U-Haul Holding Co /NV/ - Quarter Report: 2016 December (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2016

or

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

For the transition period from __________________ to __________________

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. (Check one): 

Large accelerated filer [x]   Accelerated filer [ ]  

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

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

19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 2017

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	a) Condensed Consolidated Balance Sheets as of December 31, 2016 (unaudited) and March 31, 2016	1
	b) Condensed Consolidated Statements of Operations for the Quarters ended December 31, 2016 and 2015 (unaudited)	2
	c) Condensed Consolidated Statement of Operations for the Nine Months ended December 31, 2016 and 2015 (unaudited)	3
	d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Nine Months ended December 31, 2016 and 2015 (unaudited)	4
	e) Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2016 and 2015 (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	56
Item 4.	Controls and Procedures	58
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds........................................................................	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	60
Item 6.	Exhibits	60

 

 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

		December 31,		March 31,
		2016		2016
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	984,185	$	600,646
Reinsurance recoverables and trade receivables, net		199,095		175,210
Inventories, net		79,682		79,756
Prepaid expenses		54,486		134,300
Investments, fixed maturities and marketable equities		1,700,581		1,510,538
Investments, other		376,813		310,072
Deferred policy acquisition costs, net		118,040		136,386
Other assets		78,049		77,210
Related party assets		91,705		85,734
		3,682,636		3,109,852
Property, plant and equipment, at cost:
Land		633,725		587,347
Buildings and improvements		2,509,073		2,187,400
Furniture and equipment		477,131		399,943
Rental trailers and other rental equipment		493,214		462,379
Rental trucks		3,806,387		3,514,175
		7,919,530		7,151,244
Less: Accumulated depreciation		(2,314,849)		(2,133,733)
Total property, plant and equipment		5,604,681		5,017,511
Total assets	$	9,287,317	$	8,127,363
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses	$	435,000	$	502,613
Notes, loans and leases payable		3,198,435		2,665,396
Policy benefits and losses, claims and loss expenses payable		1,083,627		1,071,412
Liabilities from investment contracts		1,085,775		951,490
Other policyholders' funds and liabilities		8,268		8,650
Deferred income		23,847		22,784
Deferred income taxes		791,661		653,612
Total liabilities		6,626,613		5,875,957
Commitments and contingencies (notes 4, 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 December 31 and March 31, 2016		–		–
Series B preferred stock, with no par value, 100,000 shares authorized; none
issued and outstanding as of December 31 and March 31, 2016		–		–
Series common stock, with or without par value, 250,000,000 shares authorized:
Series A common stock of $0.25 par value, 10,000,000 shares authorized;
none issued and outstanding as of December 31 and March 31, 2016		–		–
Common stock, with $0.25 par value, 250,000,000 shares authorized:
Common stock of $0.25 par value, 250,000,000 shares authorized; 41,985,700
issued and 19,607,788 outstanding as of December 31 and March 31, 2016		10,497		10,497
Additional paid-in capital		452,014		451,629
Accumulated other comprehensive loss		(21,034)		(60,525)
Retained earnings		2,902,932		2,533,641
Cost of common shares in treasury, net (22,377,912 shares as of December 31 and March 31, 2016)		(525,653)		(525,653)
Cost of preferred shares in treasury, net (6,100,000 shares as of December 31 and March 31, 2016)		(151,997)		(151,997)
Unearned employee stock ownership plan shares		(6,055)		(6,186)
Total stockholders' equity		2,660,704		2,251,406
Total liabilities and stockholders' equity	$	9,287,317	$	8,127,363

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

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

		Quarter Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	541,473	$	517,403
Self-storage revenues		72,309		63,164
Self-moving and self-storage products and service sales		51,562		50,038
Property management fees		9,734		8,170
Life insurance premiums		41,279		40,657
Property and casualty insurance premiums		14,938		14,105
Net investment and interest income		23,054		19,026
Other revenue		36,327		32,188
Total revenues		790,676		744,751
Costs and expenses:
Operating expenses		389,352		356,156
Commission expenses		61,052		58,347
Cost of sales		32,537		29,460
Benefits and losses		45,403		41,574
Amortization of deferred policy acquisition costs		5,200		5,138
Lease expense		8,807		10,461
Depreciation, net of (gains) on disposals of (($4,517) and ($8,984), respectively)		116,123		85,713
Total costs and expenses		658,474		586,849
Earnings from operations		132,202		157,902
Interest expense		(29,003)		(25,407)
Amortization on early extinguishment of debt		(499)		–
Pretax earnings		102,700		132,495
Income tax expense		(37,472)		(50,726)
Earnings available to common stockholders	$	65,228	$	81,769
Basic and diluted earnings per common share	$	3.33	$	4.17
Weighted average common shares outstanding: Basic and diluted		19,586,694		19,599,352

 

Related party revenues for the third quarter of fiscal 2017 and 2016, net of eliminations, were $11.0 million and $9.4 million, respectively.

Related party costs and expenses for the third quarter of fiscal 2017 and 2016, net of eliminations, were $13.7 million and $13.0 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

		Nine Months Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	1,899,519	$	1,844,908
Self-storage revenues		212,194		182,415
Self-moving and self-storage products and service sales		199,195		197,999
Property management fees		23,050		20,601
Life insurance premiums		123,064		121,438
Property and casualty insurance premiums		40,202		38,033
Net investment and interest income		76,419		63,149
Other revenue		139,353		123,916
Total revenues		2,712,996		2,592,459
Costs and expenses:
Operating expenses		1,172,647		1,125,607
Commission expenses		215,330		212,204
Cost of sales		116,851		110,596
Benefits and losses		139,242		128,393
Amortization of deferred policy acquisition costs		19,131		15,559
Lease expense		29,204		40,249
Depreciation, net of (gains) on disposals of (($32,775) and ($87,789), respectively)		321,408		199,773
Total costs and expenses		2,013,813		1,832,381
Earnings from operations		699,183		760,078
Interest expense		(83,862)		(71,480)
Amortization on early extinguishment of debt		(499)		–
Pretax earnings		614,822		688,598
Income tax expense		(225,946)		(252,165)
Earnings available to common stockholders	$	388,876	$	436,433
Basic and diluted earnings per common share	$	19.85	$	22.27
Weighted average common shares outstanding: Basic and diluted		19,586,389		19,597,735

 

Related party revenues for the first nine months of fiscal 2017 and 2016, net of eliminations, were $26.7 million and $25.5 million, respectively.

Related party costs and expenses for the first nine months of fiscal 2017 and 2016, net of eliminations, were $47.9 million and $45.6 million, respectively.

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

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

 

AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)

Quarter Ended December 31, 2016		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	102,700	$	(37,472)	$	65,228
Other comprehensive income (loss):
Foreign currency translation		(5,821)		–		(5,821)
Unrealized net gain on investments		4,238		(1,483)		2,755
Change in fair value of cash flow hedges		2,853		(931)		1,922
Total comprehensive income	$	103,970	$	(39,886)	$	64,084
Quarter Ended December 31, 2015		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	132,495	$	(50,726)	$	81,769
Other comprehensive income (loss):
Foreign currency translation		(6,727)		–		(6,727)
Unrealized net gain on investments		1,025		(359)		666
Change in fair value of cash flow hedges		4,353		(1,654)		2,699
Total comprehensive income	$	131,146	$	(52,739)	$	78,407

 

 

Nine Months Ended December 31, 2016		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	614,822	$	(225,946)	$	388,876
Other comprehensive income (loss):
Foreign currency translation		(7,803)		–		(7,803)
Unrealized net gain on investments		64,856		(22,700)		42,156
Change in fair value of cash flow hedges		8,039		(2,901)		5,138
Total comprehensive income	$	679,914	$	(251,547)	$	428,367
Nine Months Ended December 31, 2015		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	688,598	$	(252,165)	$	436,433
Other comprehensive income (loss):
Foreign currency translation		(17,292)		–		(17,292)
Unrealized net loss on investments		(19,947)		6,982		(12,965)
Change in fair value of cash flow hedges		8,958		(3,404)		5,554
Total comprehensive income	$	660,317	$	(248,587)	$	411,730

 

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

AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

		Nine Months Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands)
Cash flow from operating activities:
Net earnings	$	388,876	$	436,433
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		354,183		287,562
Amortization of deferred policy acquisition costs		19,131		15,559
Amortization of debt issuance costs		3,125		2,319
Interest credited to policyholders		18,190		13,844
Change in allowance for losses on trade receivables		(28)		(182)
Change in allowance for inventory reserves		1,897		(1,939)
Net gain on sale of real and personal property		(32,775)		(87,789)
Net gain on sale of investments		(3,948)		(3,779)
Deferred income taxes		112,448		151,399
Net change in other operating assets and liabilities:
Reinsurance recoverables and trade receivables		(23,919)		8,568
Inventories		(1,901)		(3,887)
Prepaid expenses		79,578		(57,015)
Capitalization of deferred policy acquisition costs		(21,040)		(24,803)
Other assets		(1,431)		18,361
Related party assets		(5,469)		49,803
Accounts payable and accrued expenses		30,773		37,323
Policy benefits and losses, claims and loss expenses payable		12,843		12,976
Other policyholders' funds and liabilities		(382)		(560)
Deferred income		1,105		1,005
Related party liabilities		(711)		(878)
Net cash provided by operating activities		930,545		854,320
Cash flows from investing activities:
Purchases of:
Property, plant and equipment		(981,316)		(1,051,830)
Short term investments		(566,371)		(391,683)
Fixed maturities investments		(261,851)		(318,664)
Equity securities		(489)		(1,315)
Preferred stock		–		(5)
Real estate		(15,863)		(23)
Mortgage loans		(159,309)		(99,549)
Proceeds from sales and paydowns of:
Property, plant and equipment		412,892		463,602
Short term investments		566,955		400,844
Fixed maturities investments		147,233		135,727
Equity securities		–		808
Preferred stock		3,351		–
Real estate		1,681		–
Mortgage loans		109,260		34,141
Net cash used by investing activities		(743,827)		(827,947)
Cash flows from financing activities:
Borrowings from credit facilities		534,008		508,276
Principal repayments on credit facilities		(244,545)		(280,304)
Debt issuance costs		(4,529)		(5,957)
Capital lease payments		(141,750)		(110,202)
Employee Stock Ownership Plan		(7,541)		(1,559)
Securitization deposits		371		448
Common stock dividends paid		(39,171)		(78,374)
Investment contract deposits		180,554		232,912
Investment contract withdrawals		(64,459)		(41,258)
Net cash provided by financing activities		212,938		223,982
Effects of exchange rate on cash		(16,117)		(17,578)
Increase in cash and cash equivalents		383,539		232,777
Cash and cash equivalents at the beginning of period		600,646		441,850
Cash and cash equivalents at the end of period	$	984,185	$	674,627

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

AMERCO and consolidated entities

notes to condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the presentation of financial position or results of operations. We disclose any material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2016 and 2015 correspond to fiscal 2017 and 2016 for AMERCO.

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

The condensed consolidated balance sheet as of December 31, 2016 and the related condensed consolidated statements of operations, comprehensive income (loss) for the third quarter and first nine months and cash flows for the first nine months of fiscal 2017 and 2016 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, 2016.

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 terms “Company,” “we,” “us” or “our” refer to AMERCO and all of its legal subsidiaries.

Description of Operating Segments

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

The Moving and Storage operating segment (“Moving and Storage”) includes AMERCO, U-Haul, Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate. Operations consist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane and the rental of fixed and portable moving and storage units 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 20,958 and 7,587 as of December 31, 2016 and 2015, 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 $17.0 million and $17.3 million at December 31, 2016 and March 31, 2016, respectively.

Available-for-Sale Investments

Available-for-sale investments at December 31, 2016 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	$	87,116	$	6,872	$	–	$	(80)	$	93,908
U.S. government agency mortgage-backed securities		28,935		1,940		(5)		(2)		30,868
Obligations of states and political subdivisions		159,596		15,829		(12)		(90)		175,323
Corporate securities		1,250,266		70,953		(4,404)		(1,411)		1,315,404
Mortgage-backed securities		42,665		1,214		–		(58)		43,821
Redeemable preferred stocks		14,640		492		–		(96)		15,036
Common stocks		17,970		8,261		(10)		–		26,221
	$	1,601,188	$	105,561	$	(4,431)	$	(1,737)	$	1,700,581

Available-for-sale investments at March 31, 2016 were as follows:

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses More than 12 Months		Gross Unrealized Losses Less than 12 Months		Estimated Market Value
		(In thousands)
U.S. treasury securities and government obligations	$	85,861	$	3,791	$	–	$	(193)	$	89,459
U.S. government agency mortgage-backed securities		21,845		1,596		(6)		(39)		23,396
Obligations of states and political subdivisions		166,725		10,660		(81)		(414)		176,890
Corporate securities		1,143,125		26,861		(8,013)		(28,181)		1,133,792
Mortgage-backed securities		42,991		475		–		(62)		43,404
Redeemable preferred stocks		17,977		556		–		(105)		18,428
Common stocks		17,732		7,822		(10)		(375)		25,169
	$	1,496,256	$	51,761	$	(8,110)	$	(29,369)	$	1,510,538

The available-for-sale tables 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 $147.1 million during the first nine months of fiscal 2017. The gross realized gains on these sales totaled $3.4 million. The gross realized losses on these sales totaled $1.8 million.

The unrealized losses of more than twelve months in the available-for-sale tables are considered temporary declines. We track each investment with an unrealized loss and evaluate it on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognize these write-downs, if any, through earnings. There were no write downs in the third quarter or for the first nine months of fiscal 2017 or 2016.

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 credit losses on mortgage backed securities include ratings, delinquency rates, and prepayment activity. The significant inputs utilized in the evaluation of credit losses on asset backed securities include the time frame for principal recovery and the subordination and value of the underlying collateral.

There were no credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income (loss) for the third quarter or first nine months of fiscal 2017.

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

		December 31, 2016				March 31, 2016
		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
		(Unaudited)
		(In thousands)
Due in one year or less	$	29,111	$	29,500	$	48,679	$	49,146
Due after one year through five years		319,439		334,064		250,576		256,597
Due after five years through ten years		604,645		639,749		557,984		557,961
Due after ten years		572,718		612,190		560,317		559,833
		1,525,913		1,615,503		1,417,556		1,423,537
Mortgage backed securities		42,665		43,821		42,991		43,404
Redeemable preferred stocks		14,640		15,036		17,977		18,428
Common stocks		17,970		26,221		17,732		25,169
	$	1,601,188	$	1,700,581	$	1,496,256	$	1,510,538

4. Borrowings

Long-Term Debt

Long-term debt was as follows:

					December 31,		March 31,
	2016 Rate (a)		Maturities		2016		2016
					(Unaudited)
					(In thousands)
Real estate loan (amortizing term)	2.17% - 6.93%		2023	$	171,789	$	205,000
Senior mortgages	2.24% - 5.50%		2017 - 2038		1,256,832		1,121,897
Working capital loans (revolving credit)	2.24%		2018		85,000		–
Fleet loans (amortizing term)	1.95% - 4.76%		2017 - 2023		216,582		218,998
Fleet loans (securitization)	4.90%		2017		53,876		62,838
Fleet loans (revolving credit)	1.76% - 2.46%		2018 - 2021		454,000		347,000
Capital leases (rental equipment)	2.12% - 7.16%		2017 - 2024		917,792		672,825
Other obligations	3.00% - 8.00%		2017 - 2045		67,318		60,200
Notes, loans and leases payable					3,223,189		2,688,758
Less: Debt issuance costs					(24,754)		(23,362)
Total notes, loans and leases payable				$	3,198,435	$	2,665,396
(a) Interest rate as of December 31, 2016, including the effect of applicable hedging instruments.

Real Estate Backed Loans

Real Estate Loan

Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. As of December 31, 2016, the outstanding balance on the Real Estate Loan was $171.8 million. 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 December 31, 2016, the applicable LIBOR was 0.67% and the applicable margin was 1.50%, the sum of which was 2.17%, which was applied to $40.7 million of the Real Estate Loan. The rate of the remaining balance of $131.1 million of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin. The interest rate swap expires in August 2018, after which date the remaining balance will incur interest at a rate of LIBOR plus a margin of 1.50%. 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.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of December 31, 2016 were in the aggregate amount of $1,256.8 million and mature between 2017 and 2038. The senior mortgages require monthly principal and interest payments, except for one mortgage that only requires 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 3.72% and 5.50%. Certain senior mortgages have an anticipated repayment date and a maturity date. If these senior mortgages are not repaid by the anticipated repayment date, the interest rate on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule. Additionally, $159.0 million of these loans have variable interest rates comprised of applicable LIBOR base rates between 0.63% and 0.70% plus margins between 2.00% and 2.50%, the sums of which were between 2.63% and 3.20%. 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 $50.0 million. At December 31, 2016 the full $50.0 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. The final maturity of this loan is September 2018. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO is the guarantor 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.

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $85.0 million. At December 31, 2016, the outstanding balance was $85.0 million. This loan is secured by certain properties owned by the borrower. This loan agreement provides for term loans, subject to the terms of the loan agreement. The final maturity of the loan is November 2018. This loan requires monthly interest payments with the unpaid loan balance and accrued and upaid interest due at maturity. The interest rate, per the provision of the loan agreement, is the applicable LIBOR plus the applicable margin. At December 31, 2016, the applicable LIBOR was 0.74% and the margin was 1.50%, the sum of which was 2.24%. AMERCO is the guarantor 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.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of December 31, 2016 was $216.6 million with the final maturities between July 2017 and September 2023.

The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus the applicable margins. At December 31, 2016, the applicable LIBOR was between 0.62% and 0.70% and applicable margins were between 1.72% and 2.50%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 4.76% based on current margins. Additionally, $146.9 million of these loans are carried at fixed rates ranging between 1.95% and 3.94%.

AMERCO and, in some cases, 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”). 2010 USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the securitized transaction were used to finance new box truck purchases. U.S. Bank, NA acts as the trustee for this securitization.

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At December 31, 2016, the outstanding balance was $53.9 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 $150 million, which can be increased to a maximum of $225 million. This loan matures in September 2018. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At December 31, 2016, the applicable LIBOR was 0.61% and the margin was 1.15%, the sum of which was 1.76%. Only interest is paid on the loan until the last nine months when principal is due monthly. As of December 31, 2016, the outstanding balance was $142.0 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 $215 million. This loan matures in March 2020. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At December 31, 2016, the applicable LIBOR was 0.62% and the margin was 1.15%, the sum of which was 1.77%. Only interest is paid on the loan until the last nine months when principal is due monthly. As of December 31, 2016, the outstanding balance was $147.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $50 million. The loan matures in May 2019. This agreement contains an option to extend the maturity through January 2020. The interest rate, per the provision of the Loan Agreement is the applicable LIBOR plus the applicable margin. At December 31, 2016, the applicable LIBOR was 0.61% and the margin was 1.85%, the sum of which was 2.46%. Only interest is paid during the first five years of the loan with principal due upon maturity. As of December 31, 2016, the outstanding balance was $40.0 million.

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $125 million. The loan matures in November 2021. In October 2016, this loan was amended and the availablity was increased to $150.0 million. The interest rate, per the provision of the Loan Agreement is the applicable LIBOR plus the applicable margin. At December 31, 2016, the applicable LIBOR was 0.62% and the margin was 1.15%, the sum of which was 1.77%. Only interest is paid on the loan until the last nine months when principal is due monthly. As of December 31, 2016, the outstanding balance was $125.0 million.

Capital Leases

We regularly enter into capital leases for new equipment with the terms of the leases between five and seven years. During the first nine months of fiscal 2017, we entered into $379.4 million of new capital leases. At December 31, 2016, the balance of our capital leases was $917.8 million. The net book value of the corresponding capitalized assets was $1,256.5 million at December 31, 2016.

Other Obligations

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

At December 31, 2016, the aggregate outstanding principal balance of the U-Notes issued was $71.9 million of which $4.6 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 3.00% and 8.00% and maturity dates range between 2017 and 2045.

Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made a deposit with Oxford. As of September 30, 2016, the deposit balance was $30.0 million, which Oxford pays a fixed interest rate of 0.57% due on the maturity date of March 31, 2017. The balance of the deposit is included within Liabilities from investment contracts on the consolidated balance sheet.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt, including capital leases and excluding debt issuance costs, as of December 31, 2016 for the next five years and thereafter are as follows:

		Twelve Months Ending December 31,
		2017		2018		2019		2020		2021		Thereafter
		(Unaudited)
		(In thousands)
Notes, loans and leases payable, secured	$	423,432	$	566,646	$	431,682	$	292,576	$	306,774	$	1,202,079

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

		Quarter Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands)
Interest expense	$	27,441	$	22,452
Capitalized interest		(1,119)		(958)
Amortization of transaction costs		863		807
Interest expense resulting from derivatives		1,818		3,106
Total interest expense		29,003		25,407
Amortization on early extinguishment of debt		499		–
Total	$	29,502	$	25,407

 

		Nine Months Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands)
Interest expense	$	77,849	$	61,756
Capitalized interest		(3,417)		(2,380)
Amortization of transaction costs		2,510		2,298
Interest expense resulting from derivatives		6,920		9,806
Total interest expense		83,862		71,480
Amortization on early extinguishment of debt		499		–
Total		84,361		71,480

Interest paid in cash, including payments related to derivative contracts, amounted to $28.7 million and $25.0 million for the third quarter of fiscal 2017 and 2016, respectively and $84.0 million and $69.6 million for the first nine months of fiscal 2017 and 2016, respectively.

Interest Rates

Interest rates and Company borrowings were as follows:

		Revolving Credit Activity
		Quarter Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the quarter		1.82%		1.66%
Interest rate at the end of the quarter		1.89%		1.69%
Maximum amount outstanding during the quarter	$	597,000	$	265,000
Average amount outstanding during the quarter	$	550,304	$	258,207
Facility fees	$	10	$	25

 

		Revolving Credit Activity
		Nine Months Ended December 31,
		2016		2015
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the period		1.76%		1.65%
Interest rate at the end of the period		1.89%		1.69%
Maximum amount outstanding during the period	$	597,000	$	265,000
Average amount outstanding during the period	$	450,880	$	224,582
Facility fees	$	99	$	169