U-Haul Holding Co /NV/ - Quarter Report: 2017 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, 2017

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)
	5555 Kietzke Lane, Ste. 100
	Reno, Nevada 89511
	Telephone (775) 688-6300
	N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth 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 [ ]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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 3, 2017.

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	a) Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and March 31, 2017	1
	b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 2017 and 2016 (unaudited)	2
	c) Condensed Consolidated Statement of Operations for the Six Months ended September 30, 2017 and 2016 (unaudited)	3
	d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Six Months ended September 30, 2017 and 2016 (unaudited)	4
	e) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2017 and 2016 (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	59
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61

 

Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

		September 30,		March 31,
		2017		2017
		(Unaudited)
		(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	768,351	$	697,806
Reinsurance recoverables and trade receivables, net		194,131		178,081
Inventories, net		100,693		82,439
Prepaid expenses		83,673		124,728
Investments, fixed maturities and marketable equities		1,843,768		1,663,768
Investments, other		395,327		367,830
Deferred policy acquisition costs, net		125,936		130,213
Other assets		101,767		97,525
Related party assets		80,923		86,168
		3,694,569		3,428,558
Property, plant and equipment, at cost:
Land		684,729		648,757
Buildings and improvements		2,826,712		2,618,265
Furniture and equipment		564,033		510,415
Rental trailers and other rental equipment		526,603		492,280
Rental trucks		4,337,308		4,091,598
		8,939,385		8,361,315
Less: Accumulated depreciation		(2,551,064)		(2,384,033)
Total property, plant and equipment		6,388,321		5,977,282
Total assets	$	10,082,890	$	9,405,840
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses	$	441,010	$	450,541
Notes, loans and leases payable		3,422,077		3,262,880
Policy benefits and losses, claims and loss expenses payable		1,099,597		1,086,322
Liabilities from investment contracts		1,263,107		1,112,498
Other policyholders' funds and liabilities		20,454		10,150
Deferred income		32,443		28,696
Deferred income taxes		911,780		835,009
Total liabilities		7,190,468		6,786,096
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 September 30 and March 31, 2017		–		–
Series B preferred stock, with no par value, 100,000 shares authorized; none
issued and outstanding as of September 30 and March 31, 2017		–		–
Serial common stock, with or without par value, 250,000,000 shares authorized:
Serial common stock of $0.25 par value, 10,000,000 shares authorized;
none issued and outstanding as of September 30 and March 31, 2017		–		–
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 September 30 and March 31, 2017		10,497		10,497
Additional paid-in capital		452,474		452,172
Accumulated other comprehensive loss		(11,534)		(51,236)
Retained earnings		3,124,152		2,892,893
Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2017)		(525,653)		(525,653)
Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and March 31, 2017)		(151,997)		(151,997)
Unearned employee stock ownership plan shares		(5,517)		(6,932)
Total stockholders' equity		2,892,422		2,619,744
Total liabilities and stockholders' equity	$	10,082,890	$	9,405,840

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,
		2017		2016
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	740,558	$	711,710
Self-storage revenues		80,472		72,163
Self-moving and self-storage products and service sales		73,268		70,330
Property management fees		6,831		6,712
Life insurance premiums		38,862		40,893
Property and casualty insurance premiums		15,026		14,009
Net investment and interest income		26,469		25,590
Other revenue		61,200		57,278
Total revenues		1,042,686		998,685
Costs and expenses:
Operating expenses		492,482		398,213
Commission expenses		83,351		80,462
Cost of sales		42,866		40,952
Benefits and losses		47,109		46,836
Amortization of deferred policy acquisition costs		5,944		5,989
Lease expense		8,575		9,349
Depreciation, net of (gains) on disposals of (($5,104) and ($9,618), respectively)		132,978		109,904
Total costs and expenses		813,305		691,705
Earnings from operations		229,381		306,980
Interest expense		(32,023)		(27,989)
Pretax earnings		197,358		278,991
Income tax expense		(72,719)		(102,516)
Earnings available to common stockholders	$	124,639	$	176,475
Basic and diluted earnings per common share	$	6.36	$	9.01
Weighted average common shares outstanding: Basic and diluted		19,588,571		19,586,411

 

Related party revenues for the second quarter of fiscal 2018 and 2017, net of eliminations, were $8.0 million and $7.9 million, respectively.

Related party costs and expenses for the second quarter of fiscal 2018 and 2017, net of eliminations, were $18.2 million and $17.8 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

 

		Six Months Ended September 30,
		2017		2016
		(Unaudited)
		(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rentals	$	1,410,416	$	1,358,046
Self-storage revenues		157,190		139,885
Self-moving and self-storage products and service sales		152,179		147,633
Property management fees		13,593		13,316
Life insurance premiums		77,953		81,785
Property and casualty insurance premiums		26,841		25,264
Net investment and interest income		53,686		52,921
Other revenue		108,753		103,026
Total revenues		2,000,611		1,921,876
Costs and expenses:
Operating expenses		909,406		783,295
Commission expenses		158,716		154,278
Cost of sales		90,461		84,314
Benefits and losses		94,829		93,839
Amortization of deferred policy acquisition costs		12,265		13,931
Lease expense		16,862		20,397
Depreciation, net of (gains) on disposals of (($9,845) and ($28,258), respectively)		259,660		205,285
Total costs and expenses		1,542,199		1,355,339
Earnings from operations		458,412		566,537
Interest expense		(62,368)		(54,415)
Pretax earnings		396,044		512,122
Income tax expense		(145,198)		(188,474)
Earnings available to common stockholders	$	250,846	$	323,648
Basic and diluted earnings per common share	$	12.81	$	16.52
Weighted average common shares outstanding: Basic and diluted		19,588,231		19,586,240

 

Related party revenues for the first six months of fiscal 2018 and 2017, net of eliminations, were $16.0 million and $15.8 million, respectively.

Related party costs and expenses for the first six months of fiscal 2018 and 2017, net of eliminations, were $34.8 million and $34.3 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 September 30, 2017		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	197,358	$	(72,719)	$	124,639
Other comprehensive income (loss):
Foreign currency translation		12,767		–		12,767
Unrealized net gain on investments		15,473		(5,416)		10,057
Change in fair value of cash flow hedges		1,194		(454)		740
Total comprehensive income	$	226,792	$	(78,589)	$	148,203
Quarter Ended September 30, 2016		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	278,991	$	(102,516)	$	176,475
Other comprehensive income (loss):
Foreign currency translation		(1,704)		–		(1,704)
Unrealized net loss on investments		30,790		(10,777)		20,013
Change in fair value of cash flow hedges		3,105		(1,179)		1,926
Total comprehensive income	$	311,182	$	(114,472)	$	196,710

 

Six Months Ended September 30, 2017		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	396,044	$	(145,198)	$	250,846
Other comprehensive income (loss):
Foreign currency translation		21,034		–		21,034
Unrealized net gain on investments		26,104		(9,136)		16,968
Change in fair value of cash flow hedges		2,744		(1,044)		1,700
Total comprehensive income	$	445,926	$	(155,378)	$	290,548
Six Months Ended September 30, 2016		Pre-tax		Tax		Net
		(Unaudited)
		(In thousands)
Comprehensive income:
Net earnings	$	512,122	$	(188,474)	$	323,648
Other comprehensive income (loss):
Foreign currency translation		(1,982)		–		(1,982)
Unrealized net loss on investments		60,618		(21,217)		39,401
Change in fair value of cash flow hedges		5,186		(1,970)		3,216
Total comprehensive income	$	575,944	$	(211,661)	$	364,283

 

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,
		2017		2016
		(Unaudited)
		(In thousands)
Cash flow from operating activities:
Net earnings	$	250,846	$	323,648
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		269,505		233,543
Amortization of deferred policy acquisition costs		12,265		13,931
Amortization of debt issuance costs		1,946		1,765
Interest credited to policyholders		15,119		11,028
Change in allowance for losses on trade receivables		(2)		34
Change in allowance for inventory reserves		2,953		800
Net gain on sale of real and personal property		(9,845)		(28,258)
Net gain on sale of investments		(3,059)		(4,645)
Deferred income taxes		63,065		114,724
Net change in other operating assets and liabilities:
Reinsurance recoverables and trade receivables		(15,895)		(8,102)
Inventories		(21,036)		(2,674)
Prepaid expenses		41,486		46,248
Capitalization of deferred policy acquisition costs		(15,154)		(14,360)
Other assets		16,615		(8,695)
Related party assets		8,958		5,195
Accounts payable and accrued expenses		69,550		45,162
Policy benefits and losses, claims and loss expenses payable		12,057		16,922
Other policyholders' funds and liabilities		10,305		1,563
Deferred income		3,660		5,034
Related party liabilities		(3,662)		232
Net cash provided by operating activities		709,677		753,095
Cash flows from investing activities:
Purchases of:
Property, plant and equipment		(754,052)		(761,277)
Short term investments		(34,765)		(409,925)
Fixed maturities investments		(219,620)		(168,817)
Equity securities		(662)		(489)
Preferred stock		(1,000)		–
Real estate		(118)		(15,788)
Mortgage loans		(50,817)		(136,682)
Proceeds from sales and paydowns of:
Property, plant and equipment		259,450		310,409
Short term investments		38,927		386,508
Fixed maturities investments		70,792		120,525
Equity securities		–		–
Preferred stock		988		2,651
Real estate		2,664		831
Mortgage loans		9,584		105,731
Net cash used by investing activities		(678,629)		(566,323)
Cash flows from financing activities:
Borrowings from credit facilities		285,532		331,787
Principal repayments on credit facilities		(214,354)		(158,479)
Debt issuance costs		(3,413)		(2,085)
Capital lease payments		(150,302)		(83,414)
Employee Stock Ownership Plan		(3,960)		(4,653)
Securitization deposits		(186)		245
Common stock dividends paid		(19,587)		(19,586)
Investment contract deposits		232,752		130,166
Investment contract withdrawals		(97,262)		(49,555)
Net cash provided by financing activities		29,220		144,426
Effects of exchange rate on cash		10,277		(10,517)
Increase in cash and cash equivalents		70,545		320,681
Cash and cash equivalents at the beginning of period		697,806		600,646
Cash and cash equivalents at the end of period	$	768,351	$	921,327

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 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 2017 and 2016 correspond to fiscal 2018 and 2017 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, 2017 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 2018 and 2017 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, 2017.

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, 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 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 in the United States and Canada. 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 insurance 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 our 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 18,885 and 21,219 as of September 30, 2017 and 2016, 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 $28.2 million and $16.8 million at September 30, 2017 and March 31, 2017, respectively.

Available-for-Sale Investments

Available-for-sale investments at September 30, 2017 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	$	123,503	$	3,468	$	–	$	(1,176)	$	125,795
U.S. government agency mortgage-backed securities		26,812		1,355		(2)		(2)		28,163
Obligations of states and political subdivisions		174,665		10,626		(10)		(223)		185,058
Corporate securities		1,332,938		48,148		(3,786)		(3,631)		1,373,669
Mortgage-backed securities		89,858		1,958		–		–		91,816
Redeemable preferred stocks		13,789		539		–		(25)		14,303
Common stocks		15,732		9,242		(10)		–		24,964
	$	1,777,297	$	75,336	$	(3,808)	$	(5,057)	$	1,843,768

 

Available-for-sale investments at March 31, 2017 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	$	123,474	$	2,892	$	–	$	(1,675)	$	124,691
U.S. government agency mortgage-backed securities		27,908		1,070		(6)		(377)		28,595
Obligations of states and political subdivisions		159,417		9,466		(23)		(424)		168,436
Corporate securities		1,263,703		32,901		(5,731)		(13,837)		1,277,036
Mortgage-backed securities		26,577		515		–		(5)		27,087
Redeemable preferred stocks		13,789		168		–		(468)		13,489
Common stocks		15,732		8,728		(10)		(16)		24,434
	$	1,630,600	$	55,740	$	(5,770)	$	(16,802)	$	1,663,768

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 $68.5 million during the first six months of fiscal 2018. The gross realized gains on these sales totaled $2.6 million. The gross realized losses on these sales totaled $0.1 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 second quarter or for the first six months of fiscal 2018 or 2017.

The investment portfolio primarily consists of corporate securities and obligations of states and political subdivisions. 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 or first six months of fiscal 2018 and fiscal 2017, respectively.

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

		September 30, 2017				March 31, 2017
		Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value
		(Unaudited)
		(In thousands)
Due in one year or less	$	40,057	$	40,428	$	35,399	$	35,795
Due after one year through five years		366,506		377,028		324,286		333,016
Due after five years through ten years		609,614		628,689		598,232		607,184
Due after ten years		641,741		666,540		616,585		622,763
		1,657,918		1,712,685		1,574,502		1,598,758
Mortgage backed securities		89,858		91,816		26,577		27,087
Redeemable preferred stocks		13,789		14,303		13,789		13,489
Common stocks		15,732		24,964		15,732		24,434
	$	1,777,297	$	1,843,768	$	1,630,600	$	1,663,768

4. Borrowings

Long term Debt

Long term debt was as follows:

					September 30,		March 31,
	2018 Rate (a)		Maturities		2017		2017
					(Unaudited)
					(In thousands)
Real estate loan (amortizing term)	2.74% - 6.93%		2023	$	140,287	$	169,289
Senior mortgages	3.72% - 5.50%		2022 - 2038		1,405,702		1,292,160
Working capital loans (revolving credit)	2.74%		2018		55,000		85,000
Fleet loans (amortizing term)	1.95% - 4.76%		2018 - 2024		319,631		324,977
Fleet loans (securitization)	4.90%		2017		47,183		52,112
Fleet loans (revolving credit)	2.39%		2020 - 2021		446,000		417,000
Capital leases (rental equipment)	1.92% - 4.86%		2017 - 2024		962,140		876,828
Other obligations	2.75% - 8.00%		2017 - 2047		72,005		69,867
Notes, loans and leases payable					3,447,948		3,287,233
Less: Debt issuance costs					(25,871)		(24,353)
Total notes, loans and leases payable				$	3,422,077	$	3,262,880
(a) Interest rate as of September 30, 2017, 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, 2017, the outstanding balance on the Real Estate Loan was $140.3 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 September 30, 2017, the applicable LIBOR was 1.24% and the applicable margin was 1.50%, the sum of which was 2.74%, which was applied to $77.2 million of the Real Estate Loan. The rate of the remaining balance of $63.1 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 September 30, 2017 were in the aggregate amount of $1,405.7 million and mature between 2022 and 2038. The senior mortgages require monthly principal and interest payments. 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. 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

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 $55.0 million. At September 30, 2017, the outstanding balance was $55.0 million. This loan is secured by certain properties owned by the borrowers. 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 unpaid interest due at maturity. The interest rate, per the provision of the loan agreement, is the applicable LIBOR plus the applicable margin. At September 30, 2017, the applicable LIBOR was 1.24% and the margin was 1.50%, the sum of which was 2.74%. 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.

AMERCO is a borrower under working capital loan. The current maximum credit commitment is $150.0 million, which can be increased to $300.0 million by bringing in other lenders. At September 30, 2017, the full $150.0 million was available to be drawn. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. The final maturity of this loan is September 2020. 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 between 1.38% and 1.50% depending on the amount outstanding. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There is a 0.30% fee charged for unused capacity.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The aggregate balance of the loans as of September 30, 2017 was $319.6 million with the final maturities between June 2018 and June 2024.

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, 2017, the applicable LIBOR was between 1.23% and 1.24% and applicable margins were between 1.72% and 2.38%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 4.76% based on current margins. Additionally, $260.7 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 September 30, 2017, the outstanding balance was $47.2 million. In October 2017, the note was repaid in full. 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 three revolving fleet loans in aggregate for $490.0 million, which can be increased to a maximum of $565.0 million. These loans mature between March 2020 and November 2021. The interest rate, per the provision of the Loan Agreements, is the applicable LIBOR plus the applicable margin. At September 30, 2017, the applicable LIBOR was 1.24% and the margin was 1.15%, the sum of which was 2.39%. Only interest is paid on the loans until the last nine months when principal is due monthly. As of September 30, 2017, the outstanding balance of the loans was $446.0 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 six months of fiscal 2018, we entered into $233.9 million of new capital leases. At September 30, 2017 and March 31, 2017, the balance of our capital leases was $962.1 million and $876.8 million, respectively. The net book value of the corresponding capitalized assets was $1,367.0 million and $1,233.3 million at September 30, 2017 and March 31, 2017, respectively.

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, but not limited to, 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, 2017, the aggregate outstanding principal balance of the U-Notes® issued was $76.1 million of which $4.1 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 2.75% and 8.00% and maturity dates range between 2017 and 2047.

Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made deposits with Oxford. As of June 30, 2017, one deposit balance was $45.0 million, for which Oxford pays a fixed interest rate of 1.00%, due on the maturity date of September 29, 2017. As of June 30, 2017, the other deposit amount was $15.0 million with a maturity of March 30, 2020 at an interest rate of 1.75%. As of June 30, 2017, available-for-sale investments held with the FHLB totaled $130.2 million, of which $69.3 million was pledged as collateral to secure the outstanding deposits. The balances of these deposits are 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 September 30, 2017 for the next five years and thereafter are as follows:

		Twelve Months Ending September 30,
		2018		2019		2020		2021		2022		Thereafter
		(Unaudited)
		(In thousands)
Notes, loans and leases payable, secured	$	451,564	$	490,060	$	404,931	$	497,718	$	273,441	$	1,330,234

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

		Quarter Ended September 30,
		2017		2016
		(Unaudited)
		(In thousands)
Interest expense	$	31,863	$	25,879
Capitalized interest		(1,929)		(985)
Amortization of transaction costs		1,014		804
Interest expense resulting from derivatives		1,075		2,291
Total interest expense		32,023		27,989

 

 

		Six Months Ended September 30,
		2017		2016
		(Unaudited)
		(In thousands)
Interest expense	$	61,492	$	49,964
Capitalized interest		(3,694)		(2,298)
Amortization of transaction costs		1,946		1,647
Interest expense resulting from derivatives		2,624		5,102
Total interest expense		62,368		54,415

Interest paid in cash, including payments related to derivative contracts, amounted to $32.4 million and $28.1 million for the second quarter of fiscal 2018 and 2017, respectively and $63.4 million and $55.3 million for the first six months of fiscal 2018 and 2017, respectively.

Interest Rates

Interest rates and Company borrowings were as follows:

		Revolving Credit Activity
		Quarter Ended September 30,
		2017		2016
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the quarter		2.43%		1.73%
Interest rate at the end of the quarter		2.43%		1.73%
Maximum amount outstanding during the quarter	$	538,000	$	462,000
Average amount outstanding during the quarter	$	516,946	$	431,815
Facility fees	$	49	$	49

 

		Revolving Credit Activity
		Six Months Ended September 30,
		2017		2016
		(Unaudited)
		(In thousands, except interest rates)
Weighted average interest rate during the period		2.34%		1.73%
Interest rate at the end of the period		2.43%		1.73%
Maximum amount outstanding during the period	$	538,000	$	462,000
Average amount outstanding during the period	$	508,350	$	400,896
Facility fees	$	125	$	89

 

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
	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, 2017, the total notional amount of our variable interest rate swaps on debt and an operating lease was $123.2 million and $7.0 million, respectively.