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 December 31, 2014

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 February 1, 2015


TABLE OF CONTENTS

 

 

Page 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

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

1

 

b) Condensed Consolidated Statements of Operations for the Quarters ended December 31, 2014 and 2013 (unaudited)

2

 

c) Condensed Consolidated Statement of Operations for the Nine Months ended December 31, 2014 and 2013 (unaudited)

3

 

d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Nine Months ended December 31, 2014 and 2013 (unaudited)

4

 

e) Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2014 and 2013 (unaudited)

5

 

f) Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4.

Controls and Procedures

57

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

 



 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

December 31,

 

March 31,

 

 

2014

 

2014

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

729,023

$

495,112

Reinsurance recoverables and trade receivables, net

 

197,640

 

199,322

Inventories, net

 

69,817

 

67,020

Prepaid expenses

 

94,076

 

55,269

Investments, fixed maturities and marketable equities

 

1,294,568

 

1,138,275

Investments, other

 

246,766

 

248,850

Deferred policy acquisition costs, net

 

116,191

 

118,707

Other assets

 

148,940

 

97,588

Related party assets

 

148,776

 

169,624

 

 

3,045,797

 

2,589,767

Property, plant and equipment, at cost:

 

 

 

 

Land

 

457,229

 

405,177

Buildings and improvements

 

1,641,420

 

1,430,330

Furniture and equipment

 

344,016

 

322,088

Rental trailers and other rental equipment

 

428,197

 

373,325

Rental trucks

 

2,881,051

 

2,610,797

 

 

5,751,913

 

5,141,717

Less: Accumulated depreciation

 

(1,891,178)

 

(1,732,506)

Total property, plant and equipment

 

3,860,735

 

3,409,211

Total assets

$

6,906,532

$

5,998,978

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

353,564

$

357,954

Notes, loans and leases payable

 

2,364,513

 

1,942,359

Policy benefits and losses, claims and loss expenses payable

 

1,063,986

 

1,082,598

Liabilities from investment contracts

 

673,051

 

616,725

Other policyholders' funds and liabilities

 

10,469

 

7,988

Deferred income

 

14,605

 

31,390

Deferred income taxes

 

519,936

 

432,596

Total liabilities

 

5,000,124

 

4,471,610

 

 

 

 

 

Commitments and contingencies (notes 4, 7 and 8)

 

 

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 December 31 and March 31, 2014

 

 

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

 

 

 

 

issued and outstanding as of December 31 and March 31, 2014

 

 

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

 

 

 

 

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

 

 

 

 

none issued and outstanding as of December 31 and March 31, 2014

 

 

Common stock, with $0.25 par value, 150,000,000 shares authorized:

 

 

 

 

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

 

 

 

 

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

 

10,497

 

10,497

Additional paid-in capital

 

449,156

 

444,210

Accumulated other comprehensive loss

 

(27,357)

 

(53,923)

Retained earnings

 

2,152,714

 

1,805,453

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

 

(525,653)

 

(525,653)

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

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(952)

 

(1,219)

Total stockholders' equity

 

1,906,408

 

1,527,368

Total liabilities and stockholders' equity

$

6,906,532

$

5,998,978

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


 

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

Quarter Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

487,415

$

436,207

Self-storage revenues

 

53,503

 

46,120

Self-moving and self-storage products and service sales

 

49,081

 

47,045

Property management fees

 

7,497

 

7,133

Life insurance premiums

 

39,026

 

39,198

Property and casualty insurance premiums

 

13,584

 

12,219

Net investment and interest income

 

20,752

 

20,887

Other revenue

 

35,497

 

36,522

Total revenues

 

706,355

 

645,331

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

338,692

 

322,106

Commission expenses

 

58,439

 

50,679

Cost of sales

 

30,751

 

28,229

Benefits and losses

 

40,084

 

38,630

Amortization of deferred policy acquisition costs

 

4,722

 

4,457

Lease expense

 

18,705

 

24,468

Depreciation, net of (gains) on disposals of (($5,444) and ($1,961), respectively)

 

81,810

 

70,789

Total costs and expenses

 

573,203

 

539,358

 

 

 

 

 

Earnings from operations

 

133,152

 

105,973

Interest expense

 

(25,719)

 

(23,607)

Pretax earnings

 

107,433

 

82,366

Income tax expense

 

(40,893)

 

(30,145)

Earnings available to common stockholders

$

66,540

$

52,221

Basic and diluted earnings per common share

$

3.40

$

2.67

Weighted average common shares outstanding: Basic and diluted

 

19,590,555

 

19,563,663

 

Related party revenues for the third quarter of fiscal 2015 and 2014, net of eliminations, were $9.9 million and $10.2 million, respectively.

Related party costs and expenses for the third quarter of fiscal 2015 and 2014, net of eliminations, were $12.3 million and $11.8 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

 

 

 

 

Nine Months Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,716,424

$

1,556,787

Self-storage revenues

 

155,623

 

133,791

Self-moving and self-storage products and service sales

 

191,603

 

183,115

Property management fees

 

18,970

 

17,586

Life insurance premiums

 

115,997

 

119,708

Property and casualty insurance premiums

 

35,665

 

31,052

Net investment and interest income

 

63,654

 

59,836

Other revenue

 

133,865

 

131,636

Total revenues

 

2,431,801

 

2,233,511

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

1,085,961

 

1,002,621

Commission expenses

 

200,939

 

182,068

Cost of sales

 

112,215

 

98,331

Benefits and losses

 

120,426

 

119,255

Amortization of deferred policy acquisition costs

 

13,196

 

14,197

Lease expense

 

60,950

 

77,293

Depreciation, net of (gains) on disposals of (($49,944) and ($22,837), respectively)

 

209,927

 

191,431

Total costs and expenses

 

1,803,614

 

1,685,196

 

 

 

 

 

Earnings from operations

 

628,187

 

548,315

Interest expense

 

(74,744)

 

(70,053)

Fees and amortization on early extinguishment of debt

 

(4,081)

 

Pretax earnings

 

549,362

 

478,262

Income tax expense

 

(202,101)

 

(175,082)

Earnings available to common stockholders

$

347,261

$

303,180

Basic and diluted earnings per common share

$

17.73

$

15.50

Weighted average common shares outstanding: Basic and diluted

 

19,584,183

 

19,554,641

 

Related party revenues for the first nine months of fiscal 2015 and 2014, net of eliminations, were $27.5 million and $27.0 million, respectively.

Related party costs and expenses for the first nine months of fiscal 2015 and 2014, net of eliminations, were $43.7 million and $41.7 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 December 31, 2014

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

107,433

$

(40,893)

$

66,540

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(3,213)

 

 

(3,213)

Unrealized net loss on investments

 

(2,959)

 

1,036

 

(1,923)

Change in fair value of cash flow hedges

 

1,582

 

(602)

 

980

Total comprehensive income

$

102,843

$

(40,459)

$

62,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended December 31, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

82,366

$

(30,145)

$

52,221

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(3,325)

 

 

(3,325)

Unrealized net loss on investments

 

(2,251)

 

766

 

(1,485)

Change in fair value of cash flow hedges

 

4,398

 

(1,671)

 

2,727

Total comprehensive income

$

81,188

$

(31,050)

$

50,138

 

Nine Months Ended December 31, 2014

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

549,362

$

(202,101)

$

347,261

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(6,752)

 

 

(6,752)

Unrealized net gain on investments

 

44,183

 

(15,464)

 

28,719

Change in fair value of cash flow hedges

 

7,419

 

(2,820)

 

4,599

Total comprehensive income

$

594,212

$

(220,385)

$

373,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

478,262

$

(175,082)

$

303,180

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(5,530)

 

 

(5,530)

Unrealized net loss on investments

 

(43,257)

 

15,020

 

(28,237)

Change in fair value of cash flow hedges

 

16,540

 

(6,285)

 

10,255

Total comprehensive income

$

446,015

$

(166,347)

$

279,668

 

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


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

 

 

Nine Months Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$ 

347,261

$ 

303,180

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

259,871

 

214,268

Amortization of deferred policy acquisition costs

 

13,196

 

14,197

Change in allowance for losses on trade receivables

 

(212)

 

12

Change in allowance for inventory reserves

 

(744)

 

3,640

Net gain on sale of real and personal property

 

(49,944)

 

(22,837)

Net gain on sale of investments

 

(3,254)

 

(6,088)

Deferred income taxes

 

71,485

 

48,033

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

1,895

 

33,355

Inventories

 

(2,053)

 

(12,502)

Prepaid expenses

 

(38,905)

 

13,109

Capitalization of deferred policy acquisition costs

 

(20,158)

 

(25,128)

Other assets

 

(41,663)

 

7,929

Related party assets

 

20,770

 

5,630

Accounts payable and accrued expenses

 

(4,009)

 

(2,772)

Policy benefits and losses, claims and loss expenses payable

 

(17,587)

 

(18,337)

Other policyholders' funds and liabilities

 

2,482

 

(23)

Deferred income

 

(16,732)

 

(672)

Related party liabilities

 

22

 

6,257

Net cash provided by operating activities

 

521,721

 

561,251

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(725,447)

 

(690,293)

Short term investments

 

(203,018)

 

(203,763)

Fixed maturities investments

 

(181,824)

 

(237,502)

Equity securities

 

(3,759)

 

(388)

Preferred stock

 

(5)

 

(635)

Real estate

 

(11,328)

 

(431)

Mortgage loans

 

(37,365)

 

(48,632)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

321,680

 

214,078

Short term investments

 

220,610

 

211,841

Fixed maturities investments

 

75,372

 

124,145

Equity securities

 

3,082

 

26,957

Preferred stock

 

2,027

 

6,004

Real estate

 

396

 

Mortgage loans

 

33,192

 

45,234

Net cash used by investing activities

 

(506,387)

 

(553,385)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

510,074

 

323,039

Principal repayments on credit facilities

 

(266,672)

 

(238,553)

Debt issuance costs

 

(9,697)

 

(3,353)

Capital lease payments

 

(65,478)

 

(37,480)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

267

 

390

Investment contract deposits

 

94,979

 

109,928

Investment contract withdrawals

 

(38,653)

 

(24,448)

Net cash provided by financing activities

 

224,820

 

129,523

 

 

 

 

 

Effects of exchange rate on cash

 

(6,243)

 

482

 

 

 

 

 

Increase in cash and cash equivalents

 

233,911

 

137,871

Cash and cash equivalents at the beginning of period

 

495,112

 

463,744

Cash and cash equivalents at the end of period

$ 

729,023

$ 

601,615

 

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


AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as 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. We disclose any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2014 and 2013 correspond to fiscal 2015 and 2014 for AMERCO.

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

The condensed consolidated balance sheet as of December 31, 2014 and the related condensed consolidated statements of operations, comprehensive income (loss) for the third quarter and first nine months and cash flows for the first nine months of fiscal 2015 and 2014 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, 2014.

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


AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

The Property and Casualty Insurance 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 across North America. Property and Casualty Insurance also underwrites components of the Safemove, Safetow, Safemove Plus, Safestor and Safestor Mobile protection packages sold to U-Haul customers. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul related programs. ARCOA is a group captive insurer owned by us and our wholly-owned subsidiaries whose purpose is to provide insurance products related to the moving and storage business.

The Life 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 14,063 and 39,570 as of December 31, 2014 and 2013, 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 $16.2 million and $16.3 million at December 31, 2014 and March 31, 2014, respectively.

Available-for-Sale Investments

Available-for-sale investments at December 31, 2014 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

$

98,725

$

3,869

$

(211)

$

(98)

$ 

102,285

U.S. government agency mortgage-backed securities

 

31,868

 

2,636

 

(132)

 

(11)

 

34,361

Obligations of states and political subdivisions

 

164,739

 

10,440

 

(736)

 

(79)

 

174,364

Corporate securities

 

887,790

 

41,460

 

(4,559)

 

(1,623)

 

923,068

Mortgage-backed securities

 

20,628

 

465

 

(67)

 

 

21,026

Redeemable preferred stocks

 

16,450

 

494

 

(415)

 

(4)

 

16,525

Common stocks

 

17,975

 

4,995

 

 

(31)

 

22,939

 

$

1,238,175

$

64,359

$

(6,120)

$

(1,846)

$ 

1,294,568

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Available-for-sale investments at March 31, 2014 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

$

49,883

$

1,475

$

$

(1,004)

$ 

50,354

U.S. government agency mortgage-backed securities

 

36,258

 

2,558

 

(4)

 

(425)

 

38,387

Obligations of states and political subdivisions

 

166,311

 

4,834

 

(308)

 

(3,627)

 

167,210

Corporate securities

 

834,923

 

26,075

 

(3,794)

 

(25,875)

 

831,329

Mortgage-backed securities

 

12,425

 

279

 

(3)

 

(514)

 

12,187

Redeemable preferred stocks

 

18,445

 

283

 

(82)

 

(1,113)

 

17,533

Common stocks

 

17,299

 

3,987

 

(1)

 

(10)

 

21,275

 

$

1,135,544

$

39,491

$

(4,192)

$

(32,568)

$ 

1,138,275

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

We sold available-for-sale securities with a fair value of $76.1 million during the first nine months of fiscal 2015. The gross realized gains on these sales totaled $3.6 million. The gross realized losses on these sales totaled $0.4 million.

The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognized these write-downs through earnings. There were no write downs in the third quarter or for the first nine months of fiscal 2015 or 2014.

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.

There were no credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income (loss) for the third quarter and first nine months of fiscal 2015.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


The adjusted cost and estimated market value of available-for-sale investments at December 31, 2014, by contractual maturity, were as follows:

 

 

December 31, 2014

 

March 31, 2014

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

 

 

(In thousands)

Due in one year or less

$

46,796

$

47,453

$

20,235

$

20,475

Due after one year through five years

 

226,950

 

240,425

 

185,447

 

194,563

Due after five years through ten years

 

507,874

 

527,412

 

350,048

 

350,953

Due after ten years

 

401,502

 

418,788

 

531,645

 

521,289

 

 

1,183,122

 

1,234,078

 

1,087,375

 

1,087,280

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

20,628

 

21,026

 

12,425

 

12,187

Redeemable preferred stocks

 

16,450

 

16,525

 

18,445

 

17,533

Common stocks

 

17,975

 

22,939

 

17,299

 

21,275

 

$

1,238,175

$

1,294,568

$

1,135,544

$

1,138,275

 

 

 

 

 

 

 

 

 

4. Borrowings

Long-Term Debt

Long-term debt was as follows:

 

 

 

 

 

December 31,

 

March 31,

 

2015 Rate (a)

 

Maturities

 

2014

 

2014

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

1.67% - 6.93%

 

2023

$

242,500

$

250,000

Real estate loan (revolving credit)

 

 

2015

 

 

Senior mortgages

2.16% - 5.75%

 

2015 - 2038

 

873,193

 

684,915

Working capital loan (revolving credit)

 

 

2016

 

 

Fleet loans (amortizing term)

1.95% - 5.57%

 

2015 - 2021

 

331,585

 

370,394

Fleet loans (securitization)

4.90%

 

2017

 

78,391

 

90,793

Fleet loans (revolving credit)

1.16% - 2.01%

 

2017 - 2019

 

198,000

 

89,632

Capital leases (rental equipment)

2.18% - 7.83%

 

2015 - 2021

 

595,879

 

416,750

Other obligations

3.00% - 8.00%

 

2015 - 2044

 

44,965

 

39,875

Total notes, loans and leases payable

 

 

 

$

2,364,513

$

1,942,359

 

 

 

 

 

 

 

 

(a) Interest rate as of December 31, 2014, including the effect of applicable hedging instruments.

 

 

 

 

Real Estate Backed Loans

Real Estate Loan

Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. As of December 31, 2014, the outstanding balance on the Real Estate Loan was $242.5 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 final maturity of the term loan is April 2023

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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 December 31, 2014, the applicable LIBOR was 0.17% and the applicable margin was 1.50%, the sum of which was 1.67% which applied to $25.0 million of the Real Estate Loan. The rate on the remaining balance of $217.5 million of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $50.0 million. This agreement matures in April 2015. As of December 31, 2014, we had the full $50.0 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO and U-Haul International, Inc. are guarantors of this facility. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of December 31, 2014 were in the aggregate amount of $873.2 million and mature between 2015 and 2038. During the second quarter of fiscal 2015, we paid off approximately $127 million of our senior mortgages before their maturity in July 2015. As part of this defeasence, we incurred costs associated with the early extinguishment of debt of $3.8 million in fees and $0.3 million of transaction cost amortization related to the defeased debt.

For the nine months ended December 31, 2014, we entered into $334 million of senior mortgages with rates between 2.16% and 4.81% and mature between 2017 and 2034. The senior mortgages require monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The fixed interest rates, per the provisions of the senior mortgages, range between 4.22% and 5.75%. Additionally, $144.1 million of these loans have interest rates comprised of applicable LIBOR between 0.16% and 0.17% plus margins between 2.00% and 2.50%, the sum of which was between 2.16% and 2.67%. 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. 

In January 2015, we paid off $245.9 million of our senior mortgages that were due July 2015. These loans carried interest rates between 5.52% and 5.68%. The note agreements allowed for prepayment without any extra costs or fees to us. These repayments were made from existing cash balances.

Working Capital Loans

Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $25.0 million. At December 31, 2014, the full $25.0 million was 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 matures in April 2016. 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 is the applicable LIBOR plus a margin of 1.25%.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of December 31, 2014 was $216.6 million with the final maturities between August 2015 and March 2021.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These 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. At December 31, 2014, the applicable LIBOR was between 0.16% and 0.17% and applicable margins were between 1.35% and 2.50%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 5.57% based on current margins. Additionally, $93.0 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.

A subsidiary of U-Haul International, Inc. is a borrower under amortizing term loans with an aggregate balance of $115.0 million that were used to fund new truck acquisitions. The final maturity date of these notes is August 2016.  The 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 December 31, 2014, the aggregate outstanding balance was $115.0 million.

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

Rental Truck Securitizations

2010 U-Haul S Fleet and its subsidiaries (collectively, “2010 USF”) issued a $155.0 million asset-backed note (“2010 Box Truck Note”) on October 28, 2010. 2010 USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the securitized transaction were used to finance new box truck purchases. U.S. Bank, NA acts as the trustee for this securitization.

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At December 31, 2014, the outstanding balance was $78.4 million. The note is secured by the box trucks purchased and the corresponding operating cash flows associated with their operation.

The 2010 Box Truck Note is subject to certain covenants with respect to liens, additional indebtedness of the special purpose entity, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of this note include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Rental Truck Revolvers

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $75 million, which can be increased to a maximum of $225 million. The loan matures in October 2018. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At December 31, 2014, the applicable LIBOR was 0.16% and the margin was 1.75%, the sum of which was 1.91%. Only interest is paid during the first four years of the loan with principal due monthly over the last nine months. As of December 31, 2014, the outstanding balance was $68.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $100 million, which can be increased to a maximum of $125 million. The loan matures in October 2017. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At December 31, 2014, the applicable LIBOR was 0.16% and the margin was 1.00%, the sum of which was 1.16%. Only interest is paid during the first three years of the loan with principal due monthly over the last nine months. As of December 31, 2014, the outstanding balance was $73.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $70 million. The loan matures in May 2019. This agreement contains an option to extend the maturity through February 2020. At December 31, 2014, the applicable LIBOR was 0.16% and the margin was 1.85%, the sum of which was 2.01%. Only interest is paid during the first five years of the loan with principal due upon maturity. As of December 31, 2014, the outstanding balance was $57.0 million.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Capital Leases

We regularly entered into capital leases for new equipment between April 2008 and December 2014, with terms of the leases between 3 and 7 years. At December 31, 2014, the balance of these leases was $595.9 million. The net book value of the corresponding capitalized assets was $717.4 million at December 31, 2014.

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.

At December 31, 2014, the aggregate outstanding principal balance of the U-Notes issued was $51.7 million of which $6.7 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 3.00% and 8.00% and maturity dates between 2015 and 2044.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of December 31, 2014 for the next five years and thereafter are as follows:

 

 

Year Ending December 31,

 

 

2015

 

2016

 

2017

 

2018

 

2019

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

523,113

$

398,978

$

336,571

$

261,206

$

244,716

$

599,929

In the table above, 2015 does not reflect the $245.9 million reduction resulting from our January 2015 prepayment.

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

21,547

$

18,532

Capitalized interest

 

(330)

 

(162)

Amortization of transaction costs

 

888

 

1,106

Interest expense resulting from derivatives

 

3,614

 

4,131

Total interest expense

 

25,719

 

23,607

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

 

 

Fees on early extinguishment of debt

 

 

Fees and amortization on early extinguishment of debt

 

 

Total

$

25,719

$

23,607

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


 

 

Nine Months Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

62,126

$

54,401

Capitalized interest

 

(717)

 

(432)

Amortization of transaction costs

 

2,442

 

2,800

Interest expense resulting from derivatives

 

10,893

 

13,284

Total interest expense

 

74,744

 

70,053

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

 

298

 

Fees on early extinguishment of debt

 

3,783

 

Fees and amortization on early extinguishment of debt

 

4,081

 

Total

$

78,825

$

70,053

Interest paid in cash, including payments related to derivative contracts, amounted to $25.0 million and $20.7 million for the third quarter of fiscal 2015 and 2014, respectively and $72.5 million and $65.6 million for the first nine months of fiscal 2015 and 2014, respectively.

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

Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

1.62%

 

0.00%

Interest rate at the end of the quarter

 

1.66%

 

0.00%

Maximum amount outstanding during the quarter

$

232,000

$

Average amount outstanding during the quarter

$

219,163

$

Facility fees

$

91

$

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Activity

 

 

Nine Months Ended December 31,

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the period

 

1.71%

 

1.00%

Interest rate at the end of the period

 

1.66%

 

0.00%

Maximum amount outstanding during the period

$

232,000

$

25,000

Average amount outstanding during the period

$

188,271

$

16,364

Facility fees

$

289

$

212

 

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)

 

(In millions)

$

300.0

 

 

8/16/2006

 

8/18/2006

 

8/10/2018

 

8/4/2006

 

19.3

(a)

 

4/8/2008

 

8/15/2008

 

6/15/2015

 

3/31/2008

 

19.0

 

 

8/27/2008

 

8/29/2008

 

7/10/2015

 

4/10/2008

 

30.0

 

 

9/24/2008

 

9/30/2008

 

9/10/2015

 

9/24/2008

 

15.0

(a)

 

3/24/2009

 

3/30/2009

 

3/30/2016

 

3/25/2009

 

14.7

(a)

 

7/6/2010

 

8/15/2010

 

7/15/2017

 

7/6/2010

 

25.0

(a)

 

4/26/2011

 

6/1/2011

 

6/1/2018

 

6/1/2011

 

50.0

(a)

 

7/29/2011

 

8/15/2011

 

8/15/2018

 

7/29/2011

 

20.0

(a)

 

8/3/2011

 

9/12/2011

 

9/10/2018

 

8/3/2011

 

15.1

(b)

 

3/27/2012

 

3/28/2012

 

3/28/2019

 

3/26/2012

 

25.0

 

 

4/13/2012

 

4/16/2012

 

4/1/2019

 

4/12/2012

 

44.3

 

 

1/11/2013

 

1/15/2013

 

12/15/2019

 

1/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

As of December 31, 2014, the total notional amount of our variable interest rate swaps on debt and an operating lease was $341.6 million and $11.2 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

 

 

December 31, 2014

 

March 31, 2014

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

25,271

$

32,716

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


 

 

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

 

 

 

 

December 31, 2014

 

December 31, 2013

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

10,893

$

13,284

Gain recognized in AOCI on interest rate contracts (effective portion), net of tax

$

(7,419)

$

(16,540)

Loss reclassified from AOCI into income (effective portion)

$

10,919

$

12,832

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

$

(26)

$

452

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At December 31, 2014, we expect to reclassify $13.1 million of net losses on interest rate contracts from accumulated other comprehensive income (loss) to earnings as interest expense over the next twelve months. During the first nine months of fiscal 2015, we reclassified $10.9 million of net losses on interest rate contracts from accumulated other comprehensive income to interest expense.

6. Comprehensive Income (Loss)

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

 

 

Foreign Currency Translation

 

Unrealized Net Gain on Investments

 

Fair Market Value of Cash Flow Hedges

 

Postretirement Benefit Obligation Net Loss

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2014

$

(39,287)

$

5,991

$

(20,321)

$

(306)

$

(53,923)

Foreign currency translation

 

(6,752)

 

 

 

 

(6,752)

Unrealized net gain on investments

 

 

28,719

 

 

 

28,719

Change in fair value of cash flow hedges

 

 

 

(6,320)

 

 

(6,320)

Amounts reclassified from AOCI

 

 

 

10,919

 

 

10,919

Other comprehensive income (loss)

 

(6,752)

 

28,719

 

4,599

 

 

26,566

Balance at December 31, 2014

$

(46,039)

$

34,710

$

(15,722)

$

(306)

$

(27,357)

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 December 31, 2014, we have guaranteed $72.3 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, we have the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. We have been leasing equipment since 1987 and 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 December 31:

 

 

 

 

 

 

2015

$

15,712

$

40,933

$

56,645

2016

 

15,064

 

16,568

 

31,632

2017

 

14,917

 

11,257

 

26,174

2018

 

13,959

 

9,943

 

23,902

2019

 

13,684

 

3,107

 

16,791

Thereafter

 

64,209

 

 

64,209

Total

$

137,545

$

81,808

$

219,353

8. Contingencies

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

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

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

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

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

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

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


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

Environmental

Compliance with environmental requirements of federal, state and local governments may significantly affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. We are aware of issues regarding hazardous substances on some of Real Estate’s properties. Real Estate regularly makes capital and operating 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 are designed to ensure that our legal and finance departments identify and monitor potential related party transactions which may require disclosure and Audit Committee oversight.

AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were completed on terms substantially equivalent to those that would prevail in arm’s-length transactions.

SAC Holding Corporation and SAC Holding II Corporation, (collectively “SAC Holdings”) were established in order to acquire self-storage properties. These properties are being managed by us pursuant to management agreements. In the past, we have sold various self-storage properties to SAC Holdings, and such sales provided significant cash flows to us.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Related Party Revenue

 

 

Quarter Ended December 31, 

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,261

$

1,730

U-Haul interest income revenue from Private Mini

 

1,138

 

1,347

U-Haul management fee revenue from SAC Holdings

 

4,168

 

3,976

U-Haul management fee revenue from Private Mini

 

659

 

614

U-Haul management fee revenue from Mercury

 

2,670

 

2,543

 

$

9,896

$

10,210

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

4,684

$

5,382

U-Haul interest income revenue from Private Mini

 

3,804

 

4,033

U-Haul management fee revenue from SAC Holdings

 

13,313

 

12,238

U-Haul management fee revenue from Private Mini

 

1,943

 

1,812

U-Haul management fee revenue from Mercury

 

3,714

 

3,536

 

$

27,458

$

27,001

During the first nine months of fiscal 2015, subsidiaries of ours 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 $4.6 million and $15.6 million from SAC Holdings during the first nine months of fiscal 2015 and 2014, respectively. During the first quarter of fiscal 2014, SAC Holdings made a payment of $10.4 million to reduce its outstanding deferred interest payable to AMERCO. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2015 was $71.5 million and the aggregate notes receivable balance at December 31, 2014 was $50.7 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. We received repayments of $20.2 million during the third quarter of fiscal 2015 on these notes and interest receivables. After this repayment the scheduled maturities of these notes are 2017.

During the first nine months of fiscal 2015, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. We received cash interest payments of $4.0 million from Private Mini during the first nine months of both fiscal 2015 and 2014. The largest aggregate amount outstanding during the first nine months of fiscal 2015 was $65.5 million and the aggregate notes receivable balance at December 31, 2014 was $56.5 million.  We received repayments of $9.0 million during the third quarter of fiscal 2015 on these notes and interest receivables.

We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private 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 $20.6 million and $20.8 million from the above mentioned entities during the first nine months of fiscal 2015 and 2014, respectively. This management fee is consistent with the fee received for other properties we previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by 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.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Related Party Costs and Expenses

 

 

Quarter Ended December 31, 

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

654

$

655

U-Haul commission expenses to SAC Holdings

 

10,905

 

10,414

U-Haul commission expenses to Private Mini

 

734

 

691

 

$

12,293

$

11,760

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 

 

 

2014

 

2013

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,964

$

1,965

U-Haul commission expenses to SAC Holdings

 

39,131

 

37,341

U-Haul commission expenses to Private Mini

 

2,568

 

2,379

 

$

43,663

$

41,685

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

At December 31, 2014, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based upon equipment rental revenues.

These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $23.7 million, expenses of $2.0 million and cash flows of $53.4 million during the first nine months of fiscal 2015. Revenues and commission expenses related to the Dealer Agreements were $193.0 million and $41.7 million, respectively during the first nine months of fiscal 2015.

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 VIE’s using a two-step approach in which management (i) identified all other parties that hold interests in the VIE’s, and (ii) determined if any variable interest holder has the power to direct the activities of the VIE’s that most significantly impact their economic performance.

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

We have junior debt payable to us from 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.

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


We do not have the power to direct the activities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul. There are no fees or penalties disclosed in the management agreement for termination of the agreement. Through control of the holding entities' assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most 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 explicitly or implicitly during the quarter ended December 31, 2014 to any of these entities that it was not previously contractually required to provide. In addition, we currently have no plan to provide any financial support to any of these entities in the future. The carrying amount and classification of the assets and liabilities in our balance 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

 

 

December 31,

 

March 31,

 

 

2014

 

2014

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

63,433

$

68,451

U-Haul notes receivable from SAC Holdings

 

50,708

 

71,464

U-Haul interest receivable from SAC Holdings

 

4,488

 

4,376

U-Haul receivable from SAC Holdings

 

23,128

 

19,418

U-Haul receivable from Mercury

 

6,503

 

5,930

Other (a)

 

516

 

(15)

 

$

148,776

$

169,624

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

10. Consolidating Financial Information by Industry Segment

AMERCO’s three reportable segments are:

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 December 31, 2014 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

335,559

$

374,043

$

4,100

$

 

$

713,702

$

10,259

$

5,062

$

 

$

729,023

Reinsurance recoverables and trade receivables, net

 

 

38,112

 

177

 

 

 

38,289

 

125,234

 

34,117

 

 

 

197,640

Inventories, net

 

 

69,817

 

 

 

 

69,817

 

 

 

 

 

69,817

Prepaid expenses

 

42,815

 

50,056

 

1,205

 

 

 

94,076

 

 

 

 

 

94,076

Investments, fixed maturities and marketable equities

 

 

 

 

 

 

 

216,455

 

1,078,113

 

 

 

1,294,568

Investments, other

 

 

 

31,229

 

 

 

31,229

 

54,277

 

161,260

 

 

 

246,766

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

116,191

 

 

 

116,191

Other assets

 

37,056

 

64,092

 

44,288

 

 

 

145,436

 

917

 

2,587

 

 

 

148,940

Related party assets

 

1,180,920

 

93,561

 

9

 

(1,124,079)

(c)

 

150,411

 

14,084

 

543

 

(16,262)

(c)

 

148,776

 

 

1,596,350

 

689,681

 

81,008

 

(1,124,079)

 

 

1,242,960

 

421,226

 

1,397,873

 

(16,262)

 

 

3,045,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

833,496

 

 

 

(405,525)

(b)

 

427,971

 

 

 

(427,971)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

66,792

 

390,437

 

 

 

457,229

 

 

 

 

 

457,229

Buildings and improvements

 

 

281,461

 

1,359,959

 

 

 

1,641,420

 

 

 

 

 

1,641,420

Furniture and equipment

 

72

 

323,753

 

20,191

 

 

 

344,016

 

 

 

 

 

344,016

Rental trailers and other rental equipment

 

 

428,197

 

 

 

 

428,197

 

 

 

 

 

428,197

Rental trucks

 

 

2,881,051

 

 

 

 

2,881,051