Annual Statements Open main menu

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.

 

 

 

 

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, 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

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $100.0 million. This agreement was amended in February 2013 and the maturity extended to April 2014 with an option for a one year extension and the revolver commitment was reduced to $50.0 million. As of 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


On December 31, 2009, a subsidiary of U-Haul International, Inc. entered into an $85.0 million term note that was used to fund 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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended 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

 

 

 

 

 

 

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

 

(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

 

 

 

 

 

 


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, 2013

 

December 31, 2012

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

13,284

$

16,106

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

$

(16,540)

$

(4,501)

Loss reclassified from AOCI into income (effective portion)

$

12,832

$

14,828

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

$

452

$

1,278

 

 

 

 

 

 

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At December 31, 2013, we expect to reclassify $14.6 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the next twelve months. During the first nine months of fiscal 2014, we reclassified $12.8 million of net losses on interest rate contracts from accumulated other comprehensive income to interest expense.

6.Stockholders' Equity

On December 4, 2013, we declared a special cash dividend on our common stock of $1.00 per share to holders of record on January 10, 2014 which will be payable on February 14, 2014.

 

7. Comprehensive Income (Loss)

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

 

 

 

Foreign Currency Translation

 

Unrealized Net Gain (Loss) on Investments

 

Fair Market Value of Cash Flow Hedges

 

Postretirement Benefit Obligation Gain

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$

(30,153)

$

39,645

$

(32,298)

$

126

$

(22,680)

Foreign currency translation

 

(5,530)

 

 

 

 

(5,530)

Unrealized net loss on investments

 

 

(28,237)

 

 

 

(28,237)

Change in fair value of cash flow hedges

 

 

 

(2,577)

 

 

(2,577)

Amounts reclassified from AOCI

 

 

 

12,832

 

 

12,832

Other comprehensive income (loss)

 

(5,530)

 

(28,237)

 

10,255

 

 

(23,512)

Balance at December 31, 2013

$

(35,683)

$

11,408

$

(22,043)

$

126

$

(46,192)

 

 

 

 

 

 

 

 

 

 

 

 

8. Contingent Liabilities and Commitments

We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2020. As of December 31, 2013, we have guaranteed $96.9 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:

 

 

 

 

 

 

2014

$

7,641

$

64,973

$

72,614

2015

 

2,039

 

41,075

 

43,114

2016

 

1,909

 

16,616

 

18,525

2017

 

1,782

 

11,297

 

13,079

2018

 

811

 

9,980

 

10,791

Thereafter

 

4,601

 

3,122

 

7,723

Total

$

18,783

$

147,063

$

165,846

 

 

 

 

 

 

 

 

9. Contingencies

Environmental

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

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

Other

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

 

10. Related Party Transactions

As set forth in the Audit Committee Charter and consistent with Nasdaq Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required to be disclosed under the Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, all such related party transactions are submitted to the Audit Committee for ongoing review and oversight. Our internal processes ensure that our legal and finance departments identify and monitor potential related party transactions which may require disclosure and Audit Committee oversight.

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

Related Party Revenue

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,730

$

1,981

U-Haul interest income revenue from Private Mini

 

1,347

 

1,356

U-Haul management fee revenue from SAC Holdings

 

3,977

 

3,585

U-Haul management fee revenue from Private Mini

 

614

 

580

U-Haul management fee revenue from Mercury

 

2,543

 

1,920

 

$

10,211

$

9,422

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

5,382

$

6,438

U-Haul interest income revenue from Private Mini

 

4,033

 

4,059

U-Haul management fee revenue from SAC Holdings

 

12,240

 

11,271

U-Haul management fee revenue from Private Mini

 

1,812

 

1,720

U-Haul management fee revenue from Mercury

 

3,536

 

2,856

 

$

27,003

$

26,344

 

 

 

 

 

 

During the first nine months of fiscal 2014, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Mark V. Shoen, a significant stockholder of AMERCO. We do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $15.6 million and $10.7 million from SAC Holdings during the first nine months of fiscal 2014 and 2013, respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2014 was $72.4 million and the aggregate notes receivable balance at December 31, 2013 was $71.7 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2017 and 2019.

During the first nine months of fiscal 2014, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. We received cash interest payments of $4.0 million and $4.1 million from Private Mini during the first nine months of both fiscal 2014 and 2013, respectively. The largest aggregate amount outstanding during the first nine months of fiscal 2014 was $65.9 million and the aggregate notes receivable balance at December 31, 2013 was $65.6 million.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini pursuant to a standard form of management agreement, under which we receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. We received management fees, exclusive of reimbursed expenses, of $20.8 million and $19.1 million from the above mentioned entities during the first nine months of fiscal 2014 and 2013, respectively. This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant stockholder and director of AMERCO and an estate planning trust benefitting Shoen children also have an interest in Mercury.

Related Party Costs and Expenses

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

655

$

655

U-Haul commission expenses to SAC Holdings

 

10,414

 

9,142

U-Haul commission expenses to Private Mini

 

691

 

575

 

$

11,760

$

10,372

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,965

$

1,971

U-Haul commission expenses to SAC Holdings

 

37,341

 

32,531

U-Haul commission expenses to Private Mini

 

2,379

 

2,082

 

$

41,685

$

36,584

 

 

 

 

 

 

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

These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $23.5 million, expenses of $2.0 million and cash flows of $36.5 million during the first nine months of fiscal 2014. Revenues and commission expenses related to the Dealer Agreements were $181.5 million and $39.7 million, respectively during the first nine months of fiscal 2014.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Pursuant to the variable interest entity model under ASC 810 – Consolidation (“ASC 810”), Management determined that the junior notes of SAC Holding Corporation and Private Mini as well as the management agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represent potential variable interests for us.  Management evaluated whether it should be identified as the primary beneficiary of one or more of these variable interest entity’s (“VIE’s”) using a two-step approach in which management (i) identified all other parties that hold interests in the VIE’s, and (ii) determined if any variable interest holder has the power to direct the activities of the VIE’s that most significantly impact their economic performance.

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

We have junior debt with the holding entities SAC Holding Corporation and Private Mini which represents a variable interest in each individual entity. Though we have certain protective rights within these debt agreements, we have no present influence or control over these holding entities unless their protective rights become exercisable, which management considers unlikely based on their payment history. As a result, we have no basis under ASC 810 to consolidate these entities.

We do not have the power to direct the activities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul. There are no fees or penalties disclosed in the management agreement for termination of the agreement. Through control of the holding entities assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most significantly impact each of the individual holding entities and the individual operating entities’ performance.  As a result, we have no basis under ASC 810 to consolidate these entities.

We have not provided financial or other support during the first nine months ended December 31, 2013 to any of these entities that we were not previously contractually required to provide. In addition, we currently have no plan to provide any financial support to any of these entities in the future. The carrying amount and classification of the assets and liabilities in our balance sheets that relate to our variable interests in the aforementioned entities are as follows, which approximate the maximum exposure to loss as a result of our involvement with these entities:

Related Party Assets

 

 

December 31,

 

March 31,

 

 

2013

 

2013

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

72,365

$

68,593

U-Haul notes receivable from SAC Holding Corporation

 

71,721

 

72,397

U-Haul interest receivable from SAC Holdings

 

4,293

 

14,483

U-Haul receivable from SAC Holdings

 

18,259

 

22,336

U-Haul receivable from Mercury

 

5,472

 

3,640

Other (a)

 

(2,072)

 

586

 

$

170,038

$

182,035

 

 

 

 

 

 

 

 

 

 

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

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


11. Consolidating Financial Information by Industry Segment

AMERCO’s three reportable segments are:

         Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,

         Property and Casualty Insurance, comprised of Repwest and its subsidiaries and ARCOA, and

         Life Insurance, comprised of Oxford and its subsidiaries.

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

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

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


AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


11. Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of December 31, 2013 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moivng & Storage Consolidated

 

Property & Casualty Insurance (a)

 

Life Insurance (a)

 

Eliminations

 

 

AMERCO Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

476,551

$

92,695

$

2,174

$

 

$

571,420

$

5,601

$

24,594

$

 

$

601,615

Reinsurance recoverables and trade receivables, net

 

 

29,847

 

177

 

 

 

30,024

 

162,714

 

35,686

 

 

 

228,424

Inventories, net

 

 

65,258

 

 

 

 

65,258

 

 

 

 

 

65,258

Prepaid expenses

 

 

43,618

 

726

 

 

 

44,344

 

 

 

 

 

44,344

Investments, fixed maturities and marketable equities

 

 

 

 

 

 

 

188,155

 

933,966

 

 

 

1,122,121

Investments, other

 

 

 

32,351

 

 

 

32,351

 

49,006

 

157,991

 

 

 

239,348

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

114,467

 

 

 

114,467

Other assets

 

113

 

59,742

 

34,255

 

 

 

94,110

 

1,008

 

277

 

 

 

95,395

Related party assets

 

1,021,397

 

117,121

 

12

 

(964,556)

(c)

 

173,974

 

13,594

 

492

 

(18,022)

(c)

 

170,038

 

 

1,498,061

 

408,281

 

69,695

 

(964,556)

 

 

1,011,481

 

420,078

 

1,267,473

 

(18,022)

 

 

2,681,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

477,063

 

 

 

(104,285)

(b)

 

372,778

 

 

 

(372,778)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

55,599

 

337,126

 

 

 

392,725

 

 

 

 

 

392,725

Buildings and improvements

 

 

200,961

 

1,181,221

 

 

 

1,382,182

 

 

 

 

 

1,382,182

Furniture and equipment

 

70

 

308,713

 

11,804

 

 

 

320,587

 

 

 

 

 

320,587

Rental trailers and other rental equipment

 

 

356,416

 

 

 

 

356,416

 

 

 

 

 

356,416

Rental trucks

 

 

2,426,453

 

 

 

 

2,426,453

 

 

 

 

 

2,426,453

 

 

70

 

3,348,142

 

1,530,151

 

 

 

4,878,363

 

 

 

 

 

4,878,363

Less:  Accumulated depreciation

 

(55)

 

(1,305,591)

 

(379,618)

 

 

 

(1,685,264)

 

 

 

 

 

(1,685,264)

Total property, plant and equipment

 

15

 

2,042,551

 

1,150,533

 

 

 

3,193,099

 

 

 

 

 

3,193,099

Total assets

$

1,975,139

$

2,450,832

$

1,220,228

$

(1,068,841)

 

$

4,577,358

$

420,078

$

1,267,473

$

(390,800)

 

$

5,874,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by industry segment as of December 31, 2013 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)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

21,567

$

312,826

$

4,671

$

 

$

339,064

$

$

12,732

$

 

$

351,796

Notes, loans and leases payable

 

 

965,308

 

897,561

 

 

 

1,862,869

 

 

 

 

 

1,862,869

Policy benefits and losses, claims and loss expenses payable

 

 

380,940

 

 

 

 

380,940

 

300,351

 

414,319

 

 

 

1,095,610

Liabilities from investment contracts

 

 

 

 

 

 

 

 

596,268

 

 

 

596,268

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

3,118

 

4,153

 

 

 

7,271

Deferred income

 

 

29,489

 

 

 

 

29,489

 

 

 

 

 

29,489

Deferred income taxes

 

457,834

 

 

 

 

 

457,834

 

(32,753)

 

11,303

 

 

 

436,384

Related party liabilities

 

 

522,754

 

454,542

 

(964,556)

(c)

 

12,740

 

4,740

 

542

 

(18,022)

(c)

 

Total liabilities

 

479,401

 

2,211,317

 

1,356,774

 

(964,556)

 

 

3,082,936

 

275,456

 

1,039,317

 

(18,022)

 

 

4,379,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

10,497

 

1

 

1

 

(2)

(b)

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

443,051

 

121,230

 

147,941

 

(269,171)

(b)

 

443,051

 

91,120

 

26,271

 

(117,601)

(b)

 

442,841

Accumulated other comprehensive income (loss)

 

(46,192)

 

(57,600)

 

 

57,600

(b)

 

(46,192)

 

1,542

 

9,866

 

(11,408)

(b)

 

(46,192)

Retained earnings (deficit)

 

1,766,032

 

177,200

 

(284,488)

 

107,288

(b)

 

1,766,032

 

48,659

 

189,519

 

(237,968)

(b)

 

1,766,242

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

 

(1,316)

 

 

 

 

(1,316)

 

 

 

 

 

(1,316)

Total stockholders' equity (deficit)

 

1,495,738

 

239,515

 

(136,546)

 

(104,285)

 

 

1,494,422

 

144,622

 

228,156

 

(372,778)

 

 

1,494,422

Total liabilities and stockholders' equity

$

1,975,139

$

2,450,832

$

1,220,228

$

(1,068,841)

 

$

4,577,358

$

420,078

$

1,267,473

$

(390,800)

 

$

5,874,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by industry segment as of March 31, 2013 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

 

 

 

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

327,119

$

98,926

$

1,515

$

 

$

427,560

$

14,120

$

22,064

$

 

$

463,744

Reinsurance recoverables and trade receivables, net

 

 

43,259

 

 

 

 

43,259

 

186,010

 

32,520

 

 

 

261,789

Inventories, net

 

 

56,396

 

 

 

 

56,396

 

 

 

 

 

56,396

Prepaid expenses

 

22,475

 

34,956

 

20

 

 

 

57,451

 

 

 

 

 

57,451

Investments, fixed maturities and marketable equities

 

21,228

 

 

 

 

 

21,228

 

160,455

 

913,655

 

 

 

1,095,338

Investments, other

 

 

100

 

50,553

 

 

 

50,653

 

65,212

 

125,900

 

 

 

241,765

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

93,043

 

 

 

93,043

Other assets

 

118

 

69,671

 

28,828

 

 

 

98,617

 

1,212

 

157

 

 

 

99,986

Related party assets

 

1,032,663

 

127,751

 

9

 

(975,683)

(c)

 

184,740

 

8,846

 

514

 

(12,065)

(c)

 

182,035

 

 

1,403,603

 

431,059

 

80,925

 

(975,683)

 

 

939,904

 

435,855

 

1,187,853

 

(12,065)

 

 

2,551,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

239,541

 

 

 

140,100

(b)

 

379,641

 

 

 

(379,641)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

81,421

 

251,807

 

 

 

333,228

 

 

 

 

 

333,228

Buildings and improvements

 

 

184,053

 

1,013,822

 

 

 

1,197,875

 

 

 

 

 

1,197,875

Furniture and equipment

 

136

 

292,621

 

18,385

 

 

 

311,142

 

 

 

 

 

311,142

Rental trailers and other rental equipment

 

 

317,476

 

 

 

 

317,476

 

 

 

 

 

317,476

Rental trucks

 

 

2,154,688

 

 

 

 

2,154,688

 

 

 

 

 

2,154,688

 

 

136

 

3,030,259

 

1,284,014

 

 

 

4,314,409

 

 

 

 

 

4,314,409

Less:  Accumulated depreciation

 

(116)

 

(1,185,796)

 

(373,443)

 

 

 

(1,559,355)

 

 

 

 

 

(1,559,355)

Total property, plant and equipment

 

20

 

1,844,463

 

910,571

 

 

 

2,755,054

 

 

 

 

 

2,755,054

Total assets

$

1,643,164

$

2,275,522

$

991,496

$

(835,583)

 

$

4,074,599

$

435,855

$

1,187,853

$

(391,706)

 

$

5,306,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating balance sheets by industry segment as of March 31, 2013 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

 

 

 

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

110

$

345,864

$

4,378

$

 

$

350,352

$

$

8,139

$

 

$

358,491

Notes, loans and leases payable

 

 

881,766

 

780,079

 

 

 

1,661,845

 

 

 

 

 

1,661,845

Policy benefits and losses, claims and loss expenses payable

 

 

380,824

 

 

 

 

380,824

 

330,184

 

404,040

 

 

 

1,115,048

Liabilities from investment contracts

 

 

 

 

 

 

 

 

510,789

 

 

 

510,789

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

3,157

 

4,137

 

 

 

7,294

Deferred income

 

 

30,217

 

 

 

 

30,217

 

 

 

 

 

30,217

Deferred income taxes

 

412,089

 

 

 

 

 

412,089

 

(36,241)

 

17,810

 

 

 

393,658

Related party liabilities

 

 

638,448

 

347,248

 

(975,683)

(c)

 

10,013

 

1,844

 

208

 

(12,065)

(c)

 

Total liabilities

 

412,199

 

2,277,119

 

1,131,705

 

(975,683)

 

 

2,845,340

 

298,944

 

945,123

 

(12,065)

 

 

4,077,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

10,497

 

1

 

1

 

(2)

(b)

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

438,378

 

121,230

 

147,941

 

(269,171)

(b)

 

438,378

 

91,120

 

26,271

 

(117,601)

(b)

 

438,168

Accumulated other comprehensive income (loss)

 

(22,680)

 

(62,325)

 

 

62,325

(b)

 

(22,680)

 

4,568

 

37,567

 

(42,135)

(b)

 

(22,680)

Retained earnings (deficit)

 

1,482,420

 

(58,797)

 

(288,151)

 

346,948

(b)

 

1,482,420

 

37,922

 

176,392

 

(214,104)

(b)

 

1,482,630

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

 

(1,706)

 

 

 

 

(1,706)

 

 

 

 

 

(1,706)

Total stockholders' equity (deficit)

 

1,230,965

 

(1,597)

 

(140,209)

 

140,100

 

 

1,229,259

 

136,911

 

242,730

 

(379,641)

 

 

1,229,259

Total liabilities and stockholders' equity

$

1,643,164

$

2,275,522

$

991,496

$

(835,583)

 

$

4,074,599

$

435,855

$

1,187,853

$

(391,706)

 

$

5,306,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating statement of operations by industry segment for the quarter ended December 31, 2013 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)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Self-moving equipment rentals

$

$

437,117

$

$

 

$

437,117

$

$

$

(910)

(c)

$

436,207

Self-storage revenues

 

 

45,818

 

302

 

 

 

46,120

 

 

 

 

 

46,120

Self-moving and self-storage products and service sales

 

 

47,045

 

 

 

 

47,045

 

 

 

 

 

47,045

Property management fees

 

 

7,133

 

 

 

 

7,133

 

 

 

 

 

7,133

Life insurance premiums

 

 

 

 

 

 

 

 

39,198

 

 

 

39,198

Property and casualty insurance premiums

 

 

 

 

 

 

 

12,219

 

 

 

 

12,219

Net investment and interest income

 

2,516

 

1,988

 

661

 

 

 

5,165

 

3,009

 

12,895

 

(182)

(b)

 

20,887

Other revenue

 

260

 

37,021

 

26,091

 

(27,790)

(b)

 

35,582

 

 

1,059

 

(4,104)

(b)

 

32,537

Total revenues

 

2,776

 

576,122

 

27,054

 

(27,790)

 

 

578,162

 

15,228

 

53,152

 

(5,196)

 

 

641,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

1,782

 

329,595

 

3,297

 

(27,790)

(b)

 

306,884

 

5,223

 

6,125

 

(5,005)

(b,c)

 

313,227

Commission expenses

 

 

55,573

 

 

 

 

55,573

 

 

 

 

 

55,573

Cost of sales

 

 

28,229

 

 

 

 

28,229

 

 

 

 

 

28,229

Benefits and losses

 

 

 

 

 

 

 

4,289

 

34,341

 

 

 

38,630

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

4,457

 

 

 

4,457

Lease expense

 

23

 

24,482

 

9

 

 

 

24,514

 

 

 

(46)

(b)

 

24,468

Depreciation, net of (gains) losses on disposals

 

1

 

66,340

 

4,448

 

 

 

70,789

 

 

 

 

 

70,789

Total costs and expenses

 

1,806

 

504,219

 

7,754

 

(27,790)

 

 

485,989

 

9,512

 

44,923

 

(5,051)

 

 

535,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations before equity in earnings of subsidiaries

 

970

 

71,903

 

19,300

 

 

 

92,173

 

5,716

 

8,229

 

(145)

 

 

105,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

38,578

 

 

 

(29,297)

(d)

 

9,281

 

 

 

(9,281)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

39,548

 

71,903

 

19,300

 

(29,297)

 

 

101,454

 

5,716

 

8,229

 

(9,426)

 

 

105,973

Interest income (expense)

 

20,687

 

(26,371)

 

(18,068)

 

 

 

(23,752)

 

 

 

145

(b)

 

(23,607)

Pretax earnings

 

60,235

 

45,532

 

1,232

 

(29,297)

 

 

77,702

 

5,716

 

8,229

 

(9,281)

 

 

82,366

Income tax expense

 

(8,014)

 

(16,995)

 

(472)

 

 

 

(25,481)

 

(2,000)

 

(2,664)

 

 

 

(30,145)

Earnings available to common shareholders

$

52,221

$

28,537

$

760

$

(29,297)

 

$

52,221

$

3,716

$

5,565

$

(9,281)

 

$

52,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the quarter ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease / interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating statement of operations by industry segment for the quarter ended December 31, 2012 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Self-moving equipment rentals

$

$

395,401

$

$

 

$

395,401

$

$

$

(456)

(c)

$

394,945

Self-storage revenues

 

 

38,813

 

298

 

 

 

39,111

 

 

 

 

 

39,111

Self-moving and self-storage products and service sales

 

 

44,491

 

 

 

 

44,491

 

 

 

 

 

44,491

Property management fees

 

 

6,085

 

 

 

 

6,085

 

 

 

 

 

6,085

Life insurance premiums

 

 

 

 

 

 

 

 

43,248

 

 

 

43,248

Property and casualty insurance premiums

 

 

 

 

 

 

 

9,816

 

 

 

 

9,816

Net investment and interest income

 

1,338

 

2,260

 

4,405

 

 

 

8,003

 

2,049

 

12,666

 

(115)

(b)

 

22,603

Other revenue

 

 

23,255

 

22,605

 

(24,145)

(b)

 

21,715

 

 

852

 

(379)

(b)

 

22,188

Total revenues

 

1,338

 

510,305

 

27,308

 

(24,145)

 

 

514,806

 

11,865

 

56,766

 

(950)

 

 

582,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

2,684

 

295,759

 

3,424

 

(24,145)

(b)

 

277,722

 

6,937

 

6,452

 

(826)

(b,c)

 

290,285

Commission expenses

 

 

51,130

 

 

 

 

51,130

 

 

 

 

 

51,130

Cost of sales

 

 

23,153

 

 

 

 

23,153

 

 

 

 

 

23,153

Benefits and losses

 

 

 

 

 

 

 

2,866

 

39,742

 

 

 

42,608

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

3,391

 

 

 

3,391

Lease expense

 

24

 

27,594

 

3

 

 

 

27,621

 

 

 

(46)

(b)

 

27,575

Depreciation, net of (gains) losses on disposals

 

1

 

60,129

 

2,269

 

 

 

62,399

 

 

 

 

 

62,399

Total costs and expenses

 

2,709

 

457,765

 

5,696

 

(24,145)

 

 

442,025

 

9,803

 

49,585

 

(872)

 

 

500,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations before equity in earnings of subsidiaries

 

(1,371)

 

52,540

 

21,612

 

 

 

72,781

 

2,062

 

7,181

 

(78)

 

 

81,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

24,435

 

 

 

(18,790)

(d)

 

5,645

 

 

 

(5,645)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

23,064

 

52,540

 

21,612

 

(18,790)

 

 

78,426

 

2,062

 

7,181

 

(5,723)

 

 

81,946

Interest income (expense)

 

21,387

 

(28,837)

 

(14,704)

 

 

 

(22,154)

 

 

 

78

(b)

 

(22,076)

Pretax earnings

 

44,451

 

23,703

 

6,908

 

(18,790)

 

 

56,272

 

2,062

 

7,181

 

(5,645)

 

 

59,870

Income tax expense

 

(7,605)

 

(9,174)

 

(2,647)

 

 

 

(19,426)

 

(722)

 

(2,876)

 

 

 

(23,024)

Earnings available to common shareholders

$

36,846

$

14,529

$

4,261

$

(18,790)

 

$

36,846

$

1,340

$

4,305

$

(5,645)

 

$

36,846

(a) Balances for the quarter ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease / interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating statements of operations by industry for the nine months ended December 31, 2013 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)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Self-moving equipment rentals

$

$

1,558,857

$

$

 

$

1,558,857

$

$

$

(2,070)

(c)

$

1,556,787

Self-storage revenues

 

 

132,906

 

885

 

 

 

133,791

 

 

 

 

 

133,791

Self-moving and self-storage products and service sales

 

 

183,115

 

 

 

 

183,115

 

 

 

 

 

183,115

Property management fees

 

 

17,586

 

 

 

 

17,586

 

 

 

 

 

17,586

Life insurance premiums

 

 

 

 

 

 

 

 

119,708

 

 

 

119,708

Property and casualty insurance premiums

 

 

 

 

 

 

 

31,052

 

 

 

 

31,052

Net investment and interest income

 

5,031

 

6,183

 

734

 

 

 

11,948

 

7,949

 

40,372

 

(433)

(b)

 

59,836

Other revenue

 

260

 

134,181

 

76,085

 

(81,059)

(b)

 

129,467

 

 

2,524

 

(9,198)

(b)

 

122,793

Total revenues

 

5,291

 

2,032,828

 

77,704

 

(81,059)

 

 

2,034,764

 

39,001

 

162,604

 

(11,701)

 

 

2,224,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

6,067

 

1,018,889

 

8,807

 

(81,059)

(b)

 

952,704

 

13,738

 

18,067

 

(11,241)

(b,c)

 

973,268

Commission expenses

 

 

202,578

 

 

 

 

202,578

 

 

 

 

 

202,578

Cost of sales

 

 

98,331

 

 

 

 

98,331

 

 

 

 

 

98,331

Benefits and losses

 

 

 

 

 

 

 

8,746

 

110,509

 

 

 

119,255

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

14,197

 

 

 

14,197

Lease expense

 

69

 

77,317

 

44

 

 

 

77,430

 

 

 

(137)

(b)

 

77,293

Depreciation, net of (gains) losses on disposals

 

4

 

179,241

 

12,186

 

 

 

191,431

 

 

 

 

 

191,431

Total costs and expenses

 

6,140

 

1,576,356

 

21,037

 

(81,059)

 

 

1,522,474

 

22,484

 

142,773

 

(11,378)

 

 

1,676,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations before equity in earnings of subsidiaries

 

(849)

 

456,472

 

56,667

 

 

 

512,290

 

16,517

 

19,831

 

(323)

 

 

548,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

263,524

 

 

 

(239,660)

(d)

 

23,864

 

 

 

(23,864)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

262,675

 

456,472

 

56,667

 

(239,660)

 

 

536,154

 

16,517

 

19,831

 

(24,187)

 

 

548,315

Interest income (expense)

 

63,796

 

(83,442)

 

(50,730)

 

 

 

(70,376)

 

 

 

323

(b)

 

(70,053)

Pretax earnings

 

326,471

 

373,030

 

5,937

 

(239,660)

 

 

465,778

 

16,517

 

19,831

 

(23,864)

 

 

478,262

Income tax expense

 

(23,291)

 

(137,033)

 

(2,274)

 

 

 

(162,598)

 

(5,780)

 

(6,704)

 

 

 

(175,082)

Earnings available to common shareholders

$

303,180

$

235,997

$

3,663

$

(239,660)

 

$

303,180

$

10,737

$

13,127

$

(23,864)

 

$

303,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the nine months ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease / interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating statements of operations by industry for the nine months ended December 31, 2012 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Revenues:

 

 

Self-moving equipment rentals

$

$

1,401,483

$

$

 

$

1,401,483

$

$

$

(1,183)

(c)

$

1,400,300

Self-storage revenues

 

 

110,963

 

862

 

 

 

111,825

 

 

 

 

 

111,825

Self-moving and self-storage products and service sales

 

 

173,399

 

 

 

 

173,399

 

 

 

 

 

173,399

Property management fees

 

 

15,847

 

 

 

 

15,847

 

 

 

 

 

15,847

Life insurance premiums

 

 

 

 

 

 

 

 

137,341

 

 

 

137,341

Property and casualty insurance premiums

 

 

 

 

 

 

 

26,006

 

 

 

 

26,006

Net investment and interest income

 

3,930

 

6,265

 

4,843

 

 

 

15,038

 

6,515

 

31,735

 

(315)

(b)

 

52,973

Other revenue

 

81

 

80,311

 

65,306

 

(70,066)

(b)

 

75,632

 

 

2,056

 

(1,099)

(b)

 

76,589

Total revenues

 

4,011

 

1,788,268

 

71,011

 

(70,066)

 

 

1,793,224

 

32,521

 

171,132

 

(2,597)

 

 

1,994,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

11,431

 

901,337

 

8,300

 

(70,066)

(b)

 

851,002

 

14,709

 

20,438

 

(2,257)

(b,c)

 

883,892

Commission expenses

 

 

180,801

 

 

 

 

180,801

 

 

 

 

 

180,801

Cost of sales

 

 

86,292

 

 

 

 

86,292

 

 

 

 

 

86,292

Benefits and losses

 

 

 

 

 

 

 

10,821

 

128,597

 

 

 

139,418

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

9,290

 

 

 

9,290

Lease expense

 

70

 

90,000

 

14

 

 

 

90,084

 

 

 

(122)

(b)

 

89,962

Depreciation, net of (gains) losses on disposals

 

4

 

168,009

 

9,465

 

 

 

177,478

 

 

 

 

 

177,478

Total costs and expenses

 

11,505

 

1,426,439

 

17,779

 

(70,066)

 

 

1,385,657

 

25,530

 

158,325

 

(2,379)

 

 

1,567,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from operations before equity in earnings of subsidiaries

 

(7,494)

 

361,829

 

53,232

 

 

 

407,567

 

6,991

 

12,807

 

(218)

 

 

427,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

188,559

 

 

 

(175,647)

(d)

 

12,912

 

 

 

(12,912)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

181,065

 

361,829

 

53,232

 

(175,647)

 

 

420,479

 

6,991

 

12,807

 

(13,130)

 

 

427,147

Interest income (expense)

 

69,228

 

(93,956)

 

(43,170)

 

 

 

(67,898)

 

 

 

218

(b)

 

(67,680)

Pretax earnings

 

250,293

 

267,873

 

10,062

 

(175,647)

 

 

352,581

 

6,991

 

12,807

 

(12,912)

 

 

359,467

Income tax expense

 

(23,458)

 

(98,431)

 

(3,857)

 

 

 

(125,746)

 

(2,447)

 

(4,439)

 

 

 

(132,632)

Earnings available to common shareholders

$

226,835

$

169,442

$

6,205

$

(175,647)

 

$

226,835

$

4,544

$

8,368

$

(12,912)

 

$

226,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the nine months ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease / interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Continuation of consolidating cash flow statements by industry segment for the nine months ended December 31, 2013 are as follows:

 

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Elimination

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

Cash flows from operating activities:

 

(In thousands)

Net earnings

$

303,180

$

235,997

$

3,663

$

(239,660)

 

$

303,180

$

10,737

$

13,127

$

(23,864)

 

$

303,180

Earnings from consolidated entities

 

(263,524)

 

 

 

239,660

 

 

(23,864)

 

 

 

23,864

 

 

Adjustments to reconcile net earnings to the cash provided by operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

4

 

201,286

 

12,978

 

 

 

214,268

 

 

 

 

 

214,268

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

14,197

 

 

 

14,197

Change in allowance for losses on trade receivables

 

 

3

 

 

 

 

3

 

 

9

 

 

 

12

Change in allowance for inventory reserve

 

 

3,640

 

 

 

 

3,640

 

 

 

 

 

3,640

Net gain on sale of real and personal property

 

 

(22,045)

 

(792)

 

 

 

(22,837)

 

 

 

 

 

(22,837)

Net gain on sale of investments

 

(1,325)

 

 

 

 

 

(1,325)

 

(674)

 

(4,089)

 

 

 

(6,088)

Deferred income taxes

 

37,934

 

 

 

 

 

37,934

 

5,118

 

4,981

 

 

 

48,033

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

 

13,410

 

(177)

 

 

 

13,233

 

23,296

 

(3,174)

 

 

 

33,355

Inventories

 

 

(12,502)

 

 

 

 

(12,502)

 

 

 

 

 

(12,502)

Prepaid expenses

 

22,475

 

(8,660)

 

(706)

 

 

 

13,109

 

 

 

 

 

13,109

Capitalization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

(25,128)

 

 

 

(25,128)

Other assets

 

5

 

10,558

 

(2,715)

 

 

 

7,848

 

201

 

(120)

 

 

 

7,929

Related party assets

 

540

 

9,636

 

(3)

 

 

 

10,173

 

(4,702)

 

 

159

(b)

 

5,630

Accounts payable and accrued expenses

 

6,563

 

(22,843)

 

290

 

 

 

(15,990)

 

 

13,218

 

 

 

(2,772)

Policy benefits and losses, claims and loss expenses payable

 

 

1,218

 

 

 

 

1,218

 

(29,833)

 

10,278

 

 

 

(18,337)

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

(39)

 

16

 

 

 

(23)

Deferred income

 

 

(672)

 

 

 

 

(672)

 

 

 

 

 

(672)

Related party liabilities

 

 

(1,007)

 

4,270

 

 

 

3,263

 

2,850

 

303

 

(159)

(b)

 

6,257

Net cash provided (used) by operating activities

 

105,852

 

408,019

 

16,808

 

 

 

530,679

 

6,954

 

23,618

 

 

 

561,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(436,671)

 

(253,622)

 

 

 

(690,293)

 

 

 

 

 

(690,293)

Short term investments

 

 

 

 

 

 

 

(35,250)

 

(168,513)

 

 

 

(203,763)

Fixed maturities investments

 

 

 

 

 

 

 

(50,840)

 

(186,662)

 

 

 

(237,502)

Equity securities

 

 

 

 

 

 

 

(388)

 

 

 

 

(388)

Preferred stock

 

 

 

 

 

 

 

(635)

 

 

 

 

(635)

Real estate

 

 

 

 

 

 

 

 

(431)

 

 

 

(431)

Mortgage loans

 

 

(1,580)

 

(20,196)

 

2,514

(b)

 

(19,262)

 

(3,500)

 

(37,459)

 

11,589

(b)

 

(48,632)

Proceeds from sales and paydown's of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

212,601

 

1,477

 

 

 

214,078

 

 

 

 

 

214,078

Short term investments

 

 

 

 

 

 

 

50,044

 

161,797

 

 

 

211,841

Fixed maturities investments

 

 

 

 

 

 

 

14,892

 

109,253

 

 

 

124,145

Equity securities

 

26,569

 

 

 

 

 

26,569

 

388

 

 

 

 

26,957

Preferred stock

 

 

 

 

 

 

 

4,504

 

1,500

 

 

 

6,004

Real estate

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

 

1,680

 

38,398

 

(2,514)

(b)

 

37,564

 

5,312

 

13,947

 

(11,589)

(b)

 

45,234

Net cash provided (used) by investing activities

 

26,569

 

(223,970)

 

(233,943)

 

 

 

(431,344)

 

(15,473)

 

(106,568)

 

 

 

(553,385)

(a) Balance for the nine months ended September 30, 2013

 

(page 1 of 2)

(b) Elimination of intercompany investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Continuation of consolidating cash flow statements by industry segment for the nine months ended December 31, 2013 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Elimination

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

Cash flows from financing activities:

 

(In thousands)

Borrowings from credit facilities

 

 

116,952

 

206,087

 

 

 

323,039

 

 

 

 

 

323,039

Principal repayments on credit facilities

 

 

(149,948)

 

(88,605)

 

 

 

(238,553)

 

 

 

 

 

(238,553)

Debt issuance costs

 

 

(641)

 

(2,712)

 

 

 

(3,353)

 

 

 

 

 

(3,353)

Capital lease payments

 

 

(37,480)

 

 

 

 

(37,480)

 

 

 

 

 

(37,480)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

 

390

 

 

 

 

390

 

 

 

 

 

390

Proceeds from (repayment of) intercompany loans

 

17,011

 

(120,035)

 

103,024

 

 

 

 

 

 

 

 

Securitization deposits

 

 

 

 

 

 

 

 

 

 

 

Investment contract deposits

 

 

 

 

 

 

 

 

109,928

 

 

 

109,928

Investment contract withdrawals

 

 

 

 

 

 

 

 

(24,448)

 

 

 

(24,448)

Net cash provided (used) by financing activities

 

17,011

 

(190,762)

 

217,794

 

 

 

44,043

 

 

85,480

 

 

 

129,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

 

482

 

 

 

 

482

 

 

 

 

 

482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

149,432

 

(6,231)

 

659

 

 

 

143,860

 

(8,519)

 

2,530

 

 

 

137,871

Cash and cash equivalents at beginning of period

 

327,119

 

98,926

 

1,515

 

 

 

427,560

 

14,120

 

22,064

 

 

 

463,744

Cash and cash equivalents at end of period

$

476,551

$

92,695

$

2,174

$

 

$

571,420

$

5,601

$

24,594

$

 

$

601,615

 

 

(page 2 of 2)

(a) Balance for the nine months ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating cash flow statements by industry segment for the nine months ended December 31, 2012 are as follows:

 

 

Moving & Storage

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Elimination

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

Cash flows from operating activities:

 

(In thousands)

Net earnings (loss)

$

226,835

$

169,442

$

6,205

$

(175,647)

 

$

226,835

$

4,544

$

8,368

$

(12,912)

 

$

226,835

Earnings from consolidated entities

 

(188,559)

 

 

 

175,647

 

 

(12,912)

 

 

 

12,912

 

 

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

4

 

181,084

 

11,269

 

 

 

192,357

 

 

 

 

 

192,357

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

9,290

 

 

 

9,290

Change in allowance for losses on trade receivables

 

 

(73)

 

 

 

 

(73)

 

 

 

 

 

(73)

Change in allowance for inventory reserve

 

 

2,050

 

 

 

 

2,050

 

 

 

 

 

2,050

Net gain on sale of real and personal property

 

 

(13,075)

 

(1,804)

 

 

 

(14,879)

 

 

 

 

 

(14,879)

Net (gain) loss on sale of investments

 

 

 

 

 

 

 

28

 

(1,078)

 

 

 

(1,050)

Deferred income taxes

 

17,882

 

 

 

 

 

17,882

 

1,306

 

(1,431)

 

 

 

17,757

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

 

12,293

 

 

 

 

12,293

 

58,841

 

575

 

 

 

71,709

Inventories

 

 

696

 

 

 

 

696

 

 

 

 

 

696

Prepaid expenses

 

(3,082)

 

(9,972)

 

(229)

 

 

 

(13,283)

 

 

 

 

 

(13,283)

Capitalization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

(43,085)

 

 

 

(43,085)

Other assets

 

3

 

22,271

 

(569)

 

 

 

21,705

 

1,018

 

(11)

 

 

 

22,712

Related party assets

 

(2)

 

140,035

 

2

 

 

 

140,035

 

(1,202)

 

(34)

 

791

(b)

 

139,590

Accounts payable and accrued expenses

 

1,818

 

(32)

 

538

 

 

 

2,324

 

 

(3,196)

 

 

 

(872)

Policy benefits and losses, claims and loss expenses payable

 

 

8,481

 

 

 

 

8,481

 

(60,391)

 

21,684

 

 

 

(30,226)

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

(585)

 

(340)

 

 

 

(925)

Deferred income

 

 

(3,704)

 

 

 

 

(3,704)

 

 

 

 

 

(3,704)

Related party liabilities

 

 

1,064

 

 

 

 

1,064

 

632

 

483

 

(791)

(b)

 

1,388

Net cash provided (used) by operating activities

 

54,899

 

510,560

 

15,412

 

 

 

580,871

 

4,191

 

(8,775)

 

 

 

576,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(2)

 

(351,914)

 

(70,924)

 

 

 

(422,840)

 

 

 

 

 

(422,840)

Short term investments

 

 

 

 

 

 

 

(58,775)

 

(230,998)

 

 

 

(289,773)

Fixed maturities investments

 

 

 

 

 

 

 

(17,141)

 

(291,149)

 

 

 

(308,290)

Equity securities

 

 

 

 

 

 

 

(3,130)

 

 

 

 

(3,130)

Preferred stock

 

 

 

 

 

 

 

(2,761)

 

 

 

 

(2,761)

Real estate

 

 

 

(243)

 

 

 

(243)

 

 

(810)

 

 

 

(1,053)

Mortgage loans

 

 

(4,968)

 

(30,590)

 

 

 

(35,558)

 

(1,821)

 

(13,204)

 

 

 

(50,583)

Proceeds from sales and paydown's of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

161,668

 

5,236

 

 

 

166,904

 

 

 

 

 

166,904

Short term investments

 

 

 

 

 

 

 

32,548

 

248,342

 

 

 

280,890

Fixed maturities investments

 

 

 

 

 

 

 

30,298

 

54,834

 

 

 

85,132

Equity securities

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

5,728

 

 

 

 

5,728

Real estate

 

 

 

667

 

 

 

667

 

 

4

 

 

 

671

Mortgage loans

 

 

14,848

 

29,500

 

 

 

44,348

 

1,311

 

3,556

 

 

 

49,215

Net cash provided (used) by investing activities

 

(2)

 

(180,366)

 

(66,354)

 

 

 

(246,722)

 

(13,743)

 

(229,425)

 

 

 

(489,890)

 

 

(page 1 of 2)

 

 

 

(a) Balance for the nine months ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) Elimination of intercompany investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Continuation of consolidating cash flow statements by industry segment for the nine months ended December 31, 2012 are as follows:

 

 

Moving & Storage

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Elimination

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

Cash flows from financing activities:

 

(In thousands)

Borrowings from credit facilities

 

 

89,619

 

161,700

 

 

 

251,319

 

 

 

 

 

251,319

Principal repayments on credit facilities

 

 

(142,750)

 

(91,948)

 

 

 

(234,698)

 

 

 

 

 

(234,698)

Debt issuance costs

 

 

(301)

 

(2,051)

 

 

 

(2,352)

 

 

 

 

 

(2,352)

Capital lease payments

 

 

(18,310)

 

 

 

 

(18,310)

 

 

 

 

 

(18,310)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

 

559

 

 

 

 

559

 

 

 

 

 

559

Proceeds from (repayment of) intercompany loans

 

194,277

 

(178,247)

 

(16,030)

 

 

 

 

 

 

 

 

Securitization deposits

 

 

(1,729)

 

 

 

 

(1,729)

 

 

 

 

 

(1,729)

Common stock dividends paid

 

(97,421)

 

 

 

 

 

(97,421)

 

 

 

 

 

(97,421)

Net contribution from (to) related party

 

(1,500)

 

 

 

 

 

(1,500)

 

1,500

 

 

 

 

Investment contract deposits

 

 

 

 

 

 

 

 

268,478

 

 

 

268,478

Investment contract withdrawals

 

 

 

 

 

 

 

 

(22,937)

 

 

 

(22,937)

Net cash provided (used) by financing activities

 

95,356

 

(251,159)

 

51,671

 

 

 

(104,132)

 

1,500

 

245,541

 

 

 

142,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

 

(362)

 

 

 

 

(362)

 

 

 

 

 

(362)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

150,253

 

78,673

 

729

 

 

 

229,655

 

(8,052)

 

7,341

 

 

 

228,944

Cash and cash equivalents at beginning of period

 

201,502

 

106,951

 

775

 

 

 

309,228

 

22,542

 

25,410

 

 

 

357,180

Cash and cash equivalents at end of period

$

351,755

$

185,624

$

1,504

$

 

$

538,883

$

14,490

$

32,751

$

 

$

586,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balance for the nine months ended September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


 

12. Industry Segment and Geographic Area Data

 

 

 

 

 

 

 

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

(All amounts are in thousands of U.S. $'s)

Quarter ended December 31, 2013

 

 

 

 

 

 

Total revenues

$

607,443

$

33,903

$

641,346

Depreciation and amortization, net of (gains) losses on disposals

 

73,684

 

1,562

 

75,246

Interest expense

 

23,470

 

137

 

23,607

Pretax earnings

 

78,745

 

3,621

 

82,366

Income tax expense

 

29,186

 

959

 

30,145

Identifiable assets

 

5,731,164

 

142,945

 

5,874,109

 

 

 

 

 

 

 

Quarter ended December 31, 2012

 

 

 

 

 

 

Total revenues

$

549,611

$

32,876

$

582,487

Depreciation and amortization, net of (gains) losses on disposals

 

63,801

 

1,989

 

65,790

Interest expense

 

21,926

 

150

 

22,076

Pretax earnings

 

58,669

 

1,201

 

59,870

Income tax expense

 

22,706

 

318

 

23,024

Identifiable assets

 

5,077,479

 

141,826

 

5,219,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

(All amounts are in thousands of U.S. $'s)

Nine months ended December 31, 2013

 

 

 

 

 

 

Total revenues

$

2,098,127

$

126,541

$

2,224,668

Depreciation and amortization, net of (gains) losses on disposals

 

200,209

 

5,419

 

205,628

Interest expense

 

69,633

 

420

 

70,053

Pretax earnings

 

457,981

 

20,281

 

478,262

Income tax expense

 

169,708

 

5,374

 

175,082

Identifiable assets

 

5,731,164

 

142,945

 

5,874,109

 

 

 

 

 

 

 

Nine months ended December 31, 2012

 

 

 

 

 

 

Total revenues

$

1,871,416

$

122,864

$

1,994,280

Depreciation and amortization, net of (gains) losses on disposals

 

180,736

 

6,032

 

186,768

Interest expense

 

67,226

 

454

 

67,680

Pretax earnings

 

340,746

 

18,721

 

359,467

Income tax expense

 

127,671

 

4,961

 

132,632

Identifiable assets

 

5,077,479

 

141,826

 

5,219,305

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


13. Employee Benefit Plans

The components of the net periodic benefit costs with respect to postretirement benefits were as follows:

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

Service cost for benefits earned during the period

$

182

$

155

Interest cost on accumulated postretirement benefit

 

140

 

139

Other components

 

5

 

1

Net periodic postretirement benefit cost

$

327

$

295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

Service cost for benefits earned during the period

$

544

$

466

Interest cost on accumulated postretirement benefit

 

422

 

416

Other components

 

15

 

3

Net periodic postretirement benefit cost

$

981

$

885

 

 

 

 

 

 

14. Fair Value Measurements

Fair values of cash equivalents approximate carrying value due to the short period of time to maturity. Fair values of short term investments, investments available-for-sale, long term investments, mortgage loans and notes on real estate, and interest rate swap contracts are based on quoted market prices, dealer quotes or discounted cash flows. Fair values of trade receivables approximate their recorded value.

Our financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, reinsurance recoverables and notes receivable. Limited credit risk exists on trade receivables due to the diversity of our customer base and their dispersion across broad geographic markets. We place our temporary cash investments with financial institutions and limit the amount of credit exposure to any one financial institution.

We have mortgage receivables, which potentially expose us to credit risk. The portfolio of notes is principally collateralized by self-storage facilities and commercial properties. We have not experienced any material losses related to the notes from individual or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method and using interest rates currently offered for similar loans to borrowers with similar credit ratings.

The carrying amount of long term debt and short term borrowings are estimated to approximate fair value as the actual interest rate is consistent with the rate estimated to be currently available for debt of similar term and remaining maturity.

Other investments including short term investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Assets and liabilities are recorded at fair value on the condensed consolidated balance sheets and are measured and classified based upon a three tiered approach to valuation. ASC 820 - Fair Value Measurements and Disclosure (“ASC 820”) requires that financial assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 

Level 2 – Quoted prices for identical or similar financial instruments in markets that are not considered to be active, or similar financial instruments for which all significant inputs are observable, either directly or indirectly, or inputs other than quoted prices that are observable, or inputs that are derived principally from or corroborated by observable market data through correlation or other means; and

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable. These reflect management’s assumptions about the assumptions a market participant would use in pricing the asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table represents the financial assets and liabilities on the condensed consolidated balance sheet at December 31, 2013, that are subject to ASC 820 and the valuation approach applied to each of these items.

 

 

 

 

 

 

 

 

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

(Unaudited)

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

Short-term investments

$

579,165

$

579,165

$

$

Fixed maturities - available for sale

 

1,083,678

 

984,074

 

98,497

 

1,107

Preferred stock

 

17,695

 

17,695

 

 

Common stock

 

20,748

 

20,748

 

 

Derivatives

 

2,680

 

 

2,680

 

Total

$

1,703,966

$

1,601,682

$

101,177

$

1,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Guaranteed residual values of TRAC leases

$

$

$

$

Derivatives

 

35,462

 

 

35,462

 

Total

$

35,462

$

$

35,462

$

 

 

 

 

 

 

 

 

 

 

The following table represents the fair value measurements for our assets at December 31, 2013 using significant unobservable inputs (Level 3).

 

 

 

 

 

Fixed Maturities - Asset Backed Securities

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$ 

1,180

 

 

 

Fixed Maturities - Asset Backed Securities - redemption

 

(123)

Fixed Maturities - Asset Backed Securities - gain (unrealized)

 

50

Balance at December 31, 2013

$ 

1,107

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


15. Subsequent Events

On January 21, 2014, various subsidiaries of U-Haul International, Inc. entered into a new revolving fleet loan for $75 million which can be increased to a maximum of $225 million. We drew down approximately $18 million on the closing date. This loan matures in October 2018. Only interest is paid during the first four years of the loan and then principal is due monthly over the last nine months.

On December 4, 2013, we declared a special cash dividend on our common stock of $1.00 per share to holders of record on January 10, 2014 which will be payable on February 14, 2014.

On January 31, 2014, various subsidiaries of U-Haul International, Inc. entered into a new revolving fleet loan for $100 million which can be increased to a maximum of $125 million. This loan matures in October 2017. Only interest is paid during the first three years of the loan and then principal is due monthly over the last nine months.

 

 


 


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) with the overall strategy of AMERCO, followed by a description of and strategy related to, our operating segments to give the reader an overview of the goals of our businesses and the direction in which our businesses and products are moving. We then discuss our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. Next, we discuss our results of operations for the third quarter and first nine months of fiscal 2014, compared with the third quarter and first nine months of fiscal 2013, which is followed by an analysis of changes in our balance sheets and cash flows, and a discussion of our financial commitments in the sections entitled Liquidity and Capital Resources and Disclosures about Contractual Obligations and Commercial Commitments and a discussion of off-balance sheet arrangements. We conclude this MD&A by discussing our current outlook for the remainder of fiscal 2014.

This MD&A should be read in conjunction with the other sections of this Quarterly Report, including the Notes to Condensed Consolidated Financial Statements. The various sections of this MD&A contain a number of forward-looking statements, as discussed under the caption, Cautionary Statements Regarding Forward-Looking Statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing or in our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2013. Many of these risks and uncertainties are beyond our control and our actual results may differ materially from these forward-looking statements.

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.

Overall Strategy

Our overall strategy is to maintain our leadership position in the North American “do-it-yourself” moving and storage industry. We accomplish this by providing a seamless and integrated supply chain to the “do-it-yourself” moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul with our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.

Our primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities and related moving and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage rooms and portable moving and storage pods available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our growing eMove® capabilities.

Our Property and Casualty Insurance operating segment is focused on providing and administering property and casualty insurance to U-Haul and its customers, its independent dealers and affiliates. 

Our Life Insurance operating segment is focused on long-term capital growth through direct writing and reinsuring of life, Medicare supplement and annuity products in the senior marketplace.

 


Description of Operating Segments

AMERCO’s three reportable segments are:

         Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,

         Property and Casualty Insurance, comprised of Repwest and its subsidiaries and ARCOA, and

         Life Insurance, comprised of Oxford and its subsidiaries.

Moving and Storage Operating Segment

Our Moving and Storage operating segment consists of the rental of trucks, trailers, portable moving and storage pods, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.

With respect to our truck, trailer, portable moving and storage pods, specialty rental items and self-storage rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.

U-Haul brand self-moving related products and services, such as boxes, pads and tape allow our customers to, among other things, protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-yourself” moving and storage customer in mind.

eMove is an online marketplace that connects consumers to independent Moving Help® service providers and thousands of independent U-Haul Self-Storage Affiliates. Our network of customer rated affiliates and service providers furnish, pack and load help, cleaning help, self-storage and similar services, all over North America. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.

Since 1945, U-Haul has incorporated sustainable practices into its everyday operations. We believe that our basic business premise of equipment sharing helps reduce greenhouse gas emissions and reduces the need for total large capacity vehicles. We continue to look for ways to reduce waste within our business and are dedicated to manufacturing reusable components and recyclable products. We believe that our commitment to sustainability, through our products and services and everyday operations, has helped us to reduce our impact on the environment.

Property and Casualty Insurance Operating Segment

Our Property and Casualty Insurance operating segment provides loss adjusting and claims handling for U-Haul through regional offices across North America. Our 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. We continue to focus on increasing the penetration of these products into the moving and storage market. The business plan for our Property and Casualty Insurance operating segment includes offering property and casualty products in other U-Haul related programs.

Life Insurance Operating Segment

Our 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.

 


Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with the generally accepted accounting principles (“GAAP”) in the United States. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Certain accounting policies require us to make difficult and subjective judgments and assumptions, often as a result of the need to estimate matters that are inherently uncertain.

In the following pages we have set forth, with a detailed description, the accounting policies that we deem most critical to us and that require management’s most difficult and subjective judgments. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptions that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions; such differences may be material.

We also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following:

Principles of Consolidation

We apply ASC 810 in our principles of consolidation. ASC 810 addresses arrangements where a company does not hold a majority of the voting or similar interests of a VIE. A company is required to consolidate a VIE if it has determined it is the primary beneficiary. ASC 810 also addresses the policy when a company owns a majority of the voting or similar rights and exercises effective control.

As promulgated by ASC 810, a VIE is not self-supportive due to having one or both of the following conditions: (i) it has an insufficient amount of equity for it to finance its activities without receiving additional subordinated financial support or (ii) its owners do not hold the typical risks and rights of equity owners. This determination is made upon the creation of a variable interest and is re-assessed on an on-going basis should certain changes in the operations of a VIE, or its relationship with the primary beneficiary trigger a reconsideration under the provisions of ASC 810. After a triggering event occurs the facts and circumstances are utilized in determining whether or not a company is a VIE, which other company(s) have a variable interest in the entity, and whether or not the company’s interest is such that it is the primary beneficiary.

We will continue to monitor our relationships with the other entities regarding who is the primary beneficiary, which could change based on facts and circumstances of any reconsideration events.

Recoverability of Property, Plant and Equipment

Property, plant and equipment are stated at cost. Interest expense incurred during the initial construction of buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes using the straight-line or an accelerated method based on a declining balance formula over the following estimated useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. We follow the deferral method of accounting based on ASC 908 - Airlines for major overhauls in which engine and transmission overhauls are currently capitalized and amortized over three years. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses on dispositions of property, plant and equipment are netted against depreciation expense when realized. Equipment depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal, i.e., minimize gains or losses. In determining the depreciation rate, historical disposal experience, holding periods and trends in the market for vehicles are reviewed.

 


We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets are shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If asset residual values are determined to be recoverable, but the useful lives are shorter or longer than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.

Management determined that additions to the fleet resulting from purchases should be depreciated on an accelerated method based upon a declining formula. Under the declining balances method (2.4 times declining balance), the book value of a rental truck is reduced approximately 16%, 13%, 11%, 9%, 8%, 7%, and 6% during years one through seven, respectively, and then reduced on a straight line basis to a salvage value of 20% by the end of year fifteen. Beginning in October 2012, rental equipment subject to this depreciation schedule is being depreciated to a salvage value of 15%. This change had an immaterial effect on our current financial statements. Comparatively, a standard straight line approach would reduce the book value evenly by approximately 5.7% per year over the life of the truck.

Although we intend to sell our used vehicles for prices approximating book value, the extent to which we realize a gain or loss on the sale of used vehicles is dependent upon various factors including, but not limited to, the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and the depreciation rates with respect to the vehicle. We typically sell our used vehicles at our sales centers throughout North America, on our web site at uhaul.com/trucksales or by phone at 866-404-0355. Additionally, we sell a large portion of our pickup and cargo van fleet at automobile dealer auctions.

Insurance Reserves

Liabilities for life insurance and certain annuity and health policies are established to meet the estimated future obligations of policies in force, and are based on mortality, morbidity and withdrawal assumptions from recognized actuarial tables which contain margins for adverse deviation. In addition, liabilities for health, disability and other policies include estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred, but not yet reported. Liabilities for annuity contracts consist of contract account balances that accrue to the benefit of the policyholders.

Insurance reserves for our Property and Casualty Insurance operating segment and U-Haul take into account losses incurred based upon actuarial estimates and are management’s best approximation of future payments.  These estimates are based upon past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation.  These reserves consist of case reserves for reported losses and a provision for losses incurred but not reported (“IBNR”), both reduced by applicable reinsurance recoverables, resulting in a net liability.  

Due to the nature of the underlying risks and high degree of uncertainty associated with the determination of the liability for future policy benefits and claims, the amounts to be ultimately paid to settle these liabilities cannot be precisely determined and may vary significantly from the estimated liability, especially for long-tailed casualty lines of business such as excess workers’ compensation.  As a result of the long-tailed nature of the excess workers compensation policies written by Repwest during 1983 through 2002, and similar policies assumed by Repwest during 2001 through 2003, it may take a number of years for claims to be fully reported and finally settled.

On a regular basis, insurance reserve adequacy is reviewed by management to determine if existing assumptions need to be updated. In determining the assumptions for calculating workers compensation reserves, management considers multiple factors including the following:


        

 


           Claimant longevity

         Cost trends associated with claimant treatments

         Changes in ceding entity and third party administrator reporting practices

         Changes in environmental factors including legal and regulatory

         Current conditions affecting claim settlements

         Future economic conditions including inflation

We have reserved each claim based upon the accumulation of current claim costs projected through the claimants’ life expectancy, and then adjusted for applicable reinsurance arrangements.  Management reviews each claim bi-annually to determine if the estimated life-time claim costs have increased and then adjusts the reserve estimate accordingly at that time.  We have factored in an estimate of what the potential cost increases could be in our IBNR liability.  We have not assumed settlement of the existing claims in calculating the reserve amount, unless it is in the final stages of completion.

Continued increases in claim costs, including medical inflation and new treatments and medications could lead to future adverse development resulting in additional reserve strengthening.  Conversely, settlement of existing claims or if injured workers return to work or expire prematurely, could lead to future positive development.

Impairment of Investments

Investments are evaluated pursuant to guidance contained in ASC 320 - Investments - Debt and Equity Securities to determine if and when a decline in market value below amortized cost is other-than-temporary. Management makes certain assumptions or judgments in its assessment including, but not limited to: ability and intent to hold the security, quoted market prices, dealer quotes or discounted cash flows, industry factors, financial factors, and issuer specific information such as credit strength. Other-than-temporary impairment in value is recognized in the current period operating results. There were no write downs in the third quarter or for the first nine months of fiscal 2014 and 2013.

Income Taxes

AMERCO files a consolidated tax return with all of its legal subsidiaries.

Our tax returns are periodically reviewed by various taxing authorities. The final outcome of these audits may cause changes that could materially impact our financial results.

Fair Values

Fair values of cash equivalents approximate carrying value due to the short period of time to maturity. Fair values of short term investments, investments available-for-sale, long term investments, mortgage loans and notes on real estate, and interest rate swap contracts are based on quoted market prices, dealer quotes or discounted cash flows. Fair values of trade receivables approximate their recorded value.

Our financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, reinsurance recoverables and notes receivable. Limited credit risk exists on trade receivables due to the diversity of our customer base and their dispersion across broad geographic markets. We place our temporary cash investments with financial institutions and limit the amount of credit exposure to any one financial institution.

We have mortgage receivables, which potentially expose us to credit risk. The portfolio of notes is principally collateralized by self-storage facilities and commercial properties. We have not experienced any material losses related to the notes from individual or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method and using interest rates currently offered for similar loans to borrowers with similar credit ratings.

The carrying amount of long term debt and short term borrowings are estimated to approximate fair value as the actual interest rate is consistent with the rate estimated to be currently available for debt of similar term and remaining maturity.

 


Other investments including short term investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.

Subsequent Events

Our management has evaluated subsequent events occurring after December 31, 2013, the date of our most recent balance sheet, through the date our financial statements were issued. We entered into two new loans and declared a special cash dividend on our common stock please see Note 15, Subsequent Events of the Notes to Condensed Consolidated Financial Statements for a discussion of these events that occurred after December 31, 2013. Other than these new borrowings and the declared cash dividend, we do not believe any other subsequent events have occurred that would require further disclosure or adjustment to our financial statements.

Adoption of New Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, (“ASU 2013-02”) an amendment to FASB ASC Topic 220. The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company’s fiscal years, and interim periods within those years beginning after December 15, 2012. We adopted ASU 2013-02 in the first quarter of fiscal 2014 and it did not have a material impact on our financial statements.

From time to time, new accounting pronouncements are issued by the FASB or the SEC that are adopted by the Company as of the specified effective date. Unless otherwise discussed, these ASU’s entail technical corrections to existing guidance or affect guidance related to specialized industries or entities and therefore will have minimal, if any, impact on our financial position or results of operations upon adoption.

Results of Operations

AMERCO and Consolidated Entities

Quarter Ended December 31, 2013 compared with the Quarter Ended December 31, 2012

Listed below on a consolidated basis are revenues for our major product lines for the third quarter of fiscal 2014 and the third quarter of fiscal 2013:

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

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

Consolidated revenue

$ 

641,346

$ 

582,487

 

 

 

 

 

 

 


Self-moving equipment rental revenues increased $41.3 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013.  Increased truck and trailer transaction volume is the primary factor for the improvement in revenue.  Our ability to serve these additional customers has been made possible through the continued expansion of the rental equipment fleet combined with incremental utilization improvements along with the convenience of additional retail locations.    

Self-storage revenues increased $7.0 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013 with the average monthly amount of occupied square feet increasing by nearly 17%.  The growth in revenues and square feet rented comes from a combination of improved occupancy at existing locations as well as the addition of new facilities to the portfolio. Over the last twelve months we have added approximately 2.1 million net rentable square feet to the self-storage portfolio.

Sales of self-moving and self-storage products and services increased $2.6 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013.  Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations. 

Life insurance premiums decreased $4.0 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013 due primarily to reduced life insurance premiums and Medicare supplement premiums.

Property and casualty insurance premiums increased $2.4 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013 due to increased moving and storage transactions at U-Haul which resulted in additional sales of related insurance products.

Net investment and interest income decreased $1.7 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013. Gains from mortgage loan holdings decreased at our Moving and Storage operating segment compared with the same period last year. This decrease was somewhat offset by increased investment income from the Life Insurance operating segment due to a larger invested asset base and realized gains compared to the same period last year.

Other revenue increased $10.3 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013 primarily from the expansion of new business initiatives including our U-BoxTM program.

As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $641.3 million for the third quarter of fiscal 2014, compared with $582.5 million for the third quarter of fiscal 2013.

 


Listed below are revenues and earnings from operations at each of our operating segments for the third quarter of fiscal 2014 and the third quarter of fiscal 2013. The insurance companies third quarters ended September 30, 2013 and 2012.

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Moving and storage

 

 

 

 

Revenues

$ 

578,162

$ 

514,806

Earnings from operations before equity in earnings of subsidiaries

 

92,173

 

72,781

Property and casualty insurance 

 

 

 

 

Revenues

 

15,228

 

11,865

Earnings from operations

 

5,716

 

2,062

Life insurance  

 

 

 

 

Revenues

 

53,152

 

56,766

Earnings from operations

 

8,229

 

7,181

Eliminations

 

 

 

 

Revenues

 

(5,196)

 

(950)

Earnings from operations before equity in earnings of subsidiaries

 

(145)

 

(78)

Consolidated results

 

 

 

 

Revenues

 

641,346

 

582,487

Earnings from operations

 

105,973

 

81,946

 

 

 

 

 

 

Total costs and expenses increased $34.8 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013.  Operating expenses for the Moving and Storage operating segment increased $29.2 million with a significant portion of this coming from spending on personnel, rental equipment maintenance and operating costs associated with the U-Box program. Commission expenses increased in relation to the associated revenues. Depreciation expense, net of gains on disposal, increased $8.4 million while lease expense decreased $3.1 million as a result of the Company’s shift in financing new equipment on the balance sheet rather than through operating leases.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $106.0 million for the third quarter of fiscal 2014, compared with $81.9 million for the third quarter of fiscal 2013.

Interest expense for the third quarter of fiscal 2014 was $23.6 million, compared with $22.1 million for the third quarter of fiscal 2013 due to an increase in average borrowings partially offset by a decrease in average borrowing costs.

Income tax expense was $30.1 million for the third quarter of fiscal 2014, compared with $23.0 million for the third quarter of fiscal 2013.

As a result of the above mentioned items, earnings available to common shareholders were $52.2 million for the third quarter of fiscal 2014, compared with $36.8 million for the third quarter of fiscal 2013.

Basic and diluted earnings per share for the third quarter of fiscal 2014 were $2.67, compared with $1.89 for the third quarter of fiscal 2013.

The weighted average common shares outstanding basic and diluted were 19,563,663 for the third quarter of fiscal 2014, compared with 19,523,794 for the third quarter of fiscal 2013.

 


 

Moving and Storage

Quarter Ended December 31, 2013 compared with the Quarter Ended December 31, 2012

Listed below are revenues for the major product lines at our Moving and Storage operating segment for the third quarter of fiscal 2014 and the third quarter of fiscal 2013:

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$ 

437,117

$ 

395,401

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

Net investment and interest income

 

5,165

 

8,003

Other revenue

 

35,582

 

21,715

Moving and Storage revenue

$ 

578,162

$ 

514,806

 

 

 

 

 

 

Self-moving equipment rental revenues increased $41.7 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013.  Increased truck and trailer transaction volume is the primary factor for the improvement in revenue.  Our ability to serve these additional customers has been made possible through the continued expansion of the rental equipment fleet combined with incremental utilization improvements along with the convenience of additional retail locations.

Self-storage revenues increased $7.0 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013, with the average monthly amount of occupied square feet increasing by nearly 17%.  The growth in revenues and occupancy comes from a combination of improved occupancy at existing locations as well as the addition of new facilities to the portfolio.  Over the last twelve months we have added approximately 2.1 million net rentable square feet to the self-storage portfolio.

Sales of self-moving and self-storage products and services increased $2.6 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013.  Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.  

Net investment and interest income decreased $2.8 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013. Gains from mortgage loan holdings decreased at our Moving and Storage operating segment compared with the same period last year.

Other revenue increased $13.9 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013 primarily from the expansion of new business initiatives including our U-BoxTM program.

 


The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements represent Company-owned locations only. Self-storage data for our owned storage locations follows:

 

 

 

 

 

 

 

Quarter Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except occupancy rate)

Room count as of December 31

 

203

 

183

Square footage as of December 31

 

17,793

 

15,648

Average monthly number of rooms occupied

 

161

 

141

Average monthly occupancy rate based on room count

 

80.0%

 

78.1%

Average monthly square footage occupied

 

14,290

 

12,249

 

 

 

 

 

 

Total costs and expenses increased $44.0 million during the third quarter of fiscal 2014, compared with the third quarter of fiscal 2013. Operating expenses increased $29.2 million with a significant portion of this coming from spending on personnel, rental equipment maintenance as well as from operating costs associated with the U-Box program. Commission expenses increased in relation to the associated revenues. Depreciation expense increased $8.5 million and gains from the disposal of property, plant and equipment increased $0.1 million. Conversely, lease expense decreased $3.1 million as a result of the Company’s continued trend in financing new equipment on the balance sheet rather than through operating leases.

As a result of the above mentioned changes in revenues and expenses, earnings from operations for the Moving and Storage operating segment before consolidation of the equity in the earnings of the insurance subsidiaries, increased to $92.2 million for the third quarter of fiscal 2014, compared with $72.8 million for the third quarter of fiscal 2013.

Equity in the earnings of AMERCO’s insurance subsidiaries was $9.3 million and $5.6 million for the third quarter of fiscal 2014 and 2013, respectively.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $101.5 million for the third quarter of fiscal 2014, compared with $78.4 million for the third quarter of fiscal 2013.

Property and Casualty Insurance

Quarter Ended September 30, 2013 compared with the Quarter Ended September 30, 2012

Net premiums were $12.2 million and $9.8 million for the third quarters ended September 30, 2013 and 2012, respectively. The increase corresponded with the increased moving and storage transactions at U-Haul.

Net investment income was $3.0 million and $2.0 million for the third quarters ended September 30, 2013 and 2012, respectively. The increase was due to $0.5 million gain on disposals in 2013 and $0.5 million increase in fixed maturity income due to an increase in invested assets.

Net operating expenses were $5.2 million and $6.9 million for the third quarters ended September 30, 2013 and 2012, respectively. The prior year included charges associated with the termination of a reinsurance contract. 

Benefits and losses incurred were $4.3 million and $2.9 million for the third quarters ended September 30, 2013 and 2012, respectively. The change was primarily due to an increase in assumed reserves on existing reinsurance contracts.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $5.7 million and $2.1 million for the third quarters ended September 30, 2013 and 2012, respectively.

 


Life Insurance

Quarter Ended September 30, 2013 compared with the Quarter Ended September 30, 2012

Net premiums were $39.2 million and $43.2 million for the quarters ended September 30, 2013 and 2012, respectively. Medicare supplement premiums decreased $2.8 million due to a reduction of the in force business. Life premiums decreased $0.6 million from the reduced sales of single premium whole life insurance and lower premiums from the assumed reinsurance blocks. 

Net investment income was $12.9 million and $12.7 million for the quarters ended September 30, 2013 and 2012, respectively. There was an increase of $1.5 million of investment income due to a larger invested asset base offset by a decrease in realized gains of $1.2 million compared to the same period last year.

Net operating expenses were $6.1 million and $6.5 million for the quarters ended September 30, 2013 and 2012, respectively. The variance was due to a reduction in commissions and premium taxes.

Benefits and losses incurred were $34.3 million and $39.7 million for the quarter ended September 30, 2013 and 2012, respectively. Life and immediate annuity benefits decreased $2.0 million primarily due to a reduction in reserves from reduced sales. Medicare supplement incurred benefits decreased by $3.1 million from a reduction of policies in force and an improved benefit ratio.

Amortization of deferred acquisition costs (“DAC”), sales inducement asset (“SIA”) and the value of business acquired (“VOBA”) was $4.5 million and $3.4 million for the quarters ended September 30, 2013 and 2012, respectively. The variance was primarily a result of increased amortization of annuity DAC and SIA due to the increased in force business.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $8.2 million and $7.2 million for the quarters ended September 30, 2013 and 2012, respectively.

 


AMERCO and Consolidated Entities

Nine Months Ended December 31, 2013 compared with the Nine Months Ended December 31, 2012

 

Listed below on a consolidated basis are revenues for our major product lines for the first nine months of fiscal 2014 and the first nine months of fiscal 2013:

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

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

Consolidated revenue

$ 

2,224,668

$ 

1,994,280

 

 

 

 

 

Self-moving equipment rental revenues increased $156.5 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013.  Increased truck and trailer transaction volume is the primary factor for the improvement in revenue.  Our ability to serve these additional customers has been made possible through the continued expansion of the rental equipment fleet combined with incremental utilization improvements along with the convenience of additional retail locations.  

Self-storage revenues increased $22.0 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. Average monthly occupancy during the first nine months of fiscal 2014 increased by 2.2 million square feet compared to the same period last year.  These occupancy gains have come from a combination of improvements at existing locations, as well as the acquisition of new facilities.  Over the last twelve months, we have added approximately 2.1 million net rentable square feet with 1.8 million of that being added during the first nine months of fiscal 2014.

Sales of self-moving and self-storage products and services increased $9.7 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.

Life insurance premiums decreased $17.6 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013, primarily attributable to decreases in life insurance premiums and Medicare supplement premiums.

Property and casualty insurance premiums increased $5.0 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013, primarily from policies sold in conjunction with U-Haul rental transactions. As moving transactions have increased this year so have the related premiums.

Net investment and interest income increased $6.9 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. The Life Insurance operating segment recognized increased investment income due to a larger invested asset base and realized gains compared to the same period last year, which was offset by a decrease in gains on mortgage loan holdings in our Moving and Storage operating segment compared with the same period last year.

Other revenue increased $46.2 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013 primarily from the expansion of new business initiatives including our
U-Box program.

As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,224.7 million for the first nine months of fiscal 2014, as compared with $1,994.3 million for the first nine months of fiscal 2013.

 


Listed below are revenues and earnings from operations at each of our operating segments for the first nine months of fiscal 2014 and the first nine months of fiscal 2013. The insurance companies first nine months ended September 30, 2013 and 2012.

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Moving and storage

 

 

 

 

Revenues

$

2,034,764

$

1,793,224

Earnings from operations before equity in earnings of subsidiaries

 

512,290

 

407,567

Property and casualty insurance 

 

 

 

 

Revenues

 

39,001

 

32,521

Earnings from operations

 

16,517

 

6,991

Life insurance  

 

 

 

 

Revenues

 

162,604

 

171,132

Earnings from operations

 

19,831

 

12,807

Eliminations

 

 

 

 

Revenues

 

(11,701)

 

(2,597)

Earnings from operations before equity in earnings of subsidiaries

 

(323)

 

(218)

Consolidated results

 

 

 

 

Revenues

 

2,224,668

 

1,994,280

Earnings from operations

 

548,315

 

427,147

 

 

 

 

 

Total costs and expenses increased $109.2 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. Operating expenses for the Moving and Storage operating segment increased $101.7 million primarily from spending on personnel, rental equipment maintenance and operating costs associated with the U-Box program. Commission expenses increased in relation to the associated revenues. Depreciation expense, net of gains on disposal, increased $14.0 million while lease expense decreased $12.7 million as a result of the Company’s shift in financing new equipment on the balance sheet rather than through operating leases.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $548.3 million for the first nine months of fiscal 2014, as compared with $427.1 million for the first nine months of fiscal 2013.

Interest expense for the first nine months of fiscal 2014 was $70.1 million, compared with $67.7 million for the first nine months of fiscal 2013 due to an increase in average borrowings partially offset by a decrease in average borrowing costs.

Income tax expense was $175.1 million for the first nine months of fiscal 2014, compared with $132.6 million for first nine months of fiscal 2013 due to higher pretax earnings for the first nine months of fiscal 2014.

Basic and diluted earnings per common share for the first nine months of fiscal 2014 were $15.50, compared with $11.62 for the first nine months of fiscal 2013.

The weighted average common shares outstanding basic and diluted were 19,554,641 for the first nine months of fiscal 2014, compared with 19,512,974 for the first nine months of fiscal 2013.

 


Moving and Storage

Nine Months Ended December 31, 2013 compared with the Nine Months Ended December 31, 2012

Listed below are revenues for the major product lines at our Moving and Storage operating segment for the first nine months of fiscal 2014 and the first nine months of fiscal 2013:

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$

1,558,857

$

1,401,483

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

Net investment and interest income

 

11,948

 

15,038

Other revenue

 

129,467

 

75,632

Moving and Storage revenue

$

2,034,764

$

1,793,224

 

 

 

 

 

Self-moving equipment rental revenues increased $157.4 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. Increased truck and trailer transaction volume is the primary factor for the improvement in revenue.  Our ability to serve these additional customers has been made possible through the continued expansion of the rental equipment fleet combined with incremental utilization improvements along with the convenience of additional retail locations.

Self-storage revenues increased $22.0 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013 due primarily to an increase in the number of rooms rented.  Average monthly occupancy during the first nine months of fiscal 2014 increased by 2.2 million square feet compared to the same period last year.  These occupancy gains have come from a combination of improvements at existing locations as well as the acquisition of new facilities.  Over the last twelve months, we have added approximately 2.1 million net rentable square feet with 1.8 million of that during the first nine months of fiscal 2014.

Sales of self-moving and self-storage products and services increased $9.7 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013.  Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.

Net investment and interest income decreased $3.1 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013. Gains from mortgage loan holdings decreased at our Moving and Storage operating segment compared with the same period last year and interest income related to the SAC Holdings notes decreased compared to the same period last year.  In June 2013, SAC Holdings made a $10.4 million payment to AMERCO reducing its total outstanding obligations to the Company.

Other revenue increased $53.8 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013 primarily from the expansion of new business initiatives including our
U-Box program.

 


The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements represent Company-owned locations only. Self-storage data for our owned storage locations follows:

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except occupancy rate)

Room count as of December 31

 

203

 

183

Square footage as of December 31

 

17,793

 

15,648

Average monthly number of rooms occupied

 

159

 

138

Average monthly occupancy rate based on room count

 

80.9%

 

79.1%

Average monthly square footage occupied

 

14,016

 

11,795

 

 

 

 

 

Total costs and expenses increased $136.8 million during the first nine months of fiscal 2014, compared with the first nine months of fiscal 2013.  Operating expenses increased $101.7 million primarily coming from spending on personnel, rental equipment maintenance and operating costs associated with the U-Box program. Commission expenses increased in relation to the associated revenues. Depreciation expense increased $21.9 million and gains from the disposal of property, plant and equipment increased by $8.0 million. Lease expense decreased $12.7 million as a result of the Company’s continued trend in financing new equipment on the balance sheet rather than through operating leases.

As a result of the above mentioned changes in revenues and expenses, earnings from operations for the Moving and Storage operating segment before consolidation of the equity in the earnings of the insurance subsidiaries increased to $512.3 million for the first nine months of fiscal 2014, compared with $407.6 million for the first nine months of fiscal 2013.

Equity in the earnings of AMERCO’s insurance subsidiaries was $23.9 million for the first nine months of fiscal 2014, compared with $12.9 million for the first nine months of fiscal 2013.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $536.2 million for the first nine months of fiscal 2014, compared with $420.5 million for the first nine months of fiscal 2013.

Property and Casualty Insurance

Nine Months Ended September 30, 2013 compared with the Nine Months Ended September 30, 2012

Net premiums were $31.1 million and $26.0 million for the nine months ended September 30, 2013 and 2012, respectively. The increase corresponded with the increased moving and storage transactions at U-Haul.

Net investment income was $7.9 million and $6.5 million for the nine months ended September 30, 2013 and 2012, respectively. The increase was due to a $0.7 million increase in gains on the sale of investments in 2013 and a $0.7 million increase in fixed maturity income due to an increase in invested assets.

Net operating expenses were $13.7 million and $14.7 million for the nine months ended September 30, 2013 and 2012, respectively. The decrease was a result of a $3.9 million charge related to a reinsurance contract in 2012, offset by an increase in commission expense.

Benefits and losses incurred were $8.7 million and $10.8 million for the nine months ended September 30, 2013 and 2012, respectively. The decrease was primarily due to favorable development in the additional liability line of business which resulted in lower reserves.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $16.5 million and $7.0 million for the nine months ended September 30, 2013 and 2012, respectively.

 


Life Insurance

Nine Months Ended September 30, 2013 compared with the Nine Months Ended September 30, 2012

Net premiums were $119.7 million and $137.3 million for the nine months ended September 30, 2013 and 2012, respectively.  Life premiums decreased $6.1 million primarily due to a reduction in new sales of our single premium whole life product, assumed blocks and a prior year one time increase driven by the recapture of a pre-need block of business. Single premium immediate annuity premiums decreased by $3.8 million from discontinued sales while considerations received from supplementary contracts increased $0.7 million. Medicare supplement premiums decreased by $8.4 million compared to the prior year. Annuity deposits decreased by $149.0 million; these are accounted for on the balance sheet as deposits rather than premiums.

Net investment income was $40.4 million and $31.7 million for the nine months ended September 30, 2013 and 2012, respectively. There was an increase of $7.1 million of investment income due to a larger invested asset base. Additionally, a $1.5 million increase in realized gains was recognized on the sale of investments.

Net operating expenses were $18.1 million and $20.4 million for the nine months ended September 30, 2013 and 2012, respectively. The variance was primarily due to reduced Medicare supplement and single premium immediate annuity commissions. A reduction in administrative costs and premium tax expenses has contributed to the variance as well.

Benefits and losses incurred were $110.5 million and $128.6 million for the nine months ended September 30, 2013 and 2012, respectively. A decrease of $7.6 million in life benefits was primarily a result of reduced reserves due to lower sales of single premium whole life product and a prior year one time reserve increase from the recapture of a pre-need block of business. Reserves associated with annuity contracts declined $1.8 million.  Medicare supplement benefits decreased by $10.7 million due to reduced policies in force and lower benefit ratios.  Interest credited to policyholders increased $2.9 million as a result of a larger annuity account value.

Amortization of DAC, SIA and VOBA was $14.2 million and $9.3 million for the nine months ended September 30, 2013 and 2012, respectively. The increase over the prior year was primarily a result of increased amortization of annuity DAC and SIA due to the increased in force business as well as older annuity blocks.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $19.8 million and $12.8 million for the nine months ended September 30, 2013 and 2012, respectively.

Liquidity and Capital Resources

We believe our current capital structure is a positive factor that will enable us to pursue our operational plans and goals, and provide us with sufficient liquidity for the foreseeable future. The majority of our obligations currently in place mature between fiscal years 2016 and 2019. However, since there are many factors which could affect our liquidity, including some which are beyond our control, there is no assurance that future cash flows and liquidity resources will be sufficient to meet our outstanding debt obligations and our other future capital needs.

 


At December 31, 2013, cash and cash equivalents totaled $601.6 million, compared with $463.7 million on March 31, 2013. The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations (AMERCO, U-Haul and Real Estate). As of December 31, 2013 (or as otherwise indicated), cash and cash equivalents, other financial assets (receivables, short-term investments, other investments, fixed maturities, and related party assets) and debt obligations of each operating segment were:

 

 

 

 

 

 

 

 

 

Moving & Storage

 

Property and Casualty Insurance (a)

 

Life Insurance (a)

 

 

(Unaudited)

 

 

(In thousands)

Cash and cash equivalents

$

571,420

$

5,601

$

24,594

Other financial assets

 

236,349

 

413,469

 

1,128,135

Debt obligations

 

1,862,869

 

 

 

 

 

 

 

 

 

(a) As of September 30, 2013

 

 

 

 

 

 

 

At December 31, 2013, our Moving and Storage operating segment had additional cash available under existing credit facilities of $75.0 million.

Net cash provided by operating activities decreased $15.0 million in the first nine months of fiscal 2014 compared with fiscal 2013 primarily due to repayments of $127.3 million of the notes and interest receivables with SAC Holdings in fiscal 2013 that did not recur this year.  Excluding this amount, operating cash flows increased by $112.3 million due largely to an increase in net earnings. 

Net cash used in investing activities increased $63.5 million in the first nine months of fiscal 2014, compared with fiscal 2013. Purchases of property, plant and equipment, which are reported net of cash from leases, increased $210.1 million. Cash from the sales of property, plant and equipment increased $47.2 million largely due to an increase in truck sales. The Life Insurance operating segment had a decrease in net cash used for investing of $122.9 million due to a decline in new annuity deposits.

Net cash provided by financing activities decreased $13.4 million in the first nine months of fiscal 2014, as compared with fiscal 2013. Net annuity deposits at the Life Insurance operating segment decreased $160.1 million and principal and capital lease payments increased $23.0 million in the first nine months of fiscal 2014. Conversely, cash from new borrowings increased $71.7 million in fiscal 2014 compared to fiscal 2013. Additionally, the first nine months of fiscal 2013 included a $97.4 million common stock dividend payment with no similar dividend payment during the first nine months of fiscal 2014

Liquidity and Capital Resources and Requirements of Our Operating Segments

Moving and Storage

To meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Capital expenditures have primarily reflected new rental equipment acquisitions and the buyouts of existing fleet from leases. The capital to fund these expenditures has historically been obtained internally from operations and the sale of used equipment and externally from debt and lease financing. In the future, we anticipate that our internally generated funds will be used to service the existing debt and fund operations. U-Haul estimates that during fiscal 2014, we will reinvest in our truck and trailer rental fleet approximately $470 million, net of equipment sales excluding any lease buyouts. Through the first nine months of fiscal 2014, we have invested, net of sales, approximately $309 million of this projected amount before any lease buyouts in our truck and trailer fleet. Fleet investments in fiscal 2014 and beyond will be dependent upon several factors including availability of capital, the truck rental environment and the used-truck sales market. We anticipate that the fiscal 2014 investments will be funded largely through debt financing, external lease financing and cash from operations. Management considers several factors including cost and tax consequences when selecting a method to fund capital expenditures. Our allocation between debt and lease financing can change from year to year based upon financial market conditions which may alter the cost or availability of financing options.

 


Real Estate has traditionally financed the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations and sales. Our plan for the expansion of owned storage properties includes the acquisition of existing self-storage locations from third parties, the acquisition and development of bare land, and the acquisition and redevelopment of existing buildings not currently used for self-storage. We are funding these development projects through construction loans and internally generated funds. For the first nine months of fiscal 2014, we invested approximately $256 million in real estate acquisitions, new construction and renovation and repair. For the remainder of fiscal 2014, the timing of new projects will be dependent upon several factors, including the entitlement process, availability of capital, weather, and the identification and successful acquisition of target properties. U-Haul's growth plan in self-storage also includes the expansion of the eMove program, which does not require significant capital.

Net capital expenditures (purchases of property, plant and equipment less proceeds from the sale of property, plant and equipment and lease proceeds) were $476.2 million and $255.9 million for the first nine months of fiscal 2014 and 2013, respectively. The components of our net capital expenditures are provided in the following table:

 

 

 

 

 

 

 

Nine Months Ending December 31,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Purchases of rental equipment

$ 

512,414

$ 

421,912

Equipment lease buyouts

 

33,920

 

49,874

Purchases of real estate, construction and renovations

 

256,444

 

130,331

Other capital expenditures

 

42,484

 

33,058

Gross capital expenditures

 

845,262

 

635,175

Less: Lease proceeds

 

(154,969)

 

(212,335)

Less: Sales of property, plant and equipment

 

(214,078)

 

(166,904)

Net capital expenditures

 

476,215

 

255,936

 

 

 

 

 

The Moving and Storage operating segment continues to hold significant cash and has access to additional liquidity. Management may invest these funds in our existing operations, expand our product lines or pursue external opportunities in the self-moving and storage marketplace or reduce existing indebtedness where possible.

Property and Casualty Insurance

State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, our Property and Casualty Insurance operating segment’s assets are generally not available to satisfy the claims of AMERCO or its legal subsidiaries.

We believe that stockholders equity at the Property and Casualty operating segment remains sufficient and we do not believe that its ability to pay ordinary dividends to AMERCO will be restricted per state regulations.

Our Property and Casualty operating segment stockholder’s equity was $144.6 million and $136.9 million at September 30, 2013 and December 31, 2012, respectively. The increase resulted from net earnings of $10.7 million and a decrease in other comprehensive income of $3.0 million. Our Property and Casualty Insurance operating segment does not use debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio.

 


Life Insurance

Our Life Insurance operating segment manages its financial assets to meet policyholder and other obligations including investment contract withdrawals and deposits. Our Life Insurance operating segment’s net deposits for the nine months ended September 30, 2013 were $85.5 million. State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, our Life Insurance’s operating segment funds are generally not available to satisfy the claims of AMERCO or its legal subsidiaries.

Our Life Insurance operating segment’s stockholder’s equity was $228.2 million and $242.7 million at September 30, 2013 and December 31, 2012, respectively. The decrease resulted from net earnings of $13.1 million and a decrease in other comprehensive income of $27.6 million. Our Life Insurance operating segment has not historically used debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio.

Cash Provided (Used) from Operating Activities by Operating Segments

Moving and Storage

Net cash provided from operating activities were $530.7 million and $580.9 million for the first nine months of fiscal 2014 and 2013, respectively primarily due to repayments of $127.3 million of the notes and interest receivables with SAC Holdings in fiscal 2013 that did not recur this year.  Excluding this prior year repayment, operating cash flows increased $77.1 million largely due to an increase in net earnings.

Property and Casualty Insurance

Net cash provided by operating activities were $7.0 million and $4.2 million for the first nine months ended September 30, 2013 and 2012, respectively. The increase in cash provided was primarily due to an increase in premium income.

Our Property and Casualty Insurance operating segment’s cash, cash equivalents and short-term investment portfolio amounted to $21.9 million and $45.2 million at September 30, 2013 and December 31, 2012, respectively. This balance reflects funds in transition from maturity proceeds to long term investments. Management believes this level of liquid assets, combined with budgeted cash flow, is adequate to meet foreseeable cash needs. Capital and operating budgets allow our Property and Casualty Insurance operating segment to schedule cash needs in accordance with investment and underwriting proceeds.

Life Insurance

Net cash provided (used) by operating activities were $23.6 million and ($8.8) million for the first nine months ended September 30, 2013 and 2012, respectively. The increase in cash provided was primarily attributable to the decrease in commission expense from the reduction in annuity sales and the increase in net investment income from the increased investment asset base.

In addition to cash flows from operating activities and financing activities, a substantial amount of liquid funds are available through our Life Insurance operating segment’s short-term portfolio. At September 30, 2013 and December 31, 2012, cash, cash equivalents and short-term investments amounted to $43.5 million and $34.6 million, respectively. Management believes that the overall sources of liquidity are adequate to meet foreseeable cash needs.

Liquidity and Capital Resources - Summary

We believe we have the financial resources needed to meet our business plans including our working capital needs. We continue to hold significant cash and have access to existing credit facilities and additional liquidity to meet our anticipated capital expenditure requirements for investment in our rental fleet, rental equipment and self-storage expansion.

 


Our borrowing strategy is primarily focused on asset-backed financing and rental equipment operating leases. As part of this strategy, we seek to ladder maturities and hedge floating rate loans through the use of interest rate swaps. While each of these loans typically contains provisions governing the amount that can be borrowed in relation to specific assets, the overall structure is flexible with no limits on overall Company borrowings. Management feels it has adequate liquidity between cash and cash equivalents and unused borrowing capacity in existing credit facilities to meet the current and expected needs of the Company over the next several years. At December 31, 2013, we had cash availability under existing credit facilities of $75.0 million. It is possible that circumstances beyond our control could alter the ability of the financial institutions to lend us the unused lines of credit. We believe that there are additional opportunities for leverage in our existing capital structure. For a more detailed discussion of our long-term debt and borrowing capacity, please see Note 4, Borrowings of the Notes to Condensed Consolidated Financial Statements.

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value on the condensed consolidated balance sheets and are measured and classified based upon a three tiered approach to valuation. ASC 820 requires that financial assets and liabilities recorded at fair value be classified and disclosed in a Level 1, Level 2 or Level 3 category. For more information, please see Note 14, Fair Value Measurements of the Notes to Condensed Consolidated Financial Statements. 

The available-for-sale securities held by the Company are recorded at fair value. These values are determined primarily from actively traded markets where prices are based either on direct market quotes or observed transactions. Liquidity is a factor considered during the determination of the fair value of these securities. Market price quotes may not be readily available for certain securities or the market for them has slowed or ceased. In situations where the market is determined to be illiquid, fair value is determined based upon limited available information and other factors including expected cash flows. At December 31, 2013, we had $1.1 million of available-for-sale assets classified in Level 3.

The interest rate swaps held by us as hedges against interest rate risk for our variable rate debt are recorded at fair value. These values are determined using pricing valuation models which include broker quotes for which significant inputs are observable. They include adjustments for counterparty credit quality and other deal-specific factors, where appropriate and are classified as Level 2.

Disclosures about Contractual Obligations and Commercial Commitments

Our estimates as to future contractual obligations have not materially changed from the disclosure included under the subheading Disclosures About Contractual Obligations and Commercial Commitments in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Off-Balance Sheet Arrangements

The Company uses off-balance sheet arrangements in situations where management believes that the economics and sound business principles warrant their use.

We utilize operating leases for certain rental equipment and facilities with terms expiring substantially through 2020. In the event of a shortfall in proceeds from the sales of the underlying rental equipment assets, we have guaranteed $96.9 million of residual values at December 31, 2013 for these assets at the end of their respective lease terms. We have been leasing rental equipment since 1987. To date, we have not experienced residual value shortfalls related to these leasing arrangements. Using the average cost of fleet related debt as the discount rate, the present value of our minimum lease payments and residual value guarantees were $226.3 million at December 31, 2013.

Historically, we have used off-balance sheet arrangements in connection with the expansion of our self-storage business. For more information, please see Note 10, Related Party Transactions of the Notes to Condensed Consolidated Financial Statements. These arrangements were primarily used when the Company’s overall borrowing structure was more limited. The Company does not face similar limitations currently and off-balance sheet arrangements have not been utilized in our self-storage expansion in recent years. In the future, we will continue to identify and consider off-balance sheet opportunities to the extent such arrangements would be economically advantageous to us and our stockholders.

 


We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury, 4 SAC, 5 SAC, 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 $20.8 million and $19.1 million from the above mentioned entities during the first nine months of fiscal 2014 and 2013, 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. Blackwater is wholly-owned by Mark V. Shoen, a significant stockholder of AMERCO. 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 also have an interest in Mercury.

We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. Total lease payments pursuant to such leases were $2.0 million in the first nine months of both fiscal 2014 and 2013. 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, 2013, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based on equipment rental revenues. We paid the above mentioned entities $39.7 million and $34.6 million in commissions pursuant to such dealership contracts during the first nine months of fiscal 2014 and 2013, respectively.

During the first nine months of fiscal 2014, subsidiaries of ours held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater. We do not have an equity ownership interest in SAC Holdings. We recorded interest income of $5.4 million and $6.4 million, and received cash interest payments of $15.6 million and $10.7 million, from SAC Holdings during the first nine months of fiscal 2014 and 2013, respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2014 was $72.4 million and the aggregate notes receivable balance at December 31, 2013 was $71.7 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2017 and 2019.

These agreements along with notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $23.5 million, expenses of $2.0 million and cash flows of $36.5 million during the first nine months of fiscal 2014. Revenues and commission expenses related to the Dealer Agreements were $181.5 million and $39.7 million, respectively during the first nine months of fiscal 2014.

Fiscal 2014 Outlook

We will continue to focus our attention on increasing transaction volume and improving pricing, product and utilization for self-moving equipment rentals. Maintaining an adequate level of new investment in our truck fleet is an important component of our plan to meet our operational goals. Revenue in the U-Move program could be adversely impacted should we fail to execute in any of these areas. Even if we execute our plans, we could see declines in revenues due to unforeseen events including the continuation of adverse economic conditions or heightened competition that is beyond our control.

With respect to our storage business, we have added new locations and expanded at existing locations. In fiscal 2014, we are actively looking to acquire new locations, complete current projects and increase occupancy in our existing portfolio of locations. New projects and acquisitions will be considered and pursued if they fit our long-term plans and meet our financial objectives. We will continue to invest capital and resources in the U-Box program throughout fiscal 2014.

Our Property and Casualty Insurance operating segment will continue to provide loss adjusting and claims handling for U-Haul and underwrite components of the Safemove, Safetow, Safemove Plus, Safestor and Safestor Mobile protection packages to U-Haul customers.

 


Our Life Insurance operating segment is pursuing its goal of expanding its presence in the senior market through the sales of its Medicare supplement, life and annuity policies. This strategy includes growing its agency force, expanding its new product offerings, and pursuing business acquisition opportunities.

Cautionary Statements Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” regarding future events and our future results of operations. We may make additional written or oral forward-looking statements from time to time in filings with the SEC or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements may include, but are not limited to, projections of revenues, earnings or loss, estimates of capital expenditures, plans for future operations, products or services, financing needs and plans, our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us, liquidity, goals and strategies, plans for new business, storage occupancy, growth rate assumptions, pricing, costs, and access to capital and leasing markets as well as assumptions relating to the foregoing. The words “believe,” “expect,” “anticipate,” “estimate,” “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could significantly affect results include, without limitation, the risk factors set forth in the section entitled Item 1A. Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as well as the following: our ability to operate pursuant to the terms of our credit facilities; our ability to maintain contracts that are critical to our operations; the costs and availability of financing; our ability to execute our business plan; our ability to attract, motivate and retain key employees; general economic conditions; fluctuations in our costs to maintain and update our fleet and facilities; our ability to refinance our debt; changes in government regulations, particularly environmental regulations; our credit ratings; the availability of credit; changes in demand for our products; changes in the general domestic economy; the degree and nature of our competition; the resolution of pending litigation against us; changes in accounting standards and other factors described in this Quarterly Report or the other documents we file with the SEC. The above factors, the following disclosures, as well as other statements in this Quarterly Report and in the Notes to Condensed Consolidated Financial Statements, could contribute to or cause such risks or uncertainties, or could cause our stock price to fluctuate dramatically. Consequently, the forward-looking statements should not be regarded as representations or warranties by us that such matters will be realized. We assume no obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

 

 


Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, including changes in interest rates and currency exchange rates. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes.

Interest Rate Risk

The exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations and one variable rate operating lease.  We have used interest rate swap agreements and forward swaps to reduce our exposure to changes in interest rates. We enter into these arrangements with counterparties that are significant financial institutions with whom we generally have other financial arrangements. We are exposed to credit risk should these counterparties not be able to perform on their obligations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amount

 

 

Fair Value

 

Effective Date

 

Expiration Date

 

Fixed Rate

 

Floating Rate

 

 

 

 

$

226,666

 

$

(33,185)

 

8/18/2006

 

8/10/2018

 

5.43%

 

1 Month LIBOR

 

9,250

 

 

(51)

 

2/12/2007

 

2/10/2014

 

5.24%

 

1 Month LIBOR

 

6,196

 

 

(56)

 

3/12/2007

 

3/10/2014

 

4.99%

 

1 Month LIBOR

 

6,200

 

 

(73)

 

3/12/2007

 

3/10/2014

 

4.99%

 

1 Month LIBOR

 

7,400

(a)

 

(327)

 

8/15/2008

 

6/15/2015

 

3.62%

 

1 Month LIBOR

 

7,285

 

 

(371)

 

8/29/2008

 

7/10/2015

 

4.04%

 

1 Month LIBOR

 

11,317

 

 

(663)

 

9/30/2008

 

9/10/2015

 

4.16%

 

1 Month LIBOR

 

6,101

(a)

 

(211)

 

3/30/2009

 

3/30/2016

 

2.24%

 

1 Month LIBOR

 

7,125

(a)

 

(241)

 

8/15/2010

 

7/15/2017

 

2.15%

 

1 Month LIBOR

 

15,625

(a)

 

(538)

 

6/1/2011

 

6/1/2018

 

2.38%

 

1 Month LIBOR

 

30,000

(a)

 

(483)

 

8/15/2011

 

8/15/2018

 

1.86%

 

1 Month LIBOR

 

12,250

(a)

 

(161)

 

9/12/2011

 

9/10/2018

 

1.75%

 

1 Month LIBOR

 

12,665

(b)

 

7

 

3/28/2012

 

3/28/2019

 

1.42%

 

1 Month LIBOR

 

18,750

 

 

109

 

4/16/2012

 

4/1/2019

 

1.28%

 

1 Month LIBOR

 

36,000

 

 

782

 

1/15/2013

 

12/15/2019

 

1.07%

 

1 Month LIBOR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013, we had $530.9 million of variable rate debt obligations and $12.7 million of a variable rate operating lease. If LIBOR were to increase 100 basis points, the increase in interest expense on the variable rate debt would decrease future earnings and cash flows by $1.3 million annually (after consideration of the effect of the above derivative contracts.

Additionally, our insurance subsidiaries’ fixed income investment portfolios expose us to interest rate risk. This interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. As part of our insurance companies’ asset and liability management, actuaries estimate the cash flow patterns of our existing liabilities to determine their duration. These outcomes are compared to the characteristics of the assets that are currently supporting these liabilities assisting management in determining an asset allocation strategy for future investments that management believes will mitigate the overall effect of interest rates.

 


Foreign Currency Exchange Rate Risk

The exposure to market risk for changes in foreign currency exchange rates relates primarily to our Canadian business. Approximately 5.7% and 6.2% of our revenue was generated in Canada during the first nine months of fiscal 2014 and 2013, respectively. The result of a 10.0% change in the value of the U.S. dollar relative to the Canadian dollar would not be material to net income. We typically do not hedge any foreign currency risk since the exposure is not considered material.

Item 4. Controls and Procedures

Attached as exhibits to this Quarterly Report are certifications of our Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures" section includes information concerning the controls and procedures evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented in the section, Evaluation of Disclosure Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the CEO and CAO, conducted an evaluation of the effectiveness of the design and operation of the Company’s "disclosure controls and procedures" (as such term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (“Disclosure Controls”) as of the end of the period covered by this Quarterly Report. Our Disclosure Controls are designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including our CEO and CAO, as appropriate to allow timely decisions regarding required disclosure. Based upon the controls evaluation, our CEO and CAO have concluded that as of the end of the period covered by this Quarterly Report, our Disclosure Controls were effective related to the above stated design purposes.

Inherent Limitations on the Effectiveness of Controls

The Company's management, including our CEO and CAO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


 


PART II Other information

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

We are not aware of any material updates to the risk factors described in the Company’s previously filed Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following documents are filed as part of this report:

 

Exhibit Number

Description

Page or Method of Filing

3.1

Restated Articles of Incorporation of AMERCO

Incorporated by reference to AMERCO’s Current Report on Form 8-K, filed on September 5, 2013, file no. 1-11255

 

3.2

Restated Bylaws of AMERCO

Incorporated by reference to AMERCO’s Current Report on Form 8-K ,filed on September 5, 2013, file no. 1-11255

 

4.1

Twenty-third Supplemental Indenture, dated November 26, 2013 by and between AMERCO and U.S. Bank National Association

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on November 26, 2013, file no. 1-11255

 

10.1

Amended and Restated Property Management Agreement among Three-A SAC Self-Storage Corporation and subsidiaries of U-Haul International, Inc.

 

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on October 4, 2013, file no. 1-11255

10.2

Amended and Restated Property Management Agreement among Three-B SAC Self-Storage Corporation and subsidiaries of U-Haul International, Inc.

 

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on October 4, 2013, file no. 1-11255

10.3

Amended and Restated Property Management Agreement among Three-C SAC Self-Storage Corporation and subsidiaries of U-Haul International, Inc.

 

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on October 4, 2013, file no. 1-11255

10.4

Amended and Restated Property Management Agreement among Three-D SAC Self-Storage Corporation and subsidiaries of U-Haul International, Inc.

 

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on October 4, 2013, file no. 1-11255

 


10.5

Amended and Restated Property Management Agreement among Galaxy One SAC Self-Storage Corporation and subsidiaries of U-Haul International, Inc.

 

Incorporated by reference to AMERCO's Current Report on Form 8-K, filed on October 4, 2013, file no. 1-11255

31.1

Rule 13a-14(a)/15d-14(a) Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO

 

Filed herewith

31.2

Rule 13a-14(a)/15d-14(a) Certificate of Jason A. Berg, Principal Financial Officer and Chief Accounting Officer of AMERCO

 

Filed herewith

32.1

Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

32.2

Certificate of Jason A. Berg, Principal Financial Officer and Chief Accounting Officer of AMERCO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

101.INS

XBRL Instance Document

 

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema

 

Filed herewith

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

 

Filed herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase

 

Filed herewith

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

Filed herewith

101.DEF

XBRL Taxonomy Extension Definition Linkbase

 

Filed herewith

 


 


 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

AMERCO

 

 

 

 

Date February 5, 2014

/s/ Edward J. Shoen

 

Edward J. Shoen

President and Chairman of the Board

(Duly Authorized Officer)

 

 

 

 

Date February 5, 2014

/s/ Jason A. Berg

 

Jason A. Berg

Chief Accounting Officer

(Principal Financial Officer)