U-Haul Holding Co /NV/ - Quarter Report: 2013 December (Form 10-Q)

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, 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.
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, 2014

 

 

 

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	a) Condensed Consolidated Balance Sheets as of December 31, 2013 (unaudited) and March 31, 2013	1
	b) Condensed Consolidated Statements of Operations for the Quarters ended December 31, 2013 and 2012 (unaudited)	2
	c) Condensed Consolidated Statement of Operations for the Nine Months ended December 31, 2013 and 2012 (unaudited)	3
	d) Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months ended December 31, 2013 and 2012 (unaudited)	4
	e) Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 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

 

		December 31,		March 31,
		2013		2013
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	601,615	$	463,744
Reinsurance recoverables and trade receivables, net		228,424		261,789
Inventories, net		65,258		56,396
Prepaid expenses		44,344		57,451
Investments, fixed maturities and marketable equities		1,122,121		1,095,338
Investments, other		239,348		241,765
Deferred policy acquisition costs, net		114,467		93,043
Other assets		95,395		99,986
Related party assets		170,038		182,035
		2,681,010		2,551,547
Property, plant and equipment, at cost:
Land		392,725		333,228
Buildings and improvements		1,382,182		1,197,875
Furniture and equipment		320,587		311,142
Rental trailers and other rental equipment		356,416		317,476
Rental trucks		2,426,453		2,154,688
		4,878,363		4,314,409
Less: Accumulated depreciation		(1,685,264)		(1,559,355)
Total property, plant and equipment		3,193,099		2,755,054
Total assets	$	5,874,109	$	5,306,601
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses	$	351,796	$	358,491
Notes, loans and leases payable		1,862,869		1,661,845
Policy benefits and losses, claims and loss expenses payable		1,095,610		1,115,048
Liabilities from investment contracts		596,268		510,789
Other policyholders' funds and liabilities		7,271		7,294
Deferred income		29,489		30,217
Deferred income taxes		436,384		393,658
Total liabilities		4,379,687		4,077,342
Commitments and contingencies (notes 4, 8, 9 and 10)		–		–
Stockholders' equity:
Series preferred stock, with or without par value, 50,000,000 shares authorized:
Series A preferred stock, with no par value, 6,100,000 shares authorized;
6,100,000 shares issued and none outstanding as of December 31 and March 31, 2013		–		–
Series B preferred stock, with no par value, 100,000 shares authorized; none
issued and outstanding as of December 31 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 December 31 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 December 31 and March 31, 2013		10,497		10,497
Additional paid-in capital		442,841		438,168
Accumulated other comprehensive loss		(46,192)		(22,680)
Retained earnings		1,766,242		1,482,630
Cost of common shares in treasury, net (22,377,912 shares as of December 31 and March 31, 2013)		(525,653)		(525,653)
Cost of preferred shares in treasury, net (6,100,000 shares as of December 31 and March 31, 2013)		(151,997)		(151,997)
Unearned employee stock ownership plan shares		(1,316)		(1,706)
Total stockholders' equity		1,494,422		1,229,259
Total liabilities and stockholders' equity	$	5,874,109	$	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 December 31,
		2013		2012
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	436,207	$	394,945
Self-storage revenues		46,120		39,111
Self-moving and self-storage products and service sales		47,045		44,491
Property management fees		7,133		6,085
Life insurance premiums		39,198		43,248
Property and casualty insurance premiums		12,219		9,816
Net investment and interest income		20,887		22,603
Other revenue		32,537		22,188
Total revenues		641,346		582,487
Costs and expenses:
Operating expenses		313,227		290,285
Commission expenses		55,573		51,130
Cost of sales		28,229		23,153
Benefits and losses		38,630		42,608
Amortization of deferred policy acquisition costs		4,457		3,391
Lease expense		24,468		27,575
Depreciation, net of (gains) on disposals of (($1,961) and ($1,831), respectively)		70,789		62,399
Total costs and expenses		535,373		500,541
Earnings from operations		105,973		81,946
Interest expense		(23,607)		(22,076)
Pretax earnings		82,366		59,870
Income tax expense		(30,145)		(23,024)
Earnings available to common stockholders	$	52,221	$	36,846
Basic and diluted earnings per common share	$	2.67	$	1.89
Weighted average common shares outstanding: Basic and diluted		19,563,663		19,523,794

 

Related party revenues for the third quarter of fiscal 2014 and 2013, net of eliminations, were $10.2 million and $9.4 million, respectively.

Related party costs and expenses for the third quarter of fiscal 2014 and 2013, net of eliminations, were $11.8 million and $10.4 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

		Nine Months Ended December 31,
		2013		2012
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	1,556,787	$	1,400,300
Self-storage revenues		133,791		111,825
Self-moving and self-storage products and service sales		183,115		173,399
Property management fees		17,586		15,847
Life insurance premiums		119,708		137,341
Property and casualty insurance premiums		31,052		26,006
Net investment and interest income		59,836		52,973
Other revenue		122,793		76,589
Total revenues		2,224,668		1,994,280
Costs and expenses:
Operating expenses		973,268		883,892
Commission expenses		202,578		180,801
Cost of sales		98,331		86,292
Benefits and losses		119,255		139,418
Amortization of deferred policy acquisition costs		14,197		9,290
Lease expense		77,293		89,962
Depreciation, net of (gains) on disposals of (($22,837) and ($14,879), respectively)		191,431		177,478
Total costs and expenses		1,676,353		1,567,133
Earnings from operations		548,315		427,147
Interest expense		(70,053)		(67,680)
Pretax earnings		478,262		359,467
Income tax expense		(175,082)		(132,632)
Earnings available to common shareholders	$	303,180	$	226,835
Basic and diluted earnings per common share	$	15.50	$	11.62
Weighted average common shares outstanding: Basic and diluted		19,554,641		19,512,974

 

Related party revenues for the first nine months of fiscal 2014 and 2013, net of eliminations, were $27.0 million and $26.3 million, respectively.

Related party costs and expenses for the first nine months of fiscal 2014 and 2013, net of eliminations, were $41.7 million and $36.6 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

 

Quarter Ended 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
Quarter Ended December 31, 2012		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	59,870	$	(23,024)	$	36,846
Other comprehensive income (loss):
Foreign currency translation		(1,068)		–		(1,068)
Unrealized net gain on investments		18,368		(6,574)		11,794
Change in fair value of cash flow hedges		4,248		(1,614)		2,634
Total comprehensive income	$	81,418	$	(31,212)	$	50,206
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
Nine Months Ended December 31, 2012		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	359,467	$	(132,632)	$	226,835
Other comprehensive income (loss):
Foreign currency translation		462		–		462
Unrealized net gain on investments		30,914		(10,923)		19,991
Change in fair value of cash flow hedges		4,501		(1,710)		2,791
Total comprehensive income	$	395,344	$	(145,265)	$	250,079

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,
		2013		2012
		(Unaudited)
		(In thousands)
Cash flow from operating activities:
Net earnings	$	303,180	$	226,835
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		214,268		192,357
Amortization of deferred policy acquisition costs		14,197		9,290
Change in allowance for losses on trade receivables		12		(73)
Change in allowance for inventory reserves		3,640		2,050
Net gain on sale of real and personal property		(22,837)		(14,879)
Net gain on sale of investments		(6,088)		(1,050)
Deferred income taxes		48,033		17,757
Net change in other operating assets and liabilities:
Reinsurance recoverables and trade receivables		33,355		71,709
Inventories		(12,502)		696
Prepaid expenses		13,109		(13,283)
Capitalization of deferred policy acquisition costs		(25,128)		(43,085)
Other assets		7,929		22,712
Related party assets		5,630		139,590
Accounts payable and accrued expenses		(2,772)		(872)
Policy benefits and losses, claims and loss expenses payable		(18,337)		(30,226)
Other policyholders' funds and liabilities		(23)		(925)
Deferred income		(672)		(3,704)
Related party liabilities		6,257		1,388
Net cash provided by operating activities		561,251		576,287
Cash flows from investing activities:
Purchases of:
Property, plant and equipment		(690,293)		(422,840)
Short term investments		(203,763)		(289,773)
Fixed maturities investments		(237,502)		(308,290)
Equity securities		(388)		(3,130)
Preferred stock		(635)		(2,761)
Real estate		(431)		(1,053)
Mortgage loans		(48,632)		(50,583)
Proceeds from sales and paydowns of:
Property, plant and equipment		214,078		166,904
Short term investments		211,841		280,890
Fixed maturities investments		124,145		85,132
Equity securities		26,957		–
Preferred stock		6,004		5,728
Real estate		–		671
Mortgage loans		45,234		49,215
Net cash used by investing activities		(553,385)		(489,890)
Cash flows from financing activities:
Borrowings from credit facilities		323,039		251,319
Principal repayments on credit facilities		(238,553)		(234,698)
Debt issuance costs		(3,353)		(2,352)
Capital lease payments		(37,480)		(18,310)
Leveraged Employee Stock Ownership Plan - repayments from loan		390		559
Securitization deposits		–		(1,729)
Common stock dividends paid		–		(97,421)
Investment contract deposits		109,928		268,478
Investment contract withdrawals		(24,448)		(22,937)
Net cash provided by financing activities		129,523		142,909
Effects of exchange rate on cash		482		(362)
Increase in cash and cash equivalents		137,871		228,944
Cash and cash equivalents at the beginning of period		463,744		357,180
Cash and cash equivalents at the end of period	$	601,615	$	586,124
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 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. 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 December 31, 2013 and the related condensed consolidated statements of operations, comprehensive income for the third quarter and first nine months and cash flows for the first nine 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 39,570 and 75,657 as of December 31, 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 $16.3 million at December 31, 2013.

Available-for-Sale Investments

Available-for-sale investments at December 31, 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	$	34,222	$	1,877	$	(2)	$	(544)	$	35,553
U.S. government agency mortgage-backed securities		42,401		2,585		(5)		(818)		44,163
Obligations of states and political subdivisions		164,451		7,287		–		(2,793)		168,945
Corporate securities		825,351		28,555		(57)		(24,274)		829,575
Mortgage-backed securities		5,161		321		–		(40)		5,442
Redeemable preferred stocks		18,440		274		(95)		(924)		17,695
Common stocks		18,485		2,751		(416)		(72)		20,748
	$	1,108,511	$	43,650	$	(575)	$	(29,465)	$	1,122,121

 

The available-for-sale table 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 $153.7 million during the first nine months of fiscal 2014. The gross realized gains on these sales totaled $5.0 million. The gross realized losses on these sales totaled $1.0 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 recognize these write-downs through earnings. There were no write downs in the third quarter or for the first nine 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.

There were no credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in the third quarter or for the first nine months of fiscal 2014 in other comprehensive income.

The adjusted cost and estimated market value of available-for-sale investments at December 31, 2013, by contractual maturity, were as follows:

		Amortized Cost		Estimated Market Value
		(Unaudited)
		(In thousands)
Due in one year or less	$	20,299	$	20,458
Due after one year through five years		185,073		194,815
Due after five years through ten years		338,942		343,111
Due after ten years		522,111		519,852
		1,066,425		1,078,236
Mortgage backed securities		5,161		5,442
Redeemable preferred stocks		18,440		17,695
Common stocks		18,485		20,748
	$	1,108,511	$	1,122,121

 

4. Borrowings

Long-Term Debt

Long-term debt was as follows:

					December 31,		March 31,
	2014 Rate (a)		Maturities		2013		2013
					(Unaudited)
					(In thousands)
Real estate loan (amortizing term)	6.93%		2023	$	252,500	$	235,000
Real estate loan (amortizing term)	2.07%		2016		6,982		24,630
Real estate loan (revolving credit)	–		2014		–		–
Senior mortgages	2.67% - 5.75%		2015 - 2038		691,630		556,522
Working capital loan (revolving credit)	–		2015		–		–
Fleet loans (amortizing term)	1.95% - 6.14%		2014 - 2020		390,083		361,079
Fleet loans (securitization)	4.90%		2017		93,754		190,801
Capital leases (rental equipment)	2.23% - 7.82%		2015 - 2020		390,410		273,458
Other obligations	3.00% - 8.00%		2014 - 2043		37,510		20,355
Total notes, loans and leases payable				$	1,862,869	$	1,661,845
(a) Interest rate as of December 31, 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 December 31, 2013, the outstanding balance on the Real Estate Loan was $252.5 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 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, 2013, the applicable LIBOR was 0.17% and the applicable margin was 1.50%, the sum of which was 1.67% which applied to $25.8 million of the Real Estate Loan. The rate on the remaining balance of $226.7 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 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 December 31, 2013, the outstanding balance was $7.0 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 December 31, 2013, the applicable LIBOR was 0.17% and the margin was 1.90%, the sum of which was 2.07%. U-Haul International, Inc. and AMERCO are guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a 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 December 31, 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 December 31, 2013 were in the aggregate amount of $691.6 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 fixed interest rates, per the provisions of the senior mortgages, range between 4.90% and 5.75%. Additionally, $99.3 million of these loans have an interest rate comprised of an applicable LIBOR of 0.17% plus a margin of 2.50%, the sum of which was 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. 

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, 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 December 31, 2013 was $275.1 million with the final maturities between February 2014 and September 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 the applicable margins. At December 31, 2013, the applicable LIBOR was between 0.16% and 0.17% 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, $103.0 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.

On December 31, 2009, a subsidiary of U-Haul International, Inc. entered into an $85.0 million term note that was used to fund new truck acquisitions. 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 December 31, 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 to finance new box truck purchases throughout fiscal 2008. This note was paid in full in November 2013.

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, 2013, the outstanding balance was $93.8 million. The note is secured by the box trucks being 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.

Capital Leases

We entered into capital leases for new equipment between April 2008 and December 2013, with terms of the leases between 3 and 7 years. At December 31, 2013, the balance of these leases was $390.4 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.

At December 31, 2013, the aggregate outstanding principal balance of the U-Notes issued was $43.6 million of which $6.1 million is with our insurance subsidiaries with interest rates between 3.00% and 8.00% and maturity dates between 2014 and 2043.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of December 31, 2013 for the next five years and thereafter are as follows:

		Year Ending December 31,
		2014		2015		2016		2017		2018		Thereafter
		(Unaudited)
		(In thousands)
Notes, loans and leases payable, secured	$	181,314	$	590,424	$	347,710	$	168,771	$	138,288	$	436,362

 

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

		Quarter Ended December 31,
		2013		2012
		(Unaudited)
		(In thousands)
Interest expense	$	18,532	$	16,540
Capitalized interest		(162)		(119)
Amortization of transaction costs		1,106		1,014
Interest expense resulting from derivatives		4,131		4,641
Total interest expense	$	23,607	$	22,076
		Nine Months Ended December 31,
		2013		2012
		(Unaudited)
		(In thousands)
Interest expense	$	54,401	$	48,715
Capitalized interest		(432)		(290)
Amortization of transaction costs		2,800		3,149
Interest expense resulting from derivatives		13,284		16,106
Total interest expense	$	70,053	$	67,680

 

Interest paid in cash, including payments related to derivative contracts, amounted to $20.7 million and $20.8 million for the third quarter of fiscal 2014 and 2013, respectively and $65.6 million and $63.3 million for the first nine months of fiscal 2014 and 2013, respectively.

Interest Rates

Interest rates and Company borrowings were as follows:

		Revolving Credit Activity
		Quarter Ended December 31,
		2013		2012
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the quarter		0.00%		1.57%
Interest rate at the end of the quarter		0.00%		1.61%
Maximum amount outstanding during the quarter	$	–	$	25,000
Average amount outstanding during the quarter	$	–	$	24,185
Facility fees	$	56	$	115
		Revolving Credit Activity
		Nine Months Ended December 31,
		2013		2012
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the first nine months		1.00%		1.67%
Interest rate at the end of the first nine months		0.00%		1.61%
Maximum amount outstanding during the first nine months	$	25,000	$	48,920
Average amount outstanding during the first nine months	$	16,364	$	24,830
Facility fees	$	212	$	399

 

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
	(in millions)
$	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 December 31, 2013, the total notional amount of our variable interest rate swaps on debt and an operating lease was $400.2 million and $12.7 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, 2013		March 31, 2013
		(Unaudited)
		(In thousands)
Interest rate contracts designated as hedging instruments	$	35,462	$	51,550