

 

434,688

 

1,222,899

 

(16,170)

 

 

2,743,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

441,044

 

 

 

(75,586)

(b)

 

365,458

 

 

 

(365,458)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

54,059

 

309,083

 

 

 

363,142

 

 

 

 

 

363,142

Buildings and improvements

 

 

195,531

 

1,118,432

 

 

 

1,313,963

 

 

 

 

 

1,313,963

Furniture and equipment

 

70

 

297,161

 

14,534

 

 

 

311,765

 

 

 

 

 

311,765

Rental trailers and other rental equipment

 

 

350,101

 

 

 

 

350,101

 

 

 

 

 

350,101

Rental trucks

 

 

2,330,298

 

 

 

 

2,330,298