U-Haul Holding Co /NV/ - Quarter Report: 2014 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, 2014

or

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

For the transition period from __________________ to __________________

Commission File Number	Registrant, State of Incorporation, Address and Telephone Number	I.R.S. Employer Identification No.
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, 2014

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	a) Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and March 31, 2014	1
	b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 2014 and 2013 (unaudited)	2
	c) Condensed Consolidated Statement of Operations for the Six Months ended September 30, 2014 and 2013 (unaudited)	3
	d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Six Months ended September 30, 2014 and 2013 (unaudited)	4
	e) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2014 and 2013 (unaudited)	5
	f) Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	56
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58

 

 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

		September 30,		March 31,
		2014		2014
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	849,146	$	495,112
Reinsurance recoverables and trade receivables, net		186,145		199,322
Inventories, net		69,240		67,020
Prepaid expenses		41,176		55,269
Investments, fixed maturities and marketable equities		1,260,131		1,138,275
Investments, other		261,814		248,850
Deferred policy acquisition costs, net		113,943		118,707
Other assets		115,307		97,588
Related party assets		166,999		169,624
		3,063,901		2,589,767
Property, plant and equipment, at cost:
Land		446,347		405,177
Buildings and improvements		1,568,504		1,430,330
Furniture and equipment		332,859		322,088
Rental trailers and other rental equipment		418,590		373,325
Rental trucks		2,873,062		2,610,797
		5,639,362		5,141,717
Less: Accumulated depreciation		(1,833,472)		(1,732,506)
Total property, plant and equipment		3,805,890		3,409,211
Total assets	$	6,869,791	$	5,998,978
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses	$	387,844	$	357,954
Notes, loans and leases payable		2,382,323		1,942,359
Policy benefits and losses, claims and loss expenses payable		1,078,379		1,082,598
Liabilities from investment contracts		664,221		616,725
Other policyholders' funds and liabilities		9,343		7,988
Deferred income		33,332		31,390
Deferred income taxes		472,096		432,596
Total liabilities		5,027,538		4,471,610
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, 2014		–		–
Series B preferred stock, with no par value, 100,000 shares authorized; none
issued and outstanding as of September 30 and March 31, 2014		–		–
Series common stock, with or without par value, 150,000,000 shares authorized:
Series A common stock of $0.25 par value, 10,000,000 shares authorized;
none issued and outstanding as of September 30 and March 31, 2014		–		–
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, 2014		10,497		10,497
Additional paid-in capital		447,485		444,210
Accumulated other comprehensive loss		(23,201)		(53,923)
Retained earnings		2,086,174		1,805,453
Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2014)		(525,653)		(525,653)
Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2014)		(151,997)		(151,997)
Unearned employee stock ownership plan shares		(1,052)		(1,219)
Total stockholders' equity		1,842,253		1,527,368
Total liabilities and stockholders' equity	$	6,869,791	$	5,998,978

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

 

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

		Quarter Ended September 30,
		2014		2013
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	653,534	$	598,931
Self-storage revenues		52,986		45,572
Self-moving and self-storage products and service sales		68,043		65,379
Property management fees		5,796		5,292
Life insurance premiums		39,041		39,448
Property and casualty insurance premiums		12,463		10,867
Net investment and interest income		21,856		19,960
Other revenue		52,772		53,774
Total revenues		906,491		839,223
Costs and expenses:
Operating expenses		383,970		361,551
Commission expenses		76,160		70,099
Cost of sales		39,836		34,532
Benefits and losses		39,558		37,992
Amortization of deferred policy acquisition costs		4,290		6,057
Lease expense		19,775		25,818
Depreciation, net of (gains) on disposals of (($21,541) and ($9,311), respectively)		67,066		63,208
Total costs and expenses		630,655		599,257
Earnings from operations		275,836		239,966
Interest expense		(24,877)		(23,118)
Fees and amortization on early extinguishment of debt		(4,081)		–
Pretax earnings		246,878		216,848
Income tax expense		(90,631)		(78,857)
Earnings available to common stockholders	$	156,247	$	137,991
Basic and diluted earnings per common share	$	7.98	$	7.06
Weighted average common shares outstanding: Basic and diluted		19,584,194		19,554,633

 

Related party revenues for the second quarter of fiscal 2015 and 2014, net of eliminations, were $8.9 million and $8.4 million, respectively.

Related party costs and expenses for the second quarter of fiscal 2015 and 2014, net of eliminations, were $16.4 million and $15.9 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,
		2014		2013
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	1,229,009	$	1,120,580
Self-storage revenues		102,120		87,671
Self-moving and self-storage products and service sales		142,522		136,070
Property management fees		11,473		10,453
Life insurance premiums		76,971		80,510
Property and casualty insurance premiums		22,081		18,833
Net investment and interest income		42,902		38,949
Other revenue		98,368		95,114
Total revenues		1,725,446		1,588,180
Costs and expenses:
Operating expenses		747,269		680,515
Commission expenses		142,500		131,389
Cost of sales		81,464		70,102
Benefits and losses		80,342		80,625
Amortization of deferred policy acquisition costs		8,474		9,740
Lease expense		42,245		52,825
Depreciation, net of (gains) on disposals of (($44,500) and ($20,876), respectively)		128,117		120,642
Total costs and expenses		1,230,411		1,145,838
Earnings from operations		495,035		442,342
Interest expense		(49,025)		(46,446)
Fees and amortization on early extinguishment of debt		(4,081)		–
Pretax earnings		441,929		395,896
Income tax expense		(161,208)		(144,937)
Earnings available to common stockholders	$	280,721	$	250,959
Basic and diluted earnings per common share	$	14.34	$	12.84
Weighted average common shares outstanding: Basic and diluted		19,580,997		19,550,128

 

Related party revenues for the first six months of fiscal 2015 and 2014, net of eliminations, were $17.6 million and $16.8 million, respectively.

Related party costs and expenses for the first six months of fiscal 2015 and 2014, net of eliminations, were $31.4 million and $29.9 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 COMPREHENSIVE INCOME (loss)

 

Quarter Ended September 30, 2014		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	246,878	$	(90,631)	$	156,247
Other comprehensive income (loss):
Foreign currency translation		(6,282)		–		(6,282)
Unrealized net gain on investments		20,530		(7,186)		13,344
Change in fair value of cash flow hedges		4,492		(1,707)		2,785
Total comprehensive income	$	265,618	$	(99,524)	$	166,094
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

 

Six Months Ended September 30, 2014		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	441,929	$	(161,208)	$	280,721
Other comprehensive income (loss):
Foreign currency translation		(3,539)		–		(3,539)
Unrealized net gain on investments		47,142		(16,500)		30,642
Change in fair value of cash flow hedges		5,837		(2,218)		3,619
Total comprehensive income	$	491,369	$	(179,926)	$	311,443
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

 

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,
		2014		2013
		(Unaudited)
		(In thousands)
Cash flow from operating activities:
Net earnings	$	280,721	$	250,959
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		172,617		141,518
Amortization of deferred policy acquisition costs		8,474		9,740
Change in allowance for losses on trade receivables		(219)		(6)
Change in allowance for inventory reserves		(960)		716
Net gain on sale of real and personal property		(44,500)		(20,876)
Net gain on sale of investments		(2,788)		(4,060)
Deferred income taxes		23,212		63,947
Net change in other operating assets and liabilities:
Reinsurance recoverables and trade receivables		13,396		24,561
Inventories		(1,260)		(5,750)
Prepaid expenses		14,012		2,323
Capitalization of deferred policy acquisition costs		(13,728)		(16,289)
Other assets		(7,885)		(4,370)
Related party assets		2,170		8,650
Accounts payable and accrued expenses		35,919		24,866
Policy benefits and losses, claims and loss expenses payable		(3,918)		309
Other policyholders' funds and liabilities		1,356		494
Deferred income		1,962		2,191
Related party liabilities		375		4,475
Net cash provided by operating activities		478,956		483,398
Cash flows from investing activities:
Purchases of:
Property, plant and equipment		(599,351)		(457,671)
Short term investments		(130,294)		(154,703)
Fixed maturities investments		(114,112)		(174,593)
Equity securities		(3,707)		(388)
Preferred stock		(3)		(635)
Real estate		(11,312)		(252)
Mortgage loans		(21,189)		(14,260)
Proceeds from sale of:
Property, plant and equipment		260,659		176,453
Short term investments		130,326		162,580
Fixed maturities investments		48,955		93,050
Equity securities		3,030		6,803
Preferred stock		1,000		6,004
Real estate		401		–
Mortgage loans		18,623		36,415
Net cash used by investing activities		(416,974)		(321,197)
Cash flows from financing activities:
Borrowings from credit facilities		506,792		138,041
Principal repayments on credit facilities		(208,101)		(122,945)
Debt issuance costs		(9,847)		(233)
Capital lease payments		(40,694)		(21,425)
Leveraged Employee Stock Ownership Plan - repayments from loan		167		260
Investment contract deposits		71,571		74,253
Investment contract withdrawals		(24,075)		(14,721)
Net cash provided by financing activities		295,813		53,230
Effects of exchange rate on cash		(3,761)		401
Increase in cash and cash equivalents		354,034		215,832
Cash and cash equivalents at the beginning of period		495,112		463,744
Cash and cash equivalents at the end of period	$	849,146	$	679,576

 

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

AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a 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 2014 and 2013 correspond to fiscal 2015 and 2014 for AMERCO.

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

The condensed consolidated balance sheet as of September 30, 2014 and the related condensed consolidated statements of operations, comprehensive income (loss) for the second quarter and first six months and cash flows for the first six months of fiscal 2015 and 2014 are unaudited.

In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (“Quarterly Report”) should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

Intercompany accounts and transactions have been eliminated.

Description of Legal Entities

AMERCO is the holding company for:

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

Amerco Real Estate Company (“Real Estate”),

Repwest Insurance Company (“Repwest”), and

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

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

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

AMERCO and consolidated entities

notes to condensed consolidatED financial statements (Continued)

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

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

2. Earnings per Share

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

The weighted average common shares outstanding exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares, net of shares committed to be released, were 20,422 and 48,649 as of September 30, 2014 and 2013, respectively.

3. Investments

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

We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $16.9 million and $16.3 million at September 30, 2014 and March 31, 2014, respectively.

Available-for-Sale Investments

Available-for-sale investments at September 30, 2014 were as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses More than 12 Months		Gross Unrealized Losses Less than 12 Months		Estimated Market Value
		(Unaudited)
		(In thousands)
U.S. treasury securities and government obligations	$	71,987	$	3,640	$	(223)	$	(20)	$	75,384
U.S. government agency mortgage-backed securities		33,291		2,838		(129)		(3)		35,997
Obligations of states and political subdivisions		164,887		9,354		(1,242)		(39)		172,960
Corporate securities		877,833		45,736		(4,294)		(1,275)		918,000
Mortgage-backed securities		16,817		518		(2)		(80)		17,253
Redeemable preferred stocks		17,448		646		(348)		(25)		17,721
Common stocks		17,975		4,841		–		–		22,816
	$	1,200,238	$	67,573	$	(6,238)	$	(1,442)	$	1,260,131

 

Available-for-sale investments at March 31, 2014 were as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses More than 12 Months		Gross Unrealized Losses Less than 12 Months		Estimated Market Value
		(Unaudited)
		(In thousands)
U.S. treasury securities and government obligations	$	49,883	$	1,475	$	–	$	(1,004)	$	50,354
U.S. government agency mortgage-backed securities		36,258		2,558		(4)		(425)		38,387
Obligations of states and political subdivisions		166,311		4,834		(308)		(3,627)		167,210
Corporate securities		834,923		26,075		(3,794)		(25,875)		831,329
Mortgage-backed securities		12,425		279		(3)		(514)		12,187
Redeemable preferred stocks		18,445		283		(82)		(1,113)		17,533
Common stocks		17,299		3,987		(1)		(10)		21,275
	$	1,135,544	$	39,491	$	(4,192)	$	(32,568)	$	1,138,275

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

We sold available-for-sale securities with a fair value of $48.5 million during the first six months of fiscal 2015. The gross realized gains on these sales totaled $1.4 million. The gross realized losses on these sales totaled $0.3 million.

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

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

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

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

The adjusted cost and estimated market value of available-for-sale investments at September 30, 2014, by contractual maturity, were as follows:

		September 30, 2014				March 31, 2014
		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
		(Unaudited)
		(In thousands)
Due in one year or less	$	40,037	$	41,254	$	20,235	$	20,475
Due after one year through five years		225,426		239,240		185,447		194,563
Due after five years through ten years		472,125		495,392		350,048		350,953
Due after ten years		410,410		426,455		531,645		521,289
		1,147,998		1,202,341		1,087,375		1,087,280
Mortgage backed securities		16,817		17,253		12,425		12,187
Redeemable preferred stocks		17,448		17,721		18,445		17,533
Common stocks		17,975		22,816		17,299		21,275
	$	1,200,238	$	1,260,131	$	1,135,544	$	1,138,275

4. Borrowings

Long-Term Debt

Long-term debt was as follows:

					September 30,		March 31,
	2015 Rate (a)		Maturities		2014		2014
					(Unaudited)
					(In thousands)
Real estate loan (amortizing term)	1.66% - 6.93%		2023	$	245,000	$	250,000
Real estate loan (revolving credit)	–		2015		–		–
Senior mortgages	2.16% - 5.75%		2015 - 2038		880,186		684,915
Working capital loan (revolving credit)	–		2016		–		–
Fleet loans (amortizing term)	1.95% - 5.57%		2015 - 2021		342,431		370,394
Fleet loans (securitization)	4.90%		2017		81,571		90,793
Fleet loans (revolving credit)	1.15% - 2.00%		2017 - 2019		232,000		89,632
Capital leases (rental equipment)	2.23% - 7.83%		2015 - 2021		558,132		416,750
Other obligations	3.00% - 8.00%		2014 - 2043		43,003		39,875
Total notes, loans and leases payable				$	2,382,323	$	1,942,359
(a) Interest rate as of September 30, 2014, including the effect of applicable hedging instruments.

Real Estate Backed Loans

Real Estate Loan

Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. As of September 30, 2014, the outstanding balance on the Real Estate Loan was $245.0 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 final maturity of the term loan is April 2023. 

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, 2014, the applicable LIBOR was 0.16% and the applicable margin was 1.50%, the sum of which was 1.66% which applied to $25.0 million of the Real Estate Loan. The rate on the remaining balance of $220.0 million of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $50.0 million. This agreement matures in April 2015. As of September 30, 2014, we had the full $50.0 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO and U-Haul International, Inc. are guarantors of this facility. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of September 30, 2014 were in the aggregate amount of $880.2 million and mature between 2015 and 2038. During the second quarter of fiscal 2015, we paid off approximately $127 million of our senior mortgages before their maturity in July 2015. As part of this defeasence, we incurred costs associated with the early extinguishment of debt of $3.8 million in fees and $0.3 million of transaction cost amortization related to the defeased debt.

For the six months ended September 30, 2014, we entered into $334 million of senior mortgages with rates between 2.16% and 4.81% and mature between 2017 and 2034. The senior mortgages require monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The fixed interest rates, per the provisions of the senior mortgages, range between 4.22% and 5.75%. Additionally, $145.6 million of these loans have interest rates comprised of an applicable LIBOR of 0.16% plus margins between 2.00% and 2.50%, the sum of which was between 2.16% and 2.66%. 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, 2014, the full $25.0 million was available to be drawn. This loan is secured by certain properties owned by the borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This agreement matures in April 2016. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. The interest rate is the applicable LIBOR plus a margin of 1.25%.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of September 30, 2014 was $227.4 million with the final maturities between August 2015 and March 2021.

The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus the applicable margins. At September 30, 2014, the applicable LIBOR was between 0.15% and 0.16% and applicable margins were between 1.35% and 2.50%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 5.57% based on current margins. Additionally, $98.3 million of these loans are carried at fixed rates ranging between 1.95% and 3.94%.

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

A subsidiary of U-Haul International, Inc. is a borrower under amortizing term loans with an aggregate balance of $115.0 million that were used to fund new truck acquisitions. The final maturity date of these notes is August 2016.  The agreements contain options to extend the maturity through May 2017. These notes are secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  These notes have fixed interest rates between 3.52% and 3.53%. At September 30, 2014, the aggregate outstanding balance was $115.0 million.

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

Rental Truck Securitizations

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

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At September 30, 2014, the outstanding balance was $81.6 million. The note is secured by the box trucks purchased and the corresponding operating cash flows associated with their operation.

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

Rental Truck Revolvers

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $75 million, which can be increased to a maximum of $225 million. The loan matures in October 2018. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At September 30, 2014, the applicable LIBOR was 0.15% and the margin was 1.75%, the sum of which was 1.90%. Only interest is paid during the first four years of the loan with principal due monthly over the last nine months. As of September 30, 2014, the outstanding balance was $75.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $100 million, which can be increased to a maximum of $125 million. The loan matures in October 2017. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At September 30, 2014, the applicable LIBOR was 0.15% and the margin was 1.00%, the sum of which was 1.15%. Only interest is paid during the first three years of the loan with principal due monthly over the last nine months. As of September 30, 2014, the outstanding balance was $100.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $70 million. The loan matures in May 2019. This agreement contains an option to extend the maturity through February 2020. At September 30, 2014, the applicable LIBOR was 0.15% and the margin was 1.85%, the sum of which was 2.00%. Only interest is paid during the first five years of the loan with principal due upon maturity. As of September 30, 2014, we had $13.0 million available to be drawn.

Capital Leases

We entered into capital leases for new equipment between April 2008 and September 2014, with terms of the leases between 3 and 7 years. At September 30, 2014, the balance of these leases was $558.1 million. The net book value of the corresponding capitalized assets was $670.8 million at September 30, 2014.

Other Obligations

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

At September 30, 2014, the aggregate outstanding principal balance of the U-Notes issued was $49.8 million of which $6.8 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 3.00% and 8.00% and maturity dates between 2014 and 2043.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of September 30, 2014 for the next five years and thereafter are as follows:

		Twelve Months Ending September 30,
		2015		2016		2017		2018		2019		Thereafter
		(Unaudited)
		(In thousands)
Notes, loans and leases payable, secured	$	502,023	$	322,471	$	361,445	$	318,263	$	251,294	$	626,827

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

		Quarter Ended September 30,
		2014		2013
		(Unaudited)
		(In thousands)
Interest expense	$	20,658	$	18,055
Capitalized interest		(220)		(128)
Amortization of transaction costs		801		843
Interest expense resulting from derivatives		3,638		4,348
Total interest expense		24,877		23,118
Write-off of transaction costs related to early extinguishment of debt		298		–
Fees on early extinguishment of debt		3,783		–
Fees and amortization on early extinguishment of debt		4,081		–
Total	$	28,958	$	23,118

 

		Six Months Ended September 30,
		2014		2013
		(Unaudited)
		(In thousands)
Interest expense	$	40,579	$	35,869
Capitalized interest		(387)		(270)
Amortization of transaction costs		1,554		1,694
Interest expense resulting from derivatives		7,279		9,153
Total interest expense		49,025		46,446
Write-off of transaction costs related to early extinguishment of debt		298		–
Fees on early extinguishment of debt		3,783		–
Fees and amortization on early extinguishment of debt		4,081		–
Total	$	53,106	$	46,446

Interest paid in cash, including payments related to derivative contracts, amounted to $24.1 million and $22.9 million for the second quarter of fiscal 2015 and 2014, respectively and $47.5 million and $44.9 million for the first six months of fiscal 2015 and 2014, respectively.

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

Interest Rates

Interest rates and Company borrowings were as follows:

		Revolving Credit Activity
		Quarter Ended September 30,
		2014		2013
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the quarter		1.76%		1.52%
Interest rate at the end of the quarter		1.61%		1.52%
Maximum amount outstanding during the quarter	$	232,000	$	25,000
Average amount outstanding during the quarter	$	202,977	$	25,000
Facility fees	$	81	$	64
		Revolving Credit Activity
		Six Months Ended September 30,
		2014		2013
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the period		1.76%		1.50%
Interest rate at the end of the period		1.61%		1.52%
Maximum amount outstanding during the period	$	232,000	$	25,000
Average amount outstanding during the period	$	172,740	$	24,590
Facility fees	$	198	$	156

 

5. Derivatives

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

	Original variable rate debt amount			Agreement Date		Effective Date		Expiration Date		Designated cash flow hedge date
	(Unaudited)
	(In millions)
$	300.0			8/16/2006		8/18/2006		8/10/2018		8/4/2006
	19.3	(a)		4/8/2008		8/15/2008		6/15/2015		3/31/2008
	19.0			8/27/2008		8/29/2008		7/10/2015		4/10/2008
	30.0			9/24/2008		9/30/2008		9/10/2015		9/24/2008
	15.0	(a)		3/24/2009		3/30/2009		3/30/2016		3/25/2009
	14.7	(a)		7/6/2010		8/15/2010		7/15/2017		7/6/2010
	25.0	(a)		4/26/2011		6/1/2011		6/1/2018		6/1/2011
	50.0	(a)		7/29/2011		8/15/2011		8/15/2018		7/29/2011
	20.0	(a)		8/3/2011		9/12/2011		9/10/2018		8/3/2011
	15.1	(b)		3/27/2012		3/28/2012		3/28/2019		3/26/2012
	25.0			4/13/2012		4/16/2012		4/1/2019		4/12/2012
	44.3			1/11/2013		1/15/2013		12/15/2019		1/11/2013
	(a) forward swap
	(b) operating lease

As of September 30, 2014, the total notional amount of our variable interest rate swaps on debt and an operating lease was $349.5 million and $11.6 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, 2014		March 31, 2014
		(Unaudited)
		(In thousands)
Interest rate contracts designated as hedging instruments	$	26,859	$	32,716