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U-Haul Holding Co /NV/ - Quarter Report: 2013 September (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 September 30, 2013

or

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

For the transition period from __________________ to __________________

 

 

 

Commission

File Number

Registrant, State of Incorporation,

Address and Telephone Number

I.R.S. Employer

Identification No.

 

 

 

 

AMERCOlogo

 

 

 

 

1-11255

AMERCO

88-0106815

 

(A Nevada Corporation)

 

 

1325 Airmotive Way, Ste. 100

 

 

Reno, Nevada 89502-3239

 

 

Telephone (775) 688-6300

 

 

 

 

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

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

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

Large accelerated filer [x]   Accelerated filer [ ]  

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

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

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

 

 

 


TABLE OF CONTENTS

 

 

Page 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

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

1

 

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

2

 

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

3

 

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

4

 

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

5

 

f) Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

Item 4.

Controls and Procedures

60

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

61

Item 1A.

Risk Factors

61

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine and Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

61


 


Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

 

September 30,

 

March 31,

 

 

2013

 

2013

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

679,576

$

463,744

Reinsurance recoverables and trade receivables, net

 

237,235

 

261,789

Inventories, net

 

61,430

 

56,396

Prepaid expenses

 

55,129

 

57,451

Investments, fixed maturities and marketable equities

 

1,114,340

 

1,095,338

Investments, other

 

212,707

 

241,765

Deferred policy acquisition costs, net

 

109,303

 

93,043

Other assets

 

104,591

 

99,986

Related party assets

 

168,830

 

182,035

 

 

2,743,141

 

2,551,547

Property, plant and equipment, at cost:

 

 

 

 

Land

 

363,142

 

333,228

Buildings and improvements

 

1,313,963

 

1,197,875

Furniture and equipment

 

311,765

 

311,142

Rental trailers and other rental equipment

 

350,101

 

317,476

Rental trucks

 

2,330,298

 

2,154,688

 

 

4,669,269

 

4,314,409

Less: Accumulated depreciation

 

(1,636,065)

 

(1,559,355)

Total property, plant and equipment

 

3,033,204

 

2,755,054

Total assets

$

5,776,345

$

5,306,601

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

362,493

$

358,491

Notes, loans and leases payable

 

1,775,119

 

1,661,845

Policy benefits and losses, claims and loss expenses payable

 

1,115,025

 

1,115,048

Liabilities from investment contracts

 

570,321

 

510,789

Other policyholders' funds and liabilities

 

7,788

 

7,294

Deferred income

 

32,388

 

30,217

Deferred income taxes

 

451,392

 

393,658

Total liabilities

 

4,314,526

 

4,077,342

 

 

 

 

 

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

 

 

Stockholders' equity:

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

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

 

 

 

 

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

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

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

 

 

 

 

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

 

10,497

 

10,497

Additional paid-in capital

 

440,938

 

438,168

Accumulated other comprehensive loss

 

(44,109)

 

(22,680)

Retained earnings

 

1,733,589

 

1,482,630

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

 

(525,653)

 

(525,653)

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

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(1,446)

 

(1,706)

Total stockholders' equity

 

1,461,819

 

1,229,259

Total liabilities and stockholders' equity

$

5,776,345

$

5,306,601

 

 

 

 

 

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

598,931

$

538,361

Self-storage revenues

 

45,572

 

37,978

Self-moving and self-storage products and service sales

 

65,379

 

61,730

Property management fees

 

5,292

 

4,902

Life insurance premiums

 

39,448

 

47,667

Property and casualty insurance premiums

 

10,867

 

8,947

Net investment and interest income

 

19,960

 

15,853

Other revenue

 

51,042

 

28,679

Total revenues

 

836,491

 

744,117

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

350,540

 

310,214

Commission expenses

 

78,378

 

68,564

Cost of sales

 

34,532

 

30,912

Benefits and losses

 

37,992

 

48,472

Amortization of deferred policy acquisition costs

 

6,057

 

3,088

Lease expense

 

25,818

 

29,591

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

 

63,208

 

58,954

Total costs and expenses

 

596,525

 

549,795

 

 

 

 

 

Earnings from operations

 

239,966

 

194,322

Interest expense

 

(23,118)

 

(22,113)

Pretax earnings

 

216,848

 

172,209

Income tax expense

 

(78,857)

 

(62,789)

Earnings available to common stockholders

$

137,991

$

109,420

Basic and diluted earnings per common share

$

7.06

$

5.61

Weighted average common shares outstanding: Basic and diluted

 

19,554,633

 

19,512,550

 

 

 

 

 

 

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

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

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

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,120,580

$

1,005,355

Self-storage revenues

 

87,671

 

72,714

Self-moving and self-storage products and service sales

 

136,070

 

128,908

Property management fees

 

10,453

 

9,762

Life insurance premiums

 

80,510

 

94,093

Property and casualty insurance premiums

 

18,833

 

16,190

Net investment and interest income

 

38,949

 

30,370

Other revenue

 

90,256

 

54,401

Total revenues

 

1,583,322

 

1,411,793

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

660,041

 

593,607

Commission expenses

 

147,005

 

129,671

Cost of sales

 

70,102

 

63,139

Benefits and losses

 

80,625

 

96,810

Amortization of deferred policy acquisition costs

 

9,740

 

5,899

Lease expense

 

52,825

 

62,387

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

 

120,642

 

115,079

Total costs and expenses

 

1,140,980

 

1,066,592

 

 

 

 

 

Earnings from operations

 

442,342

 

345,201

Interest expense

 

(46,446)

 

(45,604)

Pretax earnings

 

395,896

 

299,597

Income tax expense

 

(144,937)

 

(109,608)

Earnings available to common shareholders

$

250,959

$

189,989

Basic and diluted earnings per common share

$

12.84

$

9.74

Weighted average common shares outstanding: Basic and diluted

 

19,550,128

 

19,507,456

 

 

 

 

 

 

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

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

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

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

 

Quarter Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

216,848

$

(78,857)

$

137,991

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,557

 

 

1,557

Unrealized net loss on investments

 

(41,095)

 

14,322

 

(26,773)

Change in fair value of cash flow hedges

 

1,946

 

(740)

 

1,206

Total comprehensive income

$

179,256

$

(65,275)

$

113,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

172,209

$

(62,789)

$

109,420

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

3,459

 

 

3,459

Unrealized net gain on investments

 

10,673

 

(3,769)

 

6,904

Change in fair value of cash flow hedges

 

768

 

(292)

 

476

Total comprehensive income

$

187,109

$

(66,850)

$

120,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2013

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

395,896

$

(144,937)

$

250,959

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(2,205)

 

 

(2,205)

Unrealized net loss on investments

 

(41,006)

 

14,254

 

(26,752)

Change in fair value of cash flow hedges

 

12,142

 

(4,614)

 

7,528

Total comprehensive income

$

364,827

$

(135,297)

$

229,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

299,597

$

(109,608)

$

189,989

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,530

 

 

1,530

Unrealized net gain on investments

 

12,546

 

(4,349)

 

8,197

Change in fair value of cash flow hedges

 

253

 

(96)

 

157

Total comprehensive income

$

313,926

$

(114,053)

$

199,873

 

 

 

 

 

 

 

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

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$

250,959

$

189,989

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

141,518

 

128,127

Amortization of deferred policy acquisition costs

 

9,740

 

5,899

Change in allowance for losses on trade receivables

 

(6)

 

(3)

Change in allowance for inventory reserves

 

716

 

1,705

Net gain on sale of real and personal property

 

(20,876)

 

(13,048)

Net gain on sale of investments

 

(4,060)

 

238

Deferred income taxes

 

63,947

 

24,926

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

24,561

 

33,416

Inventories

 

(5,750)

 

(1,629)

Prepaid expenses

 

2,323

 

422

Capitalization of deferred policy acquisition costs

 

(16,289)

 

(24,489)

Other assets

 

(4,370)

 

19,770

Related party assets

 

8,650

 

142,239

Accounts payable and accrued expenses

 

24,866

 

45,412

Policy benefits and losses, claims and loss expenses payable

 

309

 

(17,413)

Other policyholders' funds and liabilities

 

494

 

4,130

Deferred income

 

2,191

 

(671)

Related party liabilities

 

4,475

 

415

Net cash provided by operating activities

 

483,398

 

539,435

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(457,671)

 

(280,986)

Short term investments

 

(154,703)

 

(150,987)

Fixed maturities investments

 

(174,593)

 

(179,941)

Equity securities

 

(388)

 

(26)

Preferred stock

 

(635)

 

(1,200)

Real estate

 

(252)

 

(792)

Mortgage loans

 

(14,260)

 

(50,828)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

176,453

 

132,597

Short term investments

 

162,580

 

154,577

Fixed maturities investments

 

93,050

 

52,586

Equity securities

 

6,803

 

Preferred stock

 

6,004

 

1,453

Real estate

 

 

590

Mortgage loans

 

36,415

 

12,700

Net cash used by investing activities

 

(321,197)

 

(310,257)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

138,041

 

88,847

Principal repayments on credit facilities

 

(122,945)

 

(171,496)

Debt issuance costs

 

(233)

 

(1,010)

Capital lease payments

 

(21,425)

 

(9,883)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

260

 

316

Securitization deposits

 

 

(1,729)

Investment contract deposits

 

74,253

 

169,933

Investment contract withdrawals

 

(14,721)

 

(15,275)

Net cash provided (used) by financing activities

 

53,230

 

59,703

 

 

 

 

 

Effects of exchange rate on cash

 

401

 

(240)

 

 

 

 

 

Increase in cash and cash equivalents

 

215,832

 

288,641

Cash and cash equivalents at the beginning of period

 

463,744

 

357,180

Cash and cash equivalents at the end of period

$

679,576

$

645,821

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

 

 

 

 


 


AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a second fiscal quarter that ends on the 30th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 30th of June for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2013 and 2012 correspond to fiscal 2014 and 2013 for AMERCO.

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

The condensed consolidated balance sheet as of September 30, 2013 and the related condensed consolidated statements of operations, comprehensive income for the second quarter and first six months and cash flows for the first six months of fiscal 2014 and 2013 are unaudited.

In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (“Quarterly Report”) should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Intercompany accounts and transactions have been eliminated.

Description of Legal Entities

AMERCO is the holding company for:

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

Amerco Real Estate Company (“Real Estate”),

Repwest Insurance Company (“Repwest”), and

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

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

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


 


AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

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

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

2. Earnings per Share

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

The weighted average common shares outstanding exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares, net of shares committed to be released, were 48,649 and 90,159 as of September 30, 2013 and 2012, respectively.

3. Investments

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

We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $16.4 million at September 30, 2013.

Available-for-Sale Investments

Available-for-sale investments at September 30, 2013 were as follows:

 

 

 

Amortized

Cost

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses More than 12 Months

 

Gross

Unrealized

Losses Less than 12 Months

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

(In thousands)

U.S. treasury securities and government obligations

$

28,048

$

1,932

$

(3)

$

(293)

$

29,684

U.S. government agency mortgage-backed securities

 

44,735

 

2,772

 

(4)

 

(1,009)

 

46,494

Obligations of states and political subdivisions

 

162,678

 

9,304

 

(132)

 

(1,916)

 

169,934

Corporate securities

 

800,834

 

28,872

 

(1,336)

 

(22,474)

 

805,896

Mortgage-backed securities

 

5,613

 

177

 

(35)

 

 

5,755

Redeemable preferred stocks

 

18,440

 

385

 

(64)

 

(312)

 

18,449

Common stocks

 

37,356

 

2,171

 

(1,291)

 

(108)

 

38,128

 

$

1,097,704

$

45,613

$

(2,865)

$

(26,112)

$

1,114,340

 

 

 

 

 

 

 

 

 

 

 

 

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

We sold available-for-sale securities with a fair value of $103.3 million during the first six months of fiscal 2014. The gross realized gains on these sales totaled $3.2 million. The gross realized losses on these sales totaled $0.9 million.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognized these write-downs through earnings. There were no write downs in the second quarter or for the first six months of fiscal 2014 and 2013.

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

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

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

 

 

Credit Loss

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$

552

Additions:

 

 

Other-than-temporary impairment not previously recognized

 

Balance at September 30, 2013

$

552

 

 

 

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

 

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

(In thousands)

Due in one year or less

$

25,259

$

25,520

Due after one year through five years

 

186,894

 

195,909

Due after five years through ten years

 

316,233

 

320,354

Due after ten years

 

507,909

 

510,225

 

 

1,036,295

 

1,052,008

 

 

 

 

 

Mortgage backed securities

 

5,613

 

5,755

Redeemable preferred stocks

 

18,440

 

18,449

Common stocks

 

37,356

 

38,128

 

$

1,097,704

$

1,114,340

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


4. Borrowings

Long-Term Debt

Long-term debt was as follows:

 

 

 

 

 

September 30,

 

March 31,

 

2014 Rate (a)

 

Maturities

 

2013

 

2013

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

6.93%

 

2023

$

255,000

$

235,000

Real estate loan (amortizing term)

2.08%

 

2016

 

24,182

 

24,630

Real estate loan (revolving credit)

 

 

2014

 

 

Senior mortgages

4.90% - 5.75%

 

2015 - 2038

 

546,957

 

556,522

Working capital loan (revolving credit)

 

 

2015

 

 

Fleet loans (amortizing term)

1.95% - 6.14%

 

2014 - 2020

 

373,324

 

361,079

Fleet loans (securitization)

4.90% - 5.56%

 

2014 - 2017

 

170,531

 

190,801

Capital leases (rental equipment)

2.23% - 7.80%

 

2015 - 2020

 

371,754

 

273,458

Other obligations

3.00% - 8.00%

 

2013 - 2043

 

33,371

 

20,355

Total notes, loans and leases payable

 

 

 

$

1,775,119

$

1,661,845

 

 

 

 

 

 

 

 

(a) Interest rate as of September 30, 2013, including the effect of applicable hedging instruments.

 

Real Estate Backed Loans

Real Estate Loan

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

The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At September 30, 2013, the applicable LIBOR was 0.19% and the applicable margin was 1.50%, the sum of which was 1.69%. The rate on the term facility portion of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan effective June 29, 2006. This loan was modified and extended on June 27, 2011. The loan is now comprised of a term loan facility with an initial availability of $26.1 million and a final maturity of June 2016. As of September 30, 2013, the outstanding balance was $24.2 million.

This Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and any accrued and unpaid interest due at maturity. The interest rate, per the provision of this loan agreement, is the applicable LIBOR plus a margin of 1.90%. At September 30, 2013, the applicable LIBOR was 0.18% and the margin was 1.90%, the sum of which was 2.08%. U-Haul International, Inc. and AMERCO are guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of September 30, 2013 were in the aggregate amount of $547.0 million and mature between 2015 and 2038. The senior mortgages require average monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of the senior mortgages, range between 4.90% and 5.75%. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarantees of the senior mortgages. The default provisions of the senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds. 

Working Capital Loans

Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $25.0 million. At September 30, 2013, we had the full $25.0 million available to be drawn. This loan is secured by certain properties owned by the borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This agreement was amended in February 2013 and the maturity extended to April 2015. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. The interest rate, per the provision of this loan agreement, is the applicable LIBOR plus a margin of 1.25%.

Fleet Loans

Rental Truck Amortizing Loans

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

The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus a margin between 0.90% and 2.63%. At September 30, 2013, the applicable LIBOR was between 0.18% and 0.19% and applicable margins were between 0.90% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 6.14% based on current margins. Additionally, $77.4 million of these loans are carried at fixed rates ranging between 1.95% and 3.94%.

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


On December 31, 2009, a subsidiary of U-Haul International, Inc. entered into an $85.0 million term note that was used to fund cargo van and pickup acquisitions for the past two years. This term note was amended on August 26, 2011. The amount of the term note was increased to $95.0 million. On December 22, 2011, we entered into another term loan for $20.0 million. The final maturity date of these notes is August 2016.  The agreements contain options to extend the maturity through May 2017. These notes are secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  These notes have fixed interest rates between 3.52% and 3.53%. At September 30, 2013, the outstanding balance was $115.0 million.

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

Rental Truck Securitizations

U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“2007 Box Truck Note”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the securitized transaction were used to finance new box truck purchases throughout fiscal 2008. U.S. Bank, NA acts as the trustee for this securitization.

The 2007 Box Truck Note has a fixed interest rate of 5.56% with an expected final maturity of February 2014. At September 30, 2013, the outstanding balance was $73.1 million. The note is secured by the box trucks that were purchased and the corresponding operating cash flows associated with their operation.

The 2007 Box Truck Note has the benefit of a financial guaranty insurance policy which guarantees the timely payment of interest on and the ultimate payment of the principal of this note.

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

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At September 30, 2013, the outstanding balance was $97.5 million. The note is secured by the box trucks being purchased and the corresponding operating cash flows associated with their operation.

The 2007 Box Truck Note and 2010 Box Truck Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of these notes include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Capital Leases

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

Other Obligations

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

Annual Maturities of Notes, Loans and Leases Payable

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

 

 

Year Ending September 30,

 

 

2014

 

2015

 

2016

 

2017

 

2018

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

241,914

$

565,402

$

283,133

$

116,779

$

168,456

$

399,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

18,055

$

16,529

Capitalized interest

 

(128)

 

(94)

Amortization of transaction costs

 

843

 

1,050

Interest expense resulting from derivatives

 

4,348

 

4,628

Total interest expense

$

23,118

$

22,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

35,869

$

32,175

Capitalized interest

 

(270)

 

(171)

Amortization of transaction costs

 

1,694

 

2,135

Interest expense resulting from derivatives

 

9,153

 

11,465

Total interest expense

$

46,446

$

45,604

 

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

1.52%

 

1.69%

Interest rate at the end of the quarter

 

1.52%

 

0.00%

Maximum amount outstanding during the quarter

$

25,000

$

48,920

Average amount outstanding during the quarter

$

25,000

$

26,374

Facility fees

$

64

$

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Activity

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the first six months

 

1.50%

 

1.71%

Interest rate at the end of the first six months

 

1.52%

 

0.00%

Maximum amount outstanding during the first six months

$

25,000

$

48,920

Average amount outstanding during the first six months

$

24,590

$

25,154

Facility fees

$

156

$

284

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


5. Derivatives

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original variable rate debt amount

 

Agreement Date

 

Effective Date

 

Expiration Date

 

Designated cash flow hedge date

 

(Unaudited)

 

 

$

300.0

 

 

8/16/2006

 

8/18/2006

 

8/10/2018

 

8/4/2006

 

30.0

 

 

2/9/2007

 

2/12/2007

 

2/10/2014

 

2/9/2007

 

20.0

 

 

3/8/2007

 

3/12/2007

 

3/10/2014

 

3/8/2007

 

20.0

 

 

3/8/2007

 

3/12/2007

 

3/10/2014

 

3/8/2007

 

19.3

(a)

 

4/8/2008

 

8/15/2008

 

6/15/2015

 

3/31/2008

 

19.0

 

 

8/27/2008

 

8/29/2008

 

7/10/2015

 

4/10/2008

 

30.0

 

 

9/24/2008

 

9/30/2008

 

9/10/2015

 

9/24/2008

 

15.0

(a)

 

3/24/2009

 

3/30/2009

 

3/30/2016

 

3/25/2009

 

14.7

(a)

 

7/6/2010

 

8/15/2010

 

7/15/2017

 

7/6/2010

 

25.0

(a)

 

4/26/2011

 

6/1/2011

 

6/1/2018

 

7/1/2011

 

50.0

(a)

 

7/29/2011

 

8/15/2011

 

8/15/2018

 

7/29/2011

 

20.0

(a)

 

8/3/2011

 

9/12/2011

 

9/10/2018

 

8/3/2011

 

15.1

(b)

 

3/27/2012

 

3/28/2012

 

3/28/2019

 

3/26/2012

 

25.0

 

 

4/13/2012

 

4/16/2012

 

4/1/2019

 

4/12/2012

 

44.3

 

 

1/11/2013

 

1/15/2013

 

12/15/2019

 

1/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

 

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

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

 

 

 

 

 

 

 

Liability Derivatives Fair Values as of

 

 

September 30, 2013

 

March 31, 2013

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

39,875

$

51,550

 

 

 

 

 

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


 

 

 

 

 

 

 

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

 

 

 

 

September 30, 2013

 

September 30, 2012

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

9,153

$

11,465

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

$

(12,142)

$

(253)

Loss reclassified from AOCI into income (effective portion)

$

8,685

$

10,225

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

$

468

$

1,240

 

 

 

 

 

 

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

6. Comprehensive Income (Loss)

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

 

 

 

Foreign Currency Translation

 

Unrealized Net Gain (Loss) on Investments

 

Fair Market Value of Cash Flow Hedges

 

Postretirement Benefit Obligation Gain

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2013

$

(30,153)

$

39,645

$

(32,298)

$

126

$

(22,680)

Foreign currency translation

 

(2,205)

 

 

 

 

(2,205)

Unrealized net loss on investments

 

 

(26,752)

 

 

 

(26,752)

Change in fair value of cash flow hedges

 

 

 

(1,157)

 

 

(1,157)

Amounts reclassified from AOCI

 

 

 

8,685

 

 

8,685

Other comprehensive income (loss)

 

(2,205)

 

(26,752)

 

7,528

 

 

(21,429)

Balance at September 30, 2013

$

(32,358)

$

12,893

$

(24,770)

$

126

$

(44,109)

 

 

 

 

 

 

 

 

 

 

 

 

 

7. Contingent Liabilities and Commitments

We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2019. As of September 30, 2013, we have guaranteed $110.1 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, we have the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. We have been leasing equipment since 1987 and have experienced no material losses relating to these types of residual value guarantees.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

 

 

 

 

 

 

 

 

 

Property,

Plant and

Equipment

 

Rental

Equipment

 

Total

 

 

(Unaudited)

 

 

 

 

(In thousands)

 

 

Year-ended September 30:

 

 

 

 

 

 

2014

$

10,500

$

72,044

$

82,544

2015

 

2,055

 

48,873

 

50,928

2016

 

1,945

 

18,927

 

20,872

2017

 

1,825

 

12,204

 

14,029

2018

 

1,091

 

10,473

 

11,564

Thereafter

 

4,767

 

5,409

 

10,176

Total

$

22,183

$

167,930

$

190,113

 

 

 

 

 

 

 

 

8. Contingencies

Environmental

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

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

Other

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

 

9. Related Party Transactions

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

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

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

Related Party Revenue

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,733

$

1,981

U-Haul interest income revenue from Private Mini

 

1,349

 

1,358

U-Haul management fee revenue from SAC Holdings

 

4,189

 

3,857

U-Haul management fee revenue from Private Mini

 

604

 

573

U-Haul management fee revenue from Mercury

 

500

 

472

 

$

8,375

$

8,241

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

3,652

$

4,457

U-Haul interest income revenue from Private Mini

 

2,686

 

2,703

U-Haul management fee revenue from SAC Holdings

 

8,263

 

7,686

U-Haul management fee revenue from Private Mini

 

1,198

 

1,140

U-Haul management fee revenue from Mercury

 

993

 

936

 

$

16,792

$

16,922

 

 

 

 

 

 

During the first six months of fiscal 2014, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Mark V. Shoen, a significant stockholder of AMERCO. We do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $13.9 million and $8.9 million from SAC Holdings during the first six months of fiscal 2014 and 2013, respectively. The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 2014 was $72.4 million and the aggregate notes receivable balance at September 30, 2013 was $72.0 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2017 and 2019.

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini pursuant to a standard form of management agreement, under which we receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. We received management fees, exclusive of reimbursed expenses, of $15.7 million and $14.4 million from the above mentioned entities during the first six months of fiscal 2014 and 2013, respectively. This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant stockholder and director of AMERCO and an estate planning trust benefitting Shoen children have an interest in Mercury.

Related Party Costs and Expenses

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

655

$

655

U-Haul commission expenses to SAC Holdings

 

14,407

 

12,455

U-Haul commission expenses to Private Mini

 

893

 

812

 

$

15,955

$

13,922

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,310

$

1,316

U-Haul commission expenses to SAC Holdings

 

26,927

 

23,389

U-Haul commission expenses to Private Mini

 

1,688

 

1,507

 

$

29,925

$

26,212

 

 

 

 

 

 

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

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

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

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

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

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

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

Related Party Assets

 

 

September 30,

 

March 31,

 

 

2013

 

2013

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

68,772

$

68,593

U-Haul notes receivable from SAC Holding

 

71,960

 

72,397

U-Haul interest receivable from SAC Holdings

 

4,192

 

14,483

U-Haul receivable from SAC Holdings

 

17,320

 

22,336

U-Haul receivable from Mercury

 

2,452

 

3,640

Other (a)

 

4,134

 

586

 

$

168,830

$

182,035

 

 

 

 

 

 

 

 

 

 

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

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10. Consolidating Financial Information by Industry Segment

AMERCO’s three reportable segments are:

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

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

         Life Insurance, comprised of Oxford and its subsidiaries.

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

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

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


AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10. Financial Information by Consolidating Industry Segment:

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

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moivng & Storage Consolidated

 

Property & Casualty Insurance (a)

 

Life Insurance (a)

 

Eliminations

 

 

AMERCO Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

477,559

$

158,650

$

1,499

$

 

$

637,708

$

5,450

$

36,418

$

 

$

679,576

Reinsurance recoverables and trade receivables, net

 

 

26,977

 

177

 

 

 

27,154

 

181,521

 

28,560

 

 

 

237,235

Inventories, net

 

 

61,430

 

 

 

 

61,430

 

 

 

 

 

61,430

Prepaid expenses

 

11,297

 

43,034

 

798

 

 

 

55,129

 

 

 

 

 

55,129

Investments, fixed maturities and marketable equities

 

18,104

 

 

 

 

 

18,104

 

180,270

 

915,966

 

 

 

1,114,340

Investments, other

 

 

 

28,648

 

 

 

28,648

 

52,128

 

131,931

 

 

 

212,707

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

109,303

 

 

 

109,303

Other assets

 

113

 

70,229

 

33,115

 

 

 

103,457

 

902

 

232

 

 

 

104,591

Related party assets

 

992,780

 

113,254

 

9

 

(935,949)

(c)

 

170,094

 

14,417

 

489

 

(16,170)

(c)

 

168,830

 

 

1,499,853

 

473,574

 

64,246

 

(935,949)

 

 

1,101,724

 

434,688

 

1,222,899

 

(16,170)

 

 

2,743,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

441,044

 

 

 

(75,586)

(b)

 

365,458

 

 

 

(365,458)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

54,059

 

309,083

 

 

 

363,142

 

 

 

 

 

363,142

Buildings and improvements

 

 

195,531

 

1,118,432

 

 

 

1,313,963

 

 

 

 

 

1,313,963

Furniture and equipment

 

70

 

297,161

 

14,534

 

 

 

311,765

 

 

 

 

 

311,765

Rental trailers and other rental equipment

 

 

350,101

 

 

 

 

350,101

 

 

 

 

 

350,101

Rental trucks

 

 

2,330,298

 

 

 

 

2,330,298

 

 

 

 

 

2,330,298

 

 

70

 

3,227,150

 

1,442,049

 

 

 

4,669,269

 

 

 

 

 

4,669,269

Less:  Accumulated depreciation

 

(53)

 

(1,258,087)

 

(377,925)

 

 

 

(1,636,065)

 

 

 

 

 

(1,636,065)

Total property, plant and equipment

 

17

 

1,969,063

 

1,064,124

 

 

 

3,033,204

 

 

 

 

 

3,033,204

Total assets

$

1,940,914

$

2,442,637

$

1,128,370

$

(1,011,535)

 

$

4,500,386

$

434,688

$

1,222,899

$

(381,628)

 

$

5,776,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 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 September 30, 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

$

1,040

$

352,916

$

4,288

$

 

$

358,244

$

$

4,249

$

 

$

362,493

Notes, loans and leases payable

 

 

985,384

 

789,735

 

 

 

1,775,119

 

 

 

 

 

1,775,119

Policy benefits and losses, claims and loss expenses payable

 

 

381,979

 

 

 

 

381,979

 

323,175

 

409,871

 

 

 

1,115,025

Liabilities from investment contracts

 

 

 

 

 

 

 

 

570,321

 

 

 

570,321

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

3,233

 

4,555

 

 

 

7,788

Deferred income

 

 

32,388

 

 

 

 

32,388

 

 

 

 

 

32,388

Deferred income taxes

 

476,609

 

 

 

 

 

476,609

 

(34,629)

 

9,412

 

 

 

451,392

Related party liabilities

 

 

478,524

 

471,653

 

(935,949)

(c)

 

14,228

 

1,774

 

168

 

(16,170)

(c)

 

Total liabilities

 

477,649

 

2,231,191

 

1,265,676

 

(935,949)

 

 

3,038,567

 

293,553

 

998,576

 

(16,170)

 

 

4,314,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

441,148

 

121,230

 

147,941

 

(269,171)

(b)

 

441,148

 

91,120

 

26,271

 

(117,601)

(b)

 

440,938

Accumulated other comprehensive income (loss)

 

(44,109)

 

(57,002)

 

 

57,002

(b)

 

(44,109)

 

1,771

 

11,598

 

(13,369)

(b)

 

(44,109)

Retained earnings (deficit)

 

1,733,379

 

148,663

 

(285,248)

 

136,585

(b)

 

1,733,379

 

44,943

 

183,954

 

(228,687)

(b)

 

1,733,589

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

 

 

(1,446)

 

 

 

 

(1,446)

 

 

 

 

 

(1,446)

Total stockholders' equity (deficit)

 

1,463,265

 

211,446

 

(137,306)

 

(75,586)

 

 

1,461,819

 

141,135

 

224,323

 

(365,458)

 

 

1,461,819

Total liabilities and stockholders' equity

$

1,940,914

$

2,442,637

$

1,128,370

$

(1,011,535)

 

$

4,500,386

$

434,688

$

1,222,899

$

(381,628)

 

$

5,776,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances as of June 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 September 30, 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

$

$

599,657

$

$

 

$

599,657

$

$

$

(726)

(c)

$

598,931

Self-storage revenues

 

 

45,266

 

306

 

 

 

45,572

 

 

 

 

 

45,572

Self-moving and self-storage products and service sales

 

 

65,379

 

 

 

 

65,379

 

 

 

 

 

65,379

Property management fees

 

 

5,292

 

 

 

 

5,292

 

 

 

 

 

5,292

Life insurance premiums

 

 

 

 

 

 

 

 

39,448

 

 

 

39,448

Property and casualty insurance premiums

 

 

 

 

 

 

 

10,867

 

 

 

 

10,867

Net investment and interest income

 

1,277

 

2,025

 

72

 

 

 

3,374

 

2,463

 

14,255

 

(132)

(b)

 

19,960

Other revenue

 

 

54,630

 

25,425

 

(27,130)

(b)

 

52,925

 

 

970

 

(2,853)

(b)

 

51,042

Total revenues

 

1,277

 

772,249

 

25,803

 

(27,130)

 

 

772,199

 

13,330

 

54,673

 

(3,711)

 

 

836,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

2,064

 

366,287

 

2,888

 

(27,130)

(b)

 

344,109

 

4,419

 

5,582

 

(3,570)

(b,c)

 

350,540

Commission expenses

 

 

78,378

 

 

 

 

78,378

 

 

 

 

 

78,378

Cost of sales

 

 

34,532

 

 

 

 

34,532

 

 

 

 

 

34,532

Benefits and losses

 

 

 

 

 

 

 

2,500

 

35,492

 

 

 

37,992

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

6,057

 

 

 

6,057

Lease expense

 

23

 

25,837

 

3

 

 

 

25,863

 

 

 

(45)

(b)

 

25,818

Depreciation, net of (gains) losses on disposals

 

2

 

58,735

 

4,471

 

 

 

63,208

 

 

 

 

 

63,208

Total costs and expenses

 

2,089

 

563,769

 

7,362

 

(27,130)

 

 

546,090

 

6,919

 

47,131

 

(3,615)

 

 

596,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(812)

 

208,480

 

18,441

 

 

 

226,109

 

6,411

 

7,542

 

(96)

 

 

239,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

125,151

 

 

 

(116,076)

(d)

 

9,075

 

 

 

(9,075)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

124,339

 

208,480

 

18,441

 

(116,076)

 

 

235,184

 

6,411

 

7,542

 

(9,171)

 

 

239,966

Interest income (expense)

 

21,177

 

(27,027)

 

(17,364)

 

 

 

(23,214)

 

 

 

96

(b)

 

(23,118)

Pretax earnings

 

145,516

 

181,453

 

1,077

 

(116,076)

 

 

211,970

 

6,411

 

7,542

 

(9,075)

 

 

216,848

Income tax expense

 

(7,525)

 

(66,042)

 

(412)

 

 

 

(73,979)

 

(2,243)

 

(2,635)

 

 

 

(78,857)

Earnings available to common shareholders

$

137,991

$

115,411

$

665

$

(116,076)

 

$

137,991

$

4,168

$

4,907

$

(9,075)

 

$

137,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

$

538,767

$

$

 

$

538,767

$

$

$

(406)

(c)

$

538,361

Self-storage revenues

 

 

37,698

 

280

 

 

 

37,978

 

 

 

 

 

37,978

Self-moving and self-storage products and service sales

 

 

61,730

 

 

 

 

61,730

 

 

 

 

 

61,730

Property management fees

 

 

4,902

 

 

 

 

4,902

 

 

 

 

 

4,902

Life insurance premiums

 

 

 

 

 

 

 

 

47,667

 

 

 

47,667

Property and casualty insurance premiums

 

 

 

 

 

 

 

8,947

 

 

 

 

8,947

Net investment and interest income

 

1,339

 

2,317

 

244

 

 

 

3,900

 

2,266

 

9,799

 

(112)

(b)

 

15,853

Other revenue

 

 

29,889

 

21,616

 

(23,213)

(b)

 

28,292

 

 

758

 

(371)

(b)

 

28,679

Total revenues

 

1,339

 

675,303

 

22,140

 

(23,213)

 

 

675,569

 

11,213

 

58,224

 

(889)

 

 

744,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

5,285

 

315,267

 

2,336

 

(23,213)

(b)

 

299,675

 

4,482

 

6,831

 

(774)

(b,c)

 

310,214

Commission expenses

 

 

68,564

 

 

 

 

68,564

 

 

 

 

 

68,564

Cost of sales

 

 

30,912

 

 

 

 

30,912

 

 

 

 

 

30,912

Benefits and losses

 

 

 

 

 

 

 

4,389

 

44,083

 

 

 

48,472

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

3,088

 

 

 

3,088

Lease expense

 

22

 

29,609

 

6

 

 

 

29,637

 

 

 

(46)

(b)

 

29,591

Depreciation, net of (gains) losses on disposals

 

2

 

55,560

 

3,392

 

 

 

58,954

 

 

 

 

 

58,954

Total costs and expenses

 

5,309

 

499,912

 

5,734

 

(23,213)

 

 

487,742

 

8,871

 

54,002

 

(820)

 

 

549,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(3,970)

 

175,391

 

16,406

 

 

 

187,827

 

2,342

 

4,222

 

(69)

 

 

194,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

97,509

 

 

 

(92,824)

(d)

 

4,685

 

 

 

(4,685)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

93,539

 

175,391

 

16,406

 

(92,824)

 

 

192,512

 

2,342

 

4,222

 

(4,754)

 

 

194,322

Interest income (expense)

 

23,181

 

(30,965)

 

(14,398)

 

 

 

(22,182)

 

 

 

69

(b)

 

(22,113)

Pretax earnings

 

116,720

 

144,426

 

2,008

 

(92,824)

 

 

170,330

 

2,342

 

4,222

 

(4,685)

 

 

172,209

Income tax expense

 

(7,300)

 

(52,844)

 

(766)

 

 

 

(60,910)

 

(819)

 

(1,060)

 

 

 

(62,789)

Earnings available to common shareholders

$

109,420

$

91,582

$

1,242

$

(92,824)

 

$

109,420

$

1,523

$

3,162

$

(4,685)

 

$

109,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the quarter ended June 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 six months ended September 30, 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

$

$

1,121,740

$

$

 

$

1,121,740

$

$

$

(1,160)

(c)

$

1,120,580

Self-storage revenues

 

 

87,088

 

583

 

 

 

87,671

 

 

 

 

 

87,671

Self-moving and self-storage products and service sales

 

 

136,070

 

 

 

 

136,070

 

 

 

 

 

136,070

Property management fees

 

 

10,453

 

 

 

 

10,453

 

 

 

 

 

10,453

Life insurance premiums

 

 

 

 

 

 

 

 

80,510

 

 

 

80,510

Property and casualty insurance premiums

 

 

 

 

 

 

 

18,833

 

 

 

 

18,833

Net investment and interest income

 

2,515

 

4,195

 

73

 

 

 

6,783

 

4,940

 

27,477

 

(251)

(b)

 

38,949

Other revenue

 

 

97,160

 

49,994

 

(53,269)

(b)

 

93,885

 

 

1,465

 

(5,094)

(b)

 

90,256

Total revenues

 

2,515

 

1,456,706

 

50,650

 

(53,269)

 

 

1,456,602

 

23,773

 

109,452

 

(6,505)

 

 

1,583,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

4,285

 

689,294

 

5,510

 

(53,269)

(b)

 

645,820

 

8,515

 

11,942

 

(6,236)

(b,c)

 

660,041

Commission expenses

 

 

147,005

 

 

 

 

147,005

 

 

 

 

 

147,005

Cost of sales

 

 

70,102

 

 

 

 

70,102

 

 

 

 

 

70,102

Benefits and losses

 

 

 

 

 

 

 

4,457

 

76,168

 

 

 

80,625

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

9,740

 

 

 

9,740

Lease expense

 

46

 

52,835

 

35

 

 

 

52,916

 

 

 

(91)

(b)

 

52,825

Depreciation, net of (gains) losses on disposals

 

3

 

112,901

 

7,738

 

 

 

120,642

 

 

 

 

 

120,642

Total costs and expenses

 

4,334

 

1,072,137

 

13,283

 

(53,269)

 

 

1,036,485

 

12,972

 

97,850

 

(6,327)

 

 

1,140,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(1,819)

 

384,569

 

37,367

 

 

 

420,117

 

10,801

 

11,602

 

(178)

 

 

442,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

224,946

 

 

 

(210,363)

(d)

 

14,583

 

 

 

(14,583)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

223,127

 

384,569

 

37,367

 

(210,363)

 

 

434,700

 

10,801

 

11,602

 

(14,761)

 

 

442,342

Interest income (expense)

 

43,109

 

(57,071)

 

(32,662)

 

 

 

(46,624)

 

 

 

178

(b)

 

(46,446)

Pretax earnings

 

266,236

 

327,498

 

4,705

 

(210,363)

 

 

388,076

 

10,801

 

11,602

 

(14,583)

 

 

395,896

Income tax expense

 

(15,277)

 

(120,038)

 

(1,802)

 

 

 

(137,117)

 

(3,780)

 

(4,040)

 

 

 

(144,937)

Earnings available to common shareholders

$

250,959

$

207,460

$

2,903

$

(210,363)

 

$

250,959

$

7,021

$

7,562

$

(14,583)

 

$

250,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the six months ended June 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 six months ended September 30, 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

$

$

1,006,082

$

$

 

$

1,006,082

$

$

$

(727)

(c)

$

1,005,355

Self-storage revenues

 

 

72,150

 

564

 

 

 

72,714

 

 

 

 

 

72,714

Self-moving and self-storage products and service sales

 

 

128,908

 

 

 

 

128,908

 

 

 

 

 

128,908

Property management fees

 

 

9,762

 

 

 

 

9,762

 

 

 

 

 

9,762

Life insurance premiums

 

 

 

 

 

 

 

 

94,093

 

 

 

94,093

Property and casualty insurance premiums

 

 

 

 

 

 

 

16,190

 

 

 

 

16,190

Net investment and interest income

 

2,592

 

4,005

 

438

 

 

 

7,035

 

4,466

 

19,069

 

(200)

(b)

 

30,370

Other revenue

 

81

 

57,056

 

42,701

 

(45,921)

(b)

 

53,917

 

 

1,204

 

(720)

(b)

 

54,401

Total revenues

 

2,673

 

1,277,963

 

43,703

 

(45,921)

 

 

1,278,418

 

20,656

 

114,366

 

(1,647)

 

 

1,411,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

8,747

 

605,578

 

4,876

 

(45,921)

(b)

 

573,280

 

7,772

 

13,986

 

(1,431)

(b,c)

 

593,607

Commission expenses

 

 

129,671

 

 

 

 

129,671

 

 

 

 

 

129,671

Cost of sales

 

 

63,139

 

 

 

 

63,139

 

 

 

 

 

63,139

Benefits and losses

 

 

 

 

 

 

 

7,955

 

88,855

 

 

 

96,810

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

5,899

 

 

 

5,899

Lease expense

 

46

 

62,406

 

11

 

 

 

62,463

 

 

 

(76)

(b)

 

62,387

Depreciation, net of (gains) losses on disposals

 

3

 

107,880

 

7,196

 

 

 

115,079

 

 

 

 

 

115,079

Total costs and expenses

 

8,796

 

968,674

 

12,083

 

(45,921)

 

 

943,632

 

15,727

 

108,740

 

(1,507)

 

 

1,066,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(6,123)

 

309,289

 

31,620

 

 

 

334,786

 

4,929

 

5,626

 

(140)

 

 

345,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

164,124

 

 

 

(156,857)

(d)

 

7,267

 

 

 

(7,267)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

158,001

 

309,289

 

31,620

 

(156,857)

 

 

342,053

 

4,929

 

5,626

 

(7,407)

 

 

345,201

Interest income (expense)

 

47,841

 

(65,119)

 

(28,466)

 

 

 

(45,744)

 

 

 

140

(b)

 

(45,604)

Pretax earnings

 

205,842

 

244,170

 

3,154

 

(156,857)

 

 

296,309

 

4,929

 

5,626

 

(7,267)

 

 

299,597

Income tax expense

 

(15,853)

 

(89,257)

 

(1,210)

 

 

 

(106,320)

 

(1,725)

 

(1,563)

 

 

 

(109,608)

Earnings available to common shareholders

$

189,989

$

154,913

$

1,944

$

(156,857)

 

$

189,989

$

3,204

$

4,063

$

(7,267)

 

$

189,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Balances for the six months ended June 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 six months ended September 30, 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

$

250,959

$

207,460

$

2,903

$

(210,363)

 

$

250,959

$

7,021

$

7,562

$

(14,583)

 

$

250,959

Earnings from consolidated entities

 

(224,946)

 

 

 

210,363

 

 

(14,583)

 

 

 

14,583

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

3

 

133,101

 

8,414

 

 

 

141,518

 

 

 

 

 

141,518

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

9,740

 

 

 

9,740

Change in allowance for losses on trade receivables

 

 

(6)

 

 

 

 

(6)

 

 

 

 

 

(6)

Change in allowance for inventory reserve

 

 

716

 

 

 

 

716

 

 

 

 

 

716

Net gain on sale of real and personal property

 

 

(20,200)

 

(676)

 

 

 

(20,876)

 

 

 

 

 

(20,876)

Net gain on sale of investments

 

(42)

 

 

 

 

 

(42)

 

(267)

 

(3,751)

 

 

 

(4,060)

Deferred income taxes

 

58,672

 

 

 

 

 

58,672

 

3,118

 

2,157

 

 

 

63,947

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

 

16,288

 

(177)

 

 

 

16,111

 

4,489

 

3,961

 

 

 

24,561

Inventories

 

 

(5,750)

 

 

 

 

(5,750)

 

 

 

 

 

(5,750)

Prepaid expenses

 

11,178

 

(8,077)

 

(778)

 

 

 

2,323

 

 

 

 

 

2,323

Capitalization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

(16,289)

 

 

 

(16,289)

Other assets

 

5

 

(378)

 

(4,232)

 

 

 

(4,605)

 

309

 

(74)

 

 

 

(4,370)

Related party assets

 

551

 

13,534

 

 

 

 

14,085

 

(5,584)

 

 

149

(b)

 

8,650

Accounts payable and accrued expenses

 

3,699

 

18,288

 

(92)

 

 

 

21,895

 

 

2,971

 

 

 

24,866

Policy benefits and losses, claims and loss expenses payable

 

 

1,487

 

 

 

 

1,487

 

(7,009)

 

5,831

 

 

 

309

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

76

 

418

 

 

 

494

Deferred income

 

 

2,191

 

 

 

 

2,191

 

 

 

 

 

2,191

Related party liabilities

 

 

460

 

4,292

 

 

 

4,752

 

(57)

 

(71)

 

(149)

(b)

 

4,475

Net cash provided (used) by operating activities

 

100,079

 

359,114

 

9,654

 

 

 

468,847

 

2,096

 

12,455

 

 

 

483,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

(295,231)

 

(162,440)

 

 

 

(457,671)

 

 

 

 

 

(457,671)

Short term investments

 

 

 

 

 

 

 

(27,972)

 

(126,731)

 

 

 

(154,703)

Fixed maturities investments

 

 

 

 

 

 

 

(39,655)

 

(134,938)

 

 

 

(174,593)

Equity securities

 

 

 

 

 

 

 

(388)

 

 

 

 

(388)

Preferred stock

 

 

 

 

 

 

 

(635)

 

 

 

 

(635)

Real estate

 

 

 

 

 

 

 

 

(252)

 

 

 

(252)

Mortgage loans

 

 

(1,580)

 

(12,738)

 

2,514

(b)

 

(11,804)

 

 

(14,009)

 

11,553

(b)

 

(14,260)

Proceeds from sales and paydown's of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

175,302

 

1,151

 

 

 

176,453

 

 

 

 

 

176,453

Short term investments

 

 

 

 

 

 

 

39,072

 

123,508

 

 

 

162,580

Fixed maturities investments

 

 

 

 

 

 

 

11,936

 

81,114

 

 

 

93,050

Equity securities

 

6,415

 

 

 

 

 

6,415

 

388

 

 

 

 

6,803

Preferred stock

 

 

 

 

 

 

 

4,504

 

1,500

 

 

 

6,004

Real estate

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

 

1,680

 

34,643

 

(2,514)

(b)

 

33,809

 

1,984

 

12,175

 

(11,553)

(b)

 

36,415

Net cash provided (used) by investing activities

 

6,415

 

(119,829)

 

(139,384)

 

 

 

(252,798)

 

(10,766)

 

(57,633)

 

 

 

(321,197)

(a) Balance for the six months ended June 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 six months ended September 30, 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

 

 

64,124

 

73,917

 

 

 

138,041

 

 

 

 

 

138,041

Principal repayments on credit facilities

 

 

(58,684)

 

(64,261)

 

 

 

(122,945)

 

 

 

 

 

(122,945)

Debt issuance costs

 

 

(178)

 

(55)

 

 

 

(233)

 

 

 

 

 

(233)

Capital lease payments

 

 

(21,425)

 

 

 

 

(21,425)

 

 

 

 

 

(21,425)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

 

260

 

 

 

 

260

 

 

 

 

 

260

Proceeds from (repayment of) intercompany loans

 

43,946

 

(164,059)

 

120,113

 

 

 

 

 

 

 

 

Securitization deposits

 

 

 

 

 

 

 

 

 

 

 

Investment contract deposits

 

 

 

 

 

 

 

 

74,253

 

 

 

74,253

Investment contract withdrawals

 

 

 

 

 

 

 

 

(14,721)

 

 

 

(14,721)

Net cash provided (used) by financing activities

 

43,946

 

(179,962)

 

129,714

 

 

 

(6,302)

 

 

59,532

 

 

 

53,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

 

401

 

 

 

 

401

 

 

 

 

 

401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

150,440

 

59,724

 

(16)

 

 

 

210,148

 

(8,670)

 

14,354

 

 

 

215,832

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

$

477,559

$

158,650

$

1,499

$

 

$

637,708

$

5,450

$

36,418

$

 

$

679,576

 

 

(page 2 of 2)

(a) Balance for the six months ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMERCO AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Consolidating cash flow statements by industry segment for the six months ended September 30, 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)

$

189,989

$

154,913

$

1,944

$

(156,857)

 

$

189,989

$

3,204

$

4,063

$

(7,267)

 

$

189,989

Earnings from consolidated entities

 

(164,124)

 

 

 

156,857

 

 

(7,267)

 

 

 

7,267

 

 

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

3

 

120,651

 

7,473

 

 

 

128,127

 

 

 

 

 

128,127

Amortization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

5,899

 

 

 

5,899

Change in allowance for losses on trade receivables

 

 

(3)

 

 

 

 

(3)

 

 

 

 

 

(3)

Change in allowance for inventory reserve

 

 

1,705

 

 

 

 

1,705

 

 

 

 

 

1,705

Net gain on sale of real and personal property

 

 

(12,771)

 

(277)

 

 

 

(13,048)

 

 

 

 

 

(13,048)

Net (gain) loss on sale of investments

 

 

 

 

 

 

 

(16)

 

254

 

 

 

238

Deferred income taxes

 

27,899

 

 

 

 

 

27,899

 

584

 

(3,557)

 

 

 

24,926

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

 

(11,281)

 

 

 

 

(11,281)

 

44,699

 

(2)

 

 

 

33,416

Inventories

 

 

(1,629)

 

 

 

 

(1,629)

 

 

 

 

 

(1,629)

Prepaid expenses

 

7,558

 

(6,910)

 

(226)

 

 

 

422

 

 

 

 

 

422

Capitalization of deferred policy acquisition costs

 

 

 

 

 

 

 

 

(24,489)

 

 

 

(24,489)

Other assets

 

3

 

20,161

 

(1,284)

 

 

 

18,880

 

914

 

(24)

 

 

 

19,770

Related party assets

 

12

 

143,163

 

 

 

 

143,175

 

(1,748)

 

(28)

 

840

(b)

 

142,239

Accounts payable and accrued expenses

 

2,045

 

31,336

 

466

 

 

 

33,847

 

 

11,565

 

 

 

45,412

Policy benefits and losses, claims and loss expenses payable

 

 

11,972

 

 

 

 

11,972

 

(47,835)

 

18,450

 

 

 

(17,413)

Other policyholders' funds and liabilities

 

 

 

 

 

 

 

(310)

 

4,440

 

 

 

4,130

Deferred income

 

 

(671)

 

 

 

 

(671)

 

 

 

 

 

(671)

Related party liabilities

 

 

967

 

 

 

 

967

 

245

 

43

 

(840)

(b)

 

415

Net cash provided (used) by operating activities

 

63,385

 

451,603

 

8,096

 

 

 

523,084

 

(263)

 

16,614

 

 

 

539,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(2)

 

(240,045)

 

(40,939)

 

 

 

(280,986)

 

 

 

 

 

(280,986)

Short term investments

 

 

 

 

 

 

 

(37,553)

 

(113,434)

 

 

 

(150,987)

Fixed maturities investments

 

 

 

 

 

 

 

(10,316)

 

(169,625)

 

 

 

(179,941)

Equity securities

 

 

 

 

 

 

 

(26)

 

 

 

 

(26)

Preferred stock

 

 

 

 

 

 

 

(1,200)

 

 

 

 

(1,200)

Real estate

 

 

 

 

 

 

 

 

(792)

 

 

 

(792)

Mortgage loans

 

 

(5,016)

 

(30,787)

 

 

 

(35,803)

 

(1,821)

 

(13,204)

 

 

 

(50,828)

Proceeds from sales and paydown's of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

132,204

 

393

 

 

 

132,597

 

 

 

 

 

132,597

Short term investments

 

 

 

 

 

 

 

22,174

 

132,403

 

 

 

154,577

Fixed maturities investments

 

 

 

 

 

 

 

23,662

 

28,924

 

 

 

52,586

Preferred stock

 

 

 

 

 

 

 

1,453

 

 

 

 

1,453

Real estate

 

 

 

586

 

 

 

586

 

 

4

 

 

 

590

Mortgage loans

 

 

8,029

 

1,073

 

 

 

9,102

 

939

 

2,659

 

 

 

12,700

Net cash provided (used) by investing activities

 

(2)

 

(104,828)

 

(69,674)

 

 

 

(174,504)

 

(2,688)

 

(133,065)

 

 

 

(310,257)

 

 

(page 1 of 2)

(a) Balance for the six months ended June 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 six months ended September 30, 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

 

 

27,147

 

61,700

 

 

 

88,847

 

 

 

 

 

88,847

Principal repayments on credit facilities

 

 

(110,799)

 

(60,697)

 

 

 

(171,496)

 

 

 

 

 

(171,496)

Debt issuance costs

 

 

(20)

 

(990)

 

 

 

(1,010)

 

 

 

 

 

(1,010)

Capital lease payments

 

 

(9,883)

 

 

 

 

(9,883)

 

 

 

 

 

(9,883)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

 

316

 

 

 

 

316

 

 

 

 

 

316

Proceeds from (repayment of) intercompany loans

 

163,363

 

(225,651)

 

62,288

 

 

 

 

 

 

 

 

Securitization deposits

 

 

(1,729)

 

 

 

 

(1,729)

 

 

 

 

 

(1,729)

Net contribution from (to) related party

 

(1,500)

 

 

 

 

 

(1,500)

 

1,500

 

 

 

 

Investment contract deposits

 

 

 

 

 

 

 

 

169,933

 

 

 

169,933

Investment contract withdrawals

 

 

 

 

 

 

 

 

(15,275)

 

 

 

(15,275)

Net cash provided (used) by financing activities

 

161,863

 

(320,619)

 

62,301

 

 

 

(96,455)

 

1,500

 

154,658

 

 

 

59,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

 

(240)

 

 

 

 

(240)

 

 

 

 

 

(240)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

225,246

 

25,916

 

723

 

 

 

251,885

 

(1,451)

 

38,207

 

 

 

288,641

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

$

426,748

$

132,867

$

1,498

$

 

$

561,113

$

21,091

$

63,617

$

 

$

645,821

 

 

(page 2 of 2)

(a) Balance for the six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


 

11. Industry Segment and Geographic Area Data

 

 

 

 

 

 

 

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

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

Quarter ended September 30, 2013

 

 

 

 

 

 

Total revenues

$

786,721

$

49,770

$

836,491

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

 

67,355

 

1,910

 

69,265

Interest expense

 

22,977

 

141

 

23,118

Pretax earnings

 

207,480

 

9,368

 

216,848

Income tax expense

 

76,374

 

2,483

 

78,857

Identifiable assets

 

5,626,460

 

149,885

 

5,776,345

 

 

 

 

 

 

 

Quarter ended September 30, 2012

 

 

 

 

 

 

Total revenues

$

695,622

$

48,495

$

744,117

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

 

59,972

 

2,070

 

62,042

Interest expense

 

21,961

 

152

 

22,113

Pretax earnings

 

162,693

 

9,516

 

172,209

Income tax expense

 

60,267

 

2,522

 

62,789

Identifiable assets

 

4,984,218

 

152,746

 

5,136,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

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

Six months ended September 30, 2013

 

 

 

 

 

 

Total revenues

$

1,490,684

$

92,638

$

1,583,322

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

 

126,525

 

3,857

 

130,382

Interest expense

 

46,163

 

283

 

46,446

Pretax earnings

 

379,236

 

16,660

 

395,896

Income tax expense

 

140,522

 

4,415

 

144,937

Identifiable assets

 

5,626,460

 

149,885

 

5,776,345

 

 

 

 

 

 

 

Six months ended September 30, 2012

 

 

 

 

 

 

Total revenues

$

1,321,805

$

89,988

$

1,411,793

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

 

116,935

 

4,043

 

120,978

Interest expense

 

45,300

 

304

 

45,604

Pretax earnings

 

282,077

 

17,520

 

299,597

Income tax expense

 

104,965

 

4,643

 

109,608

Identifiable assets

 

4,984,218

 

152,746

 

5,136,964

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


12. Employee Benefit Plans

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

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

Service cost for benefits earned during the period

$

181

$

156

Interest cost on accumulated postretirement benefit

 

141

 

138

Other components

 

5

 

1

Net periodic postretirement benefit cost

$

327

$

295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

Service cost for benefits earned during the period

$

362

$

311

Interest cost on accumulated postretirement benefit

 

282

 

277

Other components

 

10

 

2

Net periodic postretirement benefit cost

$

654

$

590

 

 

 

 

 

 

13. 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 September 30, 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

$

628,725

$

628,725

$

$

Fixed maturities - available for sale

 

1,057,763

 

961,045

 

95,573

 

1,145

Preferred stock

 

18,449

 

18,449

 

 

Common stock

 

38,128

 

38,128

 

 

Derivatives

 

1,970

 

 

1,970

 

Total

$

1,745,035

$

1,646,347

$

97,543

$

1,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Guaranteed residual values of TRAC leases

$

$

$

$

Derivatives

 

39,875

 

 

39,875

 

Total

$

39,875

$

$

39,875

$

 

 

 

 

 

 

 

 

 

 

The following table represents the fair value measurements for our assets at September 30, 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

 

(59)

Fixed Maturities - Asset Backed Securities - gain (unrealized)

 

24

Balance at September 30, 2013

$ 

1,145

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


14. Subsequent Events

On October 8, 2013, various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. entered into a real estate loan for $100 million. This loan matures in October 2016, with an option to extend for four more years. This loan is secured by certain properties owned by the borrowers. The interest rate for this loan is the applicable LIBOR plus an applicable margin of 2.50%.

On October 4, 2013, various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. entered into a real estate loan for $50 million. This loan matures in October 2033 and is secured by certain properties owned by the borrowers. The interest rate for this loan is fixed at 5.12%.

 


 


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

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 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, 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 vale of 15%. This change had an immaterial effect on our current financial statements. Comparatively, a standard straight line approach would reduce the book value by approximately 5.7% per year over the life of the truck. For the affected equipment, the accelerated depreciation was $13.4 million and $14.8 million greater than what it would have been if calculated under a straight line approach for the second quarter of fiscal 2014 and 2013, respectively and $26.9 million and $29.6 million for the first six months of fiscal 2014 and 2013, respectively.

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 second quarter or for the first six 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 September 30, 2013, the date of our most recent balance sheet, through the date our financial statements were issued. We entered into two new real estate loans, please see note 14, Subsequent Events of the Notes to Condensed Consolidated Financial Statements for a discussion of borrowings entered into after September 30, 2013. Other than these new borrowings, we do not believe any 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 September 30, 2013 compared with the Quarter Ended September 30, 2012

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

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(in thousands)

Self-moving equipment rentals

$ 

598,931

$ 

538,361

Self-storage revenues

 

45,572

 

37,978

Self-moving and self-storage products and service sales

 

65,379

 

61,730

Property management fees

 

5,292

 

4,902

Life insurance premiums

 

39,448

 

47,667

Property and casualty insurance premiums

 

10,867

 

8,947

Net investment and interest income

 

19,960

 

15,853

Other revenue

 

51,042

 

28,679

Consolidated revenue

$ 

836,491

$ 

744,117

 

 

 

 

 

 

 


Self-moving equipment rental revenues increased $60.6 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013.  The improvement in revenue was recognized across both our truck and trailer fleets and largely was generated from increased transaction volume.  Continued expansion of the rental fleet, incremental improvement in utilization and additional retail locations are enabling us to serve more customers.    

Self-storage revenues increased $7.6 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013 with the average monthly amount of occupied square feet increasing by nearly 19%.  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 2.2 million net rentable square feet to the self-storage portfolio.

Sales of self-moving and self-storage products and services increased $3.6 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013.  Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations. 

Life insurance premiums decreased $8.2 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013 due primarily to reduced life insurance premiums and Medicare supplement premiums.

Property and casualty insurance premiums increased $1.9 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013 due to an increase in Safestor sales which were a result of increased rental transactions.

Net investment and interest income increased $4.1 million during the second quarter of fiscal 2014, compared with the second quarter 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.

Other revenue increased $22.4 million during the second quarter of fiscal 2014, compared with the second 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 $836.5 million for the second quarter of fiscal 2014, compared with $744.1 million for the second quarter of fiscal 2013.

 


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

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Moving and storage

 

 

 

 

Revenues

$ 

772,199

$ 

675,569

Earnings from operations before equity in earnings of subsidiaries

 

226,109

 

187,827

Property and casualty insurance 

 

 

 

 

Revenues

 

13,330

 

11,213

Earnings from operations

 

6,411

 

2,342

Life insurance  

 

 

 

 

Revenues

 

54,673

 

58,224

Earnings from operations

 

7,542

 

4,222

Eliminations

 

 

 

 

Revenues

 

(3,711)

 

(889)

Earnings from operations before equity in earnings of subsidiaries

 

(96)

 

(69)

Consolidated results

 

 

 

 

Revenues

 

836,491

 

744,117

Earnings from operations

 

239,966

 

194,322

 

 

 

 

 

 

Total costs and expenses increased $46.7 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013.  Operating expenses for the Moving and Storage operating segment increased $44.4 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, increased $4.3 million while lease expense decreased $3.8 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 $240.0 million for the second quarter of fiscal 2014, compared with $194.3 million for the second quarter of fiscal 2013.

Interest expense for the second quarter of fiscal 2014 was $23.1 million, compared with $22.1 million for the second quarter of fiscal 2013 due to an increase in average borrowings partially offset by a decrease in average borrowing costs.

Income tax expense was $78.9 million for the second quarter of fiscal 2014, compared with $62.8 million for the second quarter of fiscal 2013.

As a result of the above mentioned items, earnings available to common shareholders were $138.0 million for the second quarter of fiscal 2014, compared with $109.4 million for the second quarter of fiscal 2013.

Basic and diluted earnings per share for the second quarter of fiscal 2014 were $7.06, compared with $5.61 for the second quarter of fiscal 2013.

The weighted average common shares outstanding basic and diluted were 19,554,633 for the second quarter of fiscal 2014, compared with 19,512,550 for the second quarter of fiscal 2013.

 


Moving and Storage

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

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

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$ 

599,657

$ 

538,767

Self-storage revenues

 

45,572

 

37,978

Self-moving and self-storage products and service sales

 

65,379

 

61,730

Property management fees

 

5,292

 

4,902

Net investment and interest income

 

3,374

 

3,900

Other revenue

 

52,925

 

28,292

Moving and Storage revenue

$ 

772,199

$ 

675,569

 

 

 

 

 

 

Self-moving equipment rental revenues increased $60.9 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013The improvement in revenue was recognized across both our truck and trailer fleets and largely was generated from increased transaction volume.  Continued expansion of the rental fleet, incremental improvement in utilization and additional retail locations are enabling us to serve more customers.     

Self-storage revenues increased $7.6 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013, with the average monthly amount of occupied square feet increasing by nearly 19%.  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 2.2 million net rentable square feet to the self-storage portfolio.

Sales of self-moving and self-storage products and services increased $3.6 million during the second quarter of fiscal 2014, compared with the second 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 $0.5 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013. 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 $24.6 million during the second quarter of fiscal 2014, compared with the second 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 September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except occupancy rate)

Room count as of September 30

 

197

 

176

Square footage as of September 30

 

17,044

 

14,894

Average monthly number of rooms occupied

 

162

 

141

Average monthly occupancy rate based on room count

 

82.5%

 

81.1%

Average monthly square footage occupied

 

14,311

 

12,017

 

 

 

 

 

 

Total costs and expenses increased $58.3 million during the second quarter of fiscal 2014, compared with the second quarter of fiscal 2013. Operating expenses increased $44.4 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 $8.0 million and gains from the disposal property, plant and equipment increased $3.8 million. This resulted in a $4.3 million increase in depreciation expense, net. Conversely, lease expense decreased $3.8 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 $226.1 million for the second quarter of fiscal 2014, compared with $187.8 million for the second quarter of fiscal 2013.

Equity in the earnings of AMERCO’s insurance subsidiaries was $9.1 million and $4.7 million for the second quarter of fiscal 2014 and 2013, respectively.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $235.2 million for the second quarter of fiscal 2014, compared with $192.5 million for the second quarter of fiscal 2013.

Property and Casualty Insurance

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

Net premiums were $10.9 million and $8.9 million for the second quarters ended June 30, 2013 and 2012, respectively. A significant portion of Repwest’s premiums are from policies sold in conjunction with U-Haul rental transactions. The premium increase corresponded with the increased moving and storage transactions at U-Haul during the same time period and sales of non U-Haul Safestor.

Net investment income was $2.5 million and $2.3 million for the second quarters ended June 30, 2013 and 2012, respectively.

Net operating expenses were $4.4 million and $4.5 million for the second quarters ended June 30, 2013 and 2012, respectively.

Benefits and losses incurred were $2.5 million and $4.4 million for the second quarters ended June 30, 2013 and 2012, respectively. The decrease was a result of a $0.6 million decrease in primary workers compensation due to no further adverse developments and a $1.3 million decrease in additional liability reserves.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $6.4 million and $2.3 million for the second quarters ended June 30, 2013 and 2012, respectively.

 


Life Insurance

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

Net premiums were $39.4 million and $47.7 million for the second quarters ended June 30, 2013 and 2012, respectively. Medicare Supplement premiums decreased $2.9 million due to a reduction of the in force business. Life premiums decreased $4.0 million from the reduced sales of single premium whole life insurance and a prior year one-time increase caused by the recapture of a block of business.  A portion of our new business consists of deferred annuity policies with the sales of these products accounted for as deposits on the balance sheet instead of as premium income. Annuity deposits for the quarter were $33.6 million, a decrease of $93.9 million compared with the same period last year.

Net investment income was $14.3 million and $9.8 million for the second quarters ended June 30, 2013 and 2012, respectively. There was an increase of $3.1 million of investment income due to a larger invested asset base and an increase in realized gains of $1.4 million compared with the same period last year. 

Net operating expenses were $5.6 million and $6.8 million for the second quarters ended June 30, 2013 and 2012, respectively. The variance was due to a reduction in Medicare supplement, single premium life and the immediate annuity commissions resulting from a lower Medicare supplement policy base and decreased sales. General administrative expenses and premiums taxes also decreased.

Benefits and losses incurred were $35.5 million and $44.1 million for the second quarter ended June 30, 2013 and 2012, respectively. Life and immediate annuity benefits decreased $5.9 million primarily due to a reduction in reserves from reduced sales and a prior year one-time reserve increase caused by the recapture of pre-need block of business. Medicare supplement incurred benefits decreased by $4.5 million from a reduction of policies in force and an improved benefit ratio; offset by a $1.2 million increase in interest credited to policyholders associated with the additional deferred annuity deposits.

Amortization of deferred acquisition costs (“DAC”), sales inducement asset (“SIA”) and the value of business acquired was $6.1 million and $3.1 million for the second quarters ended June 30, 2013 and 2012, respectively. The variance is a result of increased amortization of annuity DAC and SIA from the growth of the in force business combined with accelerated amortization resulting from the investment gains recognized during the quarter along with charges associated with legacy annuity and Medicare supplement business.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $7.5 million and $4.2 million for the second quarters ended June 30, 2013 and 2012, respectively.

 

 


AMERCO and Consolidated Entities

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

 

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

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(in thousands)

Self-moving equipment rentals

$

1,120,580

$

1,005,355

Self-storage revenues

 

87,671

 

72,714

Self-moving and self-storage products and service sales

 

136,070

 

128,908

Property management fees

 

10,453

 

9,762

Life insurance premiums

 

80,510

 

94,093

Property and casualty insurance premiums

 

18,833

 

16,190

Net investment and interest income

 

38,949

 

30,370

Other revenue

 

90,256

 

54,401

Consolidated revenue

$

1,583,322

$

1,411,793

 

 

 

 

 

Self-moving equipment rental revenues increased $115.2 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013The revenue growth was primarily due to the increases in In-Town and one-way moving transactions for both our truck and trailer rental fleets.  Continued expansion of the rental fleet, incremental improvement in utilization and additional retail locations are enabling us to serve more customers.

Self-storage revenues increased $15.0 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013. Average monthly occupancy during the first six months of fiscal 2014 increased by 2.3 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 2.2 million net rentable square feet with 1.0 million of that being added during the first six months of fiscal 2014.

Sales of self-moving and self-storage products and services increased $7.2 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.

Life insurance premiums decreased $13.6 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013, primarily attributable to decreases in life insurance premiums and Medicare supplement premiums.

Property and casualty insurance premiums increased $2.6 million during the first six months of fiscal 2014, compared with the first six 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 $8.6 million during the first six months of fiscal 2014, compared with the first six 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.

Other revenue increased $35.9 million during the first six months of fiscal 2014, compared with the first six 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 $1,583.3 million for the first six months of fiscal 2014, as compared with $1,411.8 million for the first six months of fiscal 2013.

 


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

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Moving and storage

 

 

 

 

Revenues

$

1,456,602

$

1,278,418

Earnings from operations before equity in earnings of subsidiaries

 

420,117

 

334,786

Property and casualty insurance 

 

 

 

 

Revenues

 

23,773

 

20,656

Earnings from operations

 

10,801

 

4,929

Life insurance  

 

 

 

 

Revenues

 

109,452

 

114,366

Earnings from operations

 

11,602

 

5,626

Eliminations

 

 

 

 

Revenues

 

(6,505)

 

(1,647)

Earnings from operations before equity in earnings of subsidiaries

 

(178)

 

(140)

Consolidated results

 

 

 

 

Revenues

 

1,583,322

 

1,411,793

Earnings from operations

 

442,342

 

345,201

 

 

 

 

 

Total costs and expenses increased $74.4 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013. Operating expenses for the Moving and Storage operating segment increased $72.5 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, increased $5.6 million while lease expense decreased $9.6 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 $442.3 million for the first six months of fiscal 2014, as compared with $345.2 million for the first six months of fiscal 2013.

Interest expense for the first six months of fiscal 2014 was $46.4 million, compared with $45.6 million for the first six months of fiscal 2013 due to an increase in average borrowings partially offset by a decrease in average borrowing costs.

Income tax expense was $144.9 million for the first six months of fiscal 2014, compared with $109.6 million for first six months of fiscal 2013 due to higher pretax earnings for the first six months of fiscal 2014.

Basic and diluted earnings per common share for the first six months of fiscal 2014 were $12.84, compared with $9.74 for the first six months of fiscal 2013.

The weighted average common shares outstanding basic and diluted were 19,550,128 for the first six months of fiscal 2014, compared with 19,507,456 for the first six months of fiscal 2013.

 


Moving and Storage

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

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

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$

1,121,740

$

1,006,082

Self-storage revenues

 

87,671

 

72,714

Self-moving and self-storage products and service sales

 

136,070

 

128,908

Property management fees

 

10,453

 

9,762

Net investment and interest income

 

6,783

 

7,035

Other revenue

 

93,885

 

53,917

Moving and Storage revenue

$

1,456,602

$

1,278,418

 

 

 

 

 

Self-moving equipment rental revenues increased $115.7 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013. The revenue growth was primarily due to the increases in In-Town and one-way moving transactions for both our truck and trailer rental fleets.  Continued expansion of the rental fleet, incremental improvement in utilization and additional retail locations are enabling us to serve more customers.

Self-storage revenues increased $15.0 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013 due primarily to an increase in the number of rooms rented.  Average monthly occupancy during the first six months of fiscal 2014 increased by 2.3 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 2.2 million net rentable square feet with 1.0 million of that during the first six months of fiscal 2014.

Sales of self-moving and self-storage products and services increased $7.2 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.

Net investment and interest income decreased $0.3 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013. Interest income related to the SAC Holdings notes decreased compared to the same period last year.  In June 2013, SAC Holdings made a payment to reduce its outstanding deferred interest payable to AMERCO by $10.4 million.

Other revenue increased $40.0 million during the first six months of fiscal 2014, compared with the first six 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:

 

 

 

 

 

 

 

Six Months Ended September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands, except occupancy rate)

Room count as of September 30

 

197

 

176

Square footage as of September 30

 

17,044

 

14,894

Average monthly number of rooms occupied

 

158

 

136

Average monthly occupancy rate based on room count

 

81.3%

 

79.6%

Average monthly square footage occupied

 

13,880

 

11,568

 

 

 

 

 

Total costs and expenses increased $92.9 million during the first six months of fiscal 2014, compared with the first six months of fiscal 2013.  Operating expenses increased $72.5 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, before gains on the disposal of equipment, increased $13.4 million while gains on the disposals increased by $7.8 million. Lease expense decreased $9.5 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 $420.1 million for the first six months of fiscal 2014, compared with $334.8 million for the first six months of fiscal 2013.

Equity in the earnings of AMERCO’s insurance subsidiaries was $14.6 million for the first six months of fiscal 2014, compared with $7.3 million for the first six months of fiscal 2013.

As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $434.7 million for the first six months of fiscal 2014, compared with $342.1 million for the first six months of fiscal 2013.

Property and Casualty Insurance

Six Months Ended June 30, 2013 compared with the Six Months Ended June 30, 2012

Net premiums were $18.8 million and $16.2 million for the six months ended June 30, 2013 and 2012, respectively. A significant portion of Repwest’s premiums are from policies sold in conjunction with U-Haul rental transactions. The premium increase corresponded with increased moving and storage transactions at U-Haul during the same time period.

Net investment income was $4.9 million and $4.5 million for the six months ended June 30, 2013 and 2012, respectively. The increase was primarily due to investment gains of $0.3 million earned on disposals in 2013.

Net operating expenses were $8.5 million and $7.8 million for the six months ended June 30, 2013 and 2012, respectively. The increase was a result of a net increase in commissions.

Benefits and losses incurred were $4.5 million and $8.0 million for the six months ended June 30, 2013 and 2012, respectively. The decrease was due to lower incurred claims primarily in the assumed reinsurance and liability programs.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $10.8 million and $4.9 million for the six months ended June 30, 2013 and 2012, respectively.

 


Life Insurance

Six Months Ended June 30, 2013 compared with the Six Months Ended June 30, 2012

Net premiums were $80.5 million and $94.1 million for the six months ended June 30, 2013 and 2012, respectively. Life premiums decreased $5.4 million primarily due to a reduction in premiums of single premium whole life products and a prior year one time increase driven by the recapture of previously reinsured business. Medicare supplement premiums decreased by $5.6 million compared with the prior year. Annuity deposits decreased by $92.6 million; these are accounted for on the balance sheet as deposits rather than premiums.

Net investment income was $27.5 million and $19.1 million for the six months ended June 30, 2013 and 2012, respectively. There was an increase of $6.0 million of investment income due to a larger invested asset base and a $2.4 million increase in realized gains was recognized on the sale of investments.

Net operating expenses were $11.9 million and $14.0 million for the six months ended June 30, 2013 and 2012, respectively. The variance was primarily due to commissions which declined in relation to premium reductions.  General administrative costs and premium taxes contributed to the variance as well.

Benefits and losses incurred were $76.2 million and $88.9 million for the quarter ended June 30, 2013 and 2012, respectively. A decrease of $6.0 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. A decrease of $2.0 million in annuity benefits is driven by a reserve decrease in single premium immediate temporary annuity products due to discontinued sales. This was partially offset by an increase in other immediate annuity rider reserve liability. Medicare supplement benefits decreased by $7.6 million due to reduced policies in force and lower benefit ratios. Increase in interest credited to policyholders was $2.7 million as a result of a larger annuity account value.

Amortization of DAC, SIA and VOBA was $9.7 million and $5.9 million for the six months ended June 30, 2013 and 2012, respectively. The variance is a result of increased amortization of annuity DAC and SIA from the growth of the in force business combined with accelerated amortization resulting from the investment gains recognized during the quarter along with charges associated with legacy annuity and Medicare supplement business.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $11.6 million and $5.6 million for the six months ended June 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 September 30, 2013, cash and cash equivalents totaled $679.6 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 September 30, 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

$

637,708

$

5,450

$

36,418

Other financial assets

 

244,000

 

428,336

 

1,076,946

Debt obligations

 

1,775,119

 

 

 

 

 

 

 

 

 

(a) As of June 30, 2013

 

 

 

 

 

 

 

At September 30, 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 $56.0 million in the first six 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 $71.3 due largely to an increase in net earnings.   

Net cash used in investing activities increased $10.9 million in the first six months of fiscal 2014, compared with fiscal 2013. Purchases of property, plant and equipment, which are reported net of cash from leases, increased $176.7 million. Cash from the sales of property, plant and equipment increased $43.9 million largely due to an increase in pickup and cargo van sales. The Life Insurance operating segment had a decrease in net cash used for investing of $75.5 million due to a decline in new annuity deposits.

Net cash provided by financing activities decreased $6.5 million in the first six months of fiscal 2014, as compared with fiscal 2013. Net borrowings increased by $97.8 million and were offset by an increase in capital lease payments of $11.5 million. Additionally, net annuity deposits at the Life Insurance operating segment decreased $95.1 million in the first six months of fiscal 2014 compared to the same period last year.

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 $315 million, net of equipment sales excluding any lease buyouts. Through the first six months of fiscal 2014, we have invested, net of sales, approximately $215 million before any lease buyouts in our truck and trailer fleet of this projected amount. 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 six months of fiscal 2014, we invested approximately $155 million in real estate acquisitions, new construction and renovation and repair. For 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 $281.2 million and $148.4 million for the first six months of fiscal 2014 and 2013, respectively. The components of our net capital expenditures are provided in the following table:

 

 

 

 

 

 

 

Six Months Ending September 30,

 

 

2013

 

2012

 

 

(Unaudited)

 

 

(In thousands)

Purchases of rental equipment

$ 

383,141

$ 

331,467

Equipment lease buyouts

 

11,868

 

49,874

Purchases of real estate, construction and renovations

 

155,224

 

70,978

Other capital expenditures

 

27,617

 

21,616

Gross capital expenditures

 

577,850

 

473,935

Less: Lease proceeds

 

(120,179)

 

(192,949)

Less: Sales of property, plant and equipment

 

(176,453)

 

(132,597)

Net capital expenditures

 

281,218

 

148,389

 

 

 

 

 

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 market place 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’s operating segment 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 $141.1 million and $136.9 million at June 30, 2013 and December 31, 2012, respectively. The increase resulted from net earnings of $7.0 million and a decrease in other comprehensive income of $2.8 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’s operating segment net deposits for the six months ended June 30, 2013 were $59.5 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’s operating segment stockholder’s equity was $224.3 million and $242.7 million at June 30, 2013 and December 31, 2012, respectively. The decrease resulted from net earnings of $7.6 million and a decrease in other comprehensive income of $26.0 million. Our Life 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.

Cash Provided (Used) from Operating Activities by Operating Segments

Moving and Storage

Net cash provided from operating activities were $468.8 million and $523.1 million for the first six 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 $73.0 million largely due to an increase in net earnings.

Property and Casualty Insurance

Net cash provided (used) by operating activities were $2.1 million and ($0.3) million for the first six months ended June 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 and cash equivalents and short-term investment portfolio amounted to $25.4 million and $45.2 million at June 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 by operating activities were $12.5 million and $16.6 million for the first six months ended June 30, 2013 and 2012, respectively. The decrease in cash provided was attributable to the decrease in collected premiums offset by an increase in net investment income, reduced accident and health benefits and commission expense.

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 June 30, 2013 and December 31, 2012, cash and cash equivalents and short-term investments amounted to $52.1 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 September 30, 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 13, 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 September 30, 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 2019. In the event of a shortfall in proceeds from the sales of the underlying rental equipment assets, we have guaranteed $110.1 million of residual values at September 30, 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 $257.1 million at September 30, 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 9, 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 $15.7 million and $14.4 million from the above mentioned entities during the first six months of fiscal 2014 and 2013, respectively. This management fee is consistent with the fee received for other properties 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 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 $1.3 million in the first six 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 September 30, 2013, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based on equipment rental revenues. We paid the above mentioned entities $28.6 million and $24.9 million in commissions pursuant to such dealership contracts during the first six months of fiscal 2014 and 2013, respectively.

During the first six 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 $3.7 million and $4.5 million, and received cash interest payments of $13.9 million and $8.9 million, from SAC Holdings during the first six months of fiscal 2014 and 2013, respectively. The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 2014 was $72.4 million and the aggregate notes receivable balance at September 30, 2013 was $72.0 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2017 and 2019

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

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 looking to continue 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 storage container 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 its 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

 

 

 

 

$

229,166

 

$

(36,280)

 

8/18/2006

 

8/10/2018

 

5.43%

 

1 Month LIBOR

 

9,625

 

 

(173)

 

2/12/2007

 

2/10/2014

 

5.24%

 

1 Month LIBOR

 

6,396

 

 

(132)

 

3/12/2007

 

3/10/2014

 

4.99%

 

1 Month LIBOR

 

6,400

 

 

(146)

 

3/12/2007

 

3/10/2014

 

4.99%

 

1 Month LIBOR

 

7,600

(a)

 

(389)

 

8/15/2008

 

6/15/2015

 

3.62%

 

1 Month LIBOR

 

7,522

 

 

(431)

 

8/29/2008

 

7/10/2015

 

4.04%

 

1 Month LIBOR

 

11,692

 

 

(771)

 

9/30/2008

 

9/10/2015

 

4.16%

 

1 Month LIBOR

 

6,288

(a)

 

(237)

 

3/30/2009

 

4/15/2016

 

2.24%

 

1 Month LIBOR

 

7,350

(a)

 

(281)

 

8/15/2010

 

7/15/2017

 

2.15%

 

1 Month LIBOR

 

16,563

(a)

 

(644)

 

6/1/2011

 

6/1/2018

 

2.38%

 

1 Month LIBOR

 

31,875

(a)

 

(680)

 

8/15/2011

 

8/15/2018

 

1.86%

 

1 Month LIBOR

 

13,000

(a)

 

(231)

 

9/12/2011

 

9/10/2018

 

1.75%

 

1 Month LIBOR

 

13,021

(b)

 

(61)

 

3/28/2012

 

3/28/2019

 

1.42%

 

1 Month LIBOR

 

19,688

 

 

16

 

4/16/2012

 

4/1/2019

 

1.28%

 

1 Month LIBOR

 

38,250

 

 

565

 

1/15/2013

 

12/15/2019

 

1.07%

 

1 Month LIBOR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2013, we had $460.1 million of variable rate debt obligations and $13.7 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 $0.5 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 5.9% and 6.4% of our revenue was generated in Canada during the first six 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

 

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 November 6, 2013

/s/ Edward J. Shoen

 

Edward J. Shoen

President and Chairman of the Board

(Duly Authorized Officer)

 

 

 

 

Date:  November 6, 2013

/s/ Jason A. Berg

 

Jason A. Berg

Chief Accounting Officer

(Principal Financial Officer)