U-Haul Holding Co /NV/ - Quarter Report: 2019 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, 2019
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________ to __________________
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Commission File Number |
Registrant, State of Incorporation, Address and Telephone Number |
I.R.S. Employer Identification No. |
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001-11255 |
AMERCO |
88-0106815 |
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(A Nevada Corporation) |
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5555 Kietzke Lane Suite 100 |
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Reno NV 89511 |
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Telephone 775 688-6300 |
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N/A |
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
Common Stock , $0.25 par value |
UHAL |
NASDAQ Global Select Market |
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, every Interactive Data File required to be submitted 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 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 [ ] 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 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 January 31, 2020.
TABLE OF CONTENTS
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Page |
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PART I FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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a) Condensed Consolidated Balance Sheets as of December 31, 2019 (unaudited) and March 31, 2019
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1
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b) Condensed Consolidated Statements of Operations for the Quarters Ended December 31, 2019 and 2018 (unaudited)
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2
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c) Condensed Consolidated Statements of Operations for the Nine Months Ended December 31, 2019 and 2018 (unaudited)
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3
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d) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Nine Months Ended December 31, 2019 and 2018 (unaudited)
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4
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e) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Quarters Ended December 31, 2019 and 2018 (unaudited)
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5
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f) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended December 31, 2019 and 2018 (unaudited)
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6
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g) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and 2018 (unaudited)
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7
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h) Notes to Condensed Consolidated Financial Statements (unaudited)
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8
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Item 2
. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
44
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
61 |
Item 4. |
Controls and Procedures |
63 |
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PART II OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
64 |
Item 1A. |
Risk Factors |
64 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
64 |
Item 3. |
Defaults Upon Senior Securities |
64 |
Item 4. |
Mine Safety Disclosures |
64 |
Item 5. |
Other Information |
64 |
Item 6. |
Exhibits |
64 |
Part i Financial information
Item 1. Financial Statements
AMERCO AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED balance sheets
|
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December 31, |
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March 31, |
|
|
2019 |
|
2019 |
|
|
(Unaudited) |
|
|
|
|
(In thousands, except share data) |
||
ASSETS |
|
|
|
|
Cash and cash equivalents |
$ |
631,951 |
$ |
673,701 |
Reinsurance recoverables and trade receivables, net |
|
200,164 |
|
224,785 |
Inventories and parts, net |
|
103,003 |
|
103,504 |
Prepaid expenses |
|
188,780 |
|
174,100 |
Investments, fixed maturities and marketable equities |
|
2,469,468 |
|
2,235,397 |
Investments, other |
|
336,727 |
|
300,736 |
Deferred policy acquisition costs, net |
|
106,354 |
|
136,276 |
Other assets |
|
71,821 |
|
78,354 |
Right of use assets - financing, net |
|
1,130,473 |
|
– |
Right of use assets - operating |
|
107,974 |
|
– |
Related party assets |
|
47,988 |
|
30,889 |
|
|
5,394,703 |
|
3,957,742 |
Property, plant and equipment, at cost: |
|
|
|
|
Land |
|
1,018,010 |
|
976,454 |
Buildings and improvements |
|
4,522,855 |
|
4,003,726 |
Furniture and equipment |
|
733,063 |
|
689,780 |
Rental trailers and other rental equipment |
|
511,872 |
|
590,039 |
Rental trucks |
|
3,454,759 |
|
4,762,028 |
|
|
10,240,559 |
|
11,022,027 |
Less: Accumulated depreciation |
|
(2,640,940) |
|
(3,088,056) |
Total property, plant and equipment, net |
|
7,599,619 |
|
7,933,971 |
Total assets |
$ |
12,994,322 |
$ |
11,891,713 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
$ |
551,770 |
$ |
556,873 |
Notes, loans and finance/capital leases payable, net |
|
4,548,609 |
|
4,163,323 |
Operating lease liability |
|
107,581 |
|
– |
Policy benefits and losses, claims and loss expenses payable |
|
1,015,663 |
|
1,011,183 |
Liabilities from investment contracts |
|
1,753,428 |
|
1,666,742 |
Other policyholders' funds and liabilities |
|
12,924 |
|
15,047 |
Deferred income |
|
31,459 |
|
35,186 |
Deferred income taxes, net |
|
869,671 |
|
750,970 |
Total liabilities |
|
8,891,105 |
|
8,199,324 |
|
|
|
|
|
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; |
|
|
|
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6,100,000 shares issued and none outstanding as of December 31 and March 31, 2019 |
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|
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Series B preferred stock, with no par value, 100,000 shares authorized; none |
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issued and outstanding as of December 31 and March 31, 2019 |
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Serial common stock, with or without par value, 250,000,000 shares authorized: |
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Serial common stock of $0.25 par value, 10,000,000 shares authorized; |
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none issued and outstanding as of December 31 and March 31, 2019 |
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Common stock, with $0.25 par value, 250,000,000 shares authorized: |
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|
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Common stock of $0.25 par value, 250,000,000 shares authorized; 41,985,700 |
|
|
|
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issued and 19,607,788 outstanding as of December 31 and March 31, 2019 |
|
10,497 |
|
10,497 |
Additional paid-in capital |
|
453,819 |
|
453,326 |
Accumulated other comprehensive income (loss) |
|
39,517 |
|
(66,698) |
Retained earnings |
|
4,277,034 |
|
3,976,962 |
Cost of common stock in treasury, net (22,377,912 shares as of December 31 and March 31, 2019) |
|
(525,653) |
|
(525,653) |
Cost of preferred stock in treasury, net (6,100,000 shares as of December 31 and March 31, 2019) |
|
(151,997) |
|
(151,997) |
Unearned employee stock ownership plan shares |
|
– |
|
(4,048) |
Total stockholders' equity |
|
4,103,217 |
|
3,692,389 |
Total liabilities and stockholders' equity |
$ |
12,994,322 |
$ |
11,891,713 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
AMERCO
AND
CONSOLIDATED
SUBSIDIARIES
CONDENSED CONSOLIDATED Statements of operations
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|
Quarter Ended December 31, |
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2019 |
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2018 |
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(Unaudited) |
||
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|
(In thousands, except share and per share amounts) |
||
Revenues: |
|
|
|
|
Self-moving equipment rentals |
$ |
621,471 |
$ |
626,136 |
Self-storage revenues |
|
106,701 |
|
93,392 |
Self-moving and self-storage products and service sales |
|
54,454 |
|
55,665 |
Property management fees |
|
9,098 |
|
7,899 |
Life insurance premiums |
|
31,164 |
|
34,778 |
Property and casualty insurance premiums |
|
19,267 |
|
17,668 |
Net investment and interest income |
|
33,782 |
|
32,211 |
Other revenue |
|
51,943 |
|
51,342 |
Total revenues |
|
927,880 |
|
919,091 |
|
|
|
|
|
Costs and expenses: |
|
|
|
|
Operating expenses |
|
517,453 |
|
478,461 |
Commission expenses |
|
66,542 |
|
67,493 |
Cost of sales |
|
35,318 |
|
34,149 |
Benefits and losses |
|
42,864 |
|
42,869 |
Amortization of deferred policy acquisition costs |
|
8,046 |
|
6,654 |
Lease expense |
|
6,490 |
|
7,890 |
Depreciation, net of (gains)/losses on disposal of ($2,151 and ($796), respectively) |
|
170,074 |
|
143,473 |
Net losses on disposal of real estate |
|
528 |
|
– |
Total costs and expenses |
|
847,315 |
|
780,989 |
|
|
|
|
|
Earnings from operations |
|
80,565 |
|
138,102 |
Other components of net periodic benefit costs |
|
(263) |
|
(253) |
Interest expense |
|
(39,973) |
|
(34,827) |
Pretax earnings |
|
40,329 |
|
103,022 |
Income tax expense |
|
(9,397) |
|
(24,387) |
Earnings available to common stockholders |
$ |
30,932 |
$ |
78,635 |
Basic and diluted earnings per common stock |
$ |
1.58 |
$ |
4.01 |
Weighted average common stock outstanding: Basic and diluted |
|
19,607,788 |
|
19,591,963 |
Related party revenues for the third quarter of fiscal 2020 and 2019, net of eliminations, were $ 9.1 million and $ 7.9 million, respectively.
Related party costs and expenses for the third quarter of fiscal 2020 and 2019, net of eliminations, were $ 14.8 million and $ 15.0 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.
2
AMERCO AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED Statements of operations
|
|
Nine Months Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands, except share and per share amounts) |
||
Revenues: |
|
|
|
|
Self-moving equipment rentals |
$ |
2,174,392 |
$ |
2,124,451 |
Self-storage revenues |
|
309,940 |
|
271,097 |
Self-moving and self-storage products and service sales |
|
207,601 |
|
207,819 |
Property management fees |
|
23,487 |
|
22,507 |
Life insurance premiums |
|
96,229 |
|
107,586 |
Property and casualty insurance premiums |
|
51,056 |
|
46,732 |
Net investment and interest income |
|
102,629 |
|
85,043 |
Other revenue |
|
192,009 |
|
177,940 |
Total revenues |
|
3,157,343 |
|
3,043,175 |
|
|
|
|
|
Costs and expenses: |
|
|
|
|
Operating expenses |
|
1,617,338 |
|
1,504,365 |
Commission expenses |
|
233,540 |
|
232,084 |
Cost of sales |
|
128,177 |
|
130,432 |
Benefits and losses |
|
137,695 |
|
137,196 |
Amortization of deferred policy acquisition costs |
|
20,625 |
|
18,584 |
Lease expense |
|
19,882 |
|
24,229 |
Depreciation, net of gains on disposal of ($32,526 and $29,127, respectively) |
|
462,227 |
|
402,525 |
Net (gains) losses on disposal of real estate |
|
(1,311) |
|
10 |
Total costs and expenses |
|
2,618,173 |
|
2,449,425 |
|
|
|
|
|
Earnings from operations |
|
539,170 |
|
593,750 |
Other components of net periodic benefit costs |
|
(790) |
|
(760) |
Interest expense |
|
(117,983) |
|
(105,111) |
Pretax earnings |
|
420,397 |
|
487,879 |
Income tax expense |
|
(100,717) |
|
(117,853) |
Earnings available to common stockholders |
$ |
319,680 |
$ |
370,026 |
Basic and diluted earnings per common stock |
$ |
16.31 |
$ |
18.89 |
Weighted average common stock outstanding: Basic and diluted |
|
19,602,484 |
|
19,591,282 |
Related party revenues for the first nine months of fiscal 2020 and 2019, net of eliminations, were $ 23.5 million and $ 22.5 million, respectively.
Related party costs and expenses for the first nine months of fiscal 2020 and 2019, net of eliminations, were $ 51.9 million and $ 51.1 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.
3
AMERCO
AND
CONSOLIDATED
SUBSIDIARIES
Condensed consolidatED statements of COMPREHENSIVE INCOME (loss)
Quarter Ended December 31, 2019 |
|
Pre-tax |
|
Tax |
|
Net |
|
|
(Unaudited) |
||||
|
|
(In thousands) |
||||
Comprehensive income: |
|
|
|
|
|
|
Net earnings |
$ |
40,329 |
$ |
(9,397) |
$ |
30,932 |
Other comprehensive income (loss): |
|
|
|
|
|
|
Foreign currency translation |
|
(692) |
|
– |
|
(692) |
Unrealized net gain on investments |
|
28,568 |
|
(6,190) |
|
22,378 |
Change in fair value of cash flow hedges |
|
479 |
|
(118) |
|
361 |
Amounts reclassified into earnings on hedging activities |
|
422 |
|
(103) |
|
319 |
Total comprehensive income |
$ |
69,106 |
$ |
(15,808) |
$ |
53,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31, 2018 |
|
Pre-tax |
|
Tax |
|
Net |
|
|
(Unaudited) |
||||
|
|
(In thousands) |
||||
Comprehensive income: |
|
|
|
|
|
|
Net earnings |
$ |
103,022 |
$ |
(24,387) |
$ |
78,635 |
Other comprehensive income (loss): |
|
|
|
|
|
|
Foreign currency translation |
|
(4,101) |
|
|
|
(4,101) |
Unrealized net gain on investments |
|
1,827 |
|
(384) |
|
1,443 |
Change in fair value of cash flow hedges |
|
(1,001) |
|
246 |
|
57 |
Amounts reclassified into earnings on hedging activities |
|
886 |
|
(218) |
|
(144) |
Total comprehensive income |
$ |
100,633 |
$ |
(24,743) |
$ |
75,890 |
Nine Months Ended December 31, 2019 |
|
Pre-tax |
|
Tax |
|
Net |
|
|
(Unaudited) |
||||
|
|
(In thousands) |
||||
Comprehensive income: |
|
|
|
|
|
|
Net earnings |
$ |
420,397 |
$ |
(100,717) |
$ |
319,680 |
Other comprehensive income (loss): |
|
|
|
|
|
|
Foreign currency translation |
|
2,919 |
|
|
|
2,919 |
Unrealized net gain on investments |
|
133,046 |
|
(28,575) |
|
104,471 |
Change in fair value of cash flow hedges |
|
(1,555) |
|
382 |
|
(1,173) |
Amounts reclassified into earnings on hedging activities |
|
(3) |
|
1 |
|
(2) |
Total comprehensive income |
$ |
554,804 |
$ |
(128,909) |
$ |
425,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2018 |
|
Pre-tax |
|
Tax |
|
Net |
|
|
(Unaudited) |
||||
|
|
(In thousands) |
||||
Comprehensive income: |
|
|
|
|
|
|
Net earnings |
$ |
487,879 |
$ |
(117,853) |
$ |
370,026 |
Other comprehensive income (loss): |
|
|
|
|
|
|
Foreign currency translation |
|
(5,081) |
|
|
|
(5,081) |
Unrealized net loss on investments |
|
(70,671) |
|
14,841 |
|
(55,830) |
Change in fair value of cash flow hedges |
|
700 |
|
(172) |
|
528 |
Amounts reclassified into earnings on hedging activities |
|
31 |
|
(8) |
|
23 |
Total comprehensive income |
$ |
412,858 |
$ |
(103,192) |
$ |
309,666 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Amerco and consolidated subsidiaries
condensed consolidated statements of changes in stockholders’ equity
|
|
Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Retained Earnings |
|
Less: Treasury Common Stock |
|
Less: Treasury Preferred Stock |
|
Less: Unearned Employee Stock Ownership Plan Shares |
|
Total Stockholders' Equity |
|
(Unaudited) |
|||||||||||||||
|
(In thousands, except per share amounts) |
|||||||||||||||
Balance as of September 30, 2019 |
$ |
10,497 |
$ |
453,761 |
$ |
17,151 |
$ |
4,255,906 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(1,597) |
$ |
4,058,068 |
Increase in market value of released ESOP shares |
|
– |
|
58 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
58 |
Release of unearned ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
1,597 |
|
1,597 |
Purchase of ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
Foreign currency translation |
|
– |
|
– |
|
(692) |
|
– |
|
– |
|
– |
|
– |
|
(692) |
Unrealized net gain on investments, net of tax |
|
– |
|
– |
|
22,378 |
|
– |
|
– |
|
– |
|
– |
|
22,378 |
Change in fair value of cash flow hedges, net of tax |
|
– |
|
– |
|
361 |
|
– |
|
– |
|
– |
|
– |
|
361 |
Amounts reclassified into earnings on hedging activities |
|
– |
|
– |
|
319 |
|
– |
|
– |
|
– |
|
– |
|
319 |
Net earnings |
|
– |
|
– |
|
– |
|
30,932 |
|
– |
|
– |
|
– |
|
30,932 |
Common stock dividends: ($0.50 per share for fiscal 2020) |
|
– |
|
– |
|
– |
|
(9,804) |
|
– |
|
– |
|
– |
|
(9,804) |
Net activity |
|
– |
|
58 |
|
22,366 |
|
21,128 |
|
– |
|
– |
|
1,597 |
|
45,149 |
Balance as of December 31, 2019 |
$ |
10,497 |
$ |
453,819 |
$ |
39,517 |
$ |
4,277,034 |
$ |
(525,653) |
$ |
(151,997) |
$ |
– |
$ |
4,103,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2018 |
$ |
10,497 |
$ |
453,006 |
$ |
(62,238) |
$ |
3,917,087 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(7,535) |
$ |
3,633,167 |
Increase in market value of released ESOP shares |
|
– |
|
110 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
110 |
Release of unearned ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
2,695 |
|
2,695 |
Purchase of ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(303) |
|
(303) |
Foreign currency translation |
|
– |
|
– |
|
(4,101) |
|
– |
|
– |
|
– |
|
– |
|
(4,101) |
Unrealized net loss on investments, net of tax |
|
– |
|
– |
|
(8,281) |
|
– |
|
– |
|
– |
|
– |
|
(8,281) |
Change in fair value of cash flow hedges, net of tax |
|
– |
|
– |
|
57 |
|
– |
|
– |
|
– |
|
– |
|
57 |
Amounts reclassified into earnings on hedging activities |
|
– |
|
– |
|
(144) |
|
– |
|
– |
|
– |
|
– |
|
(144) |
Net earnings |
|
– |
|
– |
|
– |
|
78,635 |
|
– |
|
– |
|
– |
|
78,635 |
Common stock dividends: ($0.50 per share for fiscal 2019) |
|
– |
|
– |
|
– |
|
(9,795) |
|
– |
|
– |
|
– |
|
(9,795) |
Net activity |
|
– |
|
110 |
|
(12,469) |
|
68,840 |
|
– |
|
– |
|
2,392 |
|
58,873 |
Balance as of December 31, 2018 |
$ |
10,497 |
$ |
453,116 |
$ |
(74,707) |
$ |
3,985,927 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(5,143) |
$ |
3,692,040 |
The accompanying notes are an integral part of these consolidated financial statements.
5
Amerco and consolidated subsidiaries
condensed consolidated statements of changes in stockholders’ equity
|
|
Common Stock |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Retained Earnings |
|
Less: Treasury Common Stock |
|
Less: Treasury Preferred Stock |
|
Less: Unearned Employee Stock Ownership Plan Shares |
|
Total Stockholders' Equity |
|
(Unaudited) |
|||||||||||||||
|
(In thousands, except per share amounts) |
|||||||||||||||
Balance as of March 31, 2019 |
$ |
10,497 |
$ |
453,326 |
$ |
(66,698) |
$ |
3,976,962 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(4,048) |
$ |
3,692,389 |
Increase in market value of released ESOP shares |
|
– |
|
493 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
493 |
Release of unearned ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
4,253 |
|
4,253 |
Purchase of ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(205) |
|
(205) |
Foreign currency translation |
|
– |
|
– |
|
2,919 |
|
– |
|
– |
|
– |
|
– |
|
2,919 |
Unrealized net gain on investments, net of tax |
|
– |
|
– |
|
104,471 |
|
– |
|
– |
|
– |
|
– |
|
104,471 |
Change in fair value of cash flow hedges, net of tax |
|
– |
|
– |
|
(1,173) |
|
– |
|
– |
|
– |
|
– |
|
(1,173) |
Amounts reclassified into earnings on hedging activities |
|
– |
|
– |
|
(2) |
|
– |
|
– |
|
– |
|
– |
|
(2) |
Net earnings |
|
– |
|
– |
|
– |
|
319,680 |
|
– |
|
– |
|
– |
|
319,680 |
Common stock dividends: ($1.00 per share for fiscal 2020) |
|
– |
|
– |
|
– |
|
(19,608) |
|
– |
|
– |
|
– |
|
(19,608) |
Net activity |
|
– |
|
493 |
|
106,215 |
|
300,072 |
|
– |
|
– |
|
4,048 |
|
410,828 |
Balance as of December 31, 2019 |
$ |
10,497 |
$ |
453,819 |
$ |
39,517 |
$ |
4,277,034 |
$ |
(525,653) |
$ |
(151,997) |
$ |
– |
$ |
4,103,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2018 |
$ |
10,497 |
$ |
452,746 |
$ |
(4,623) |
$ |
3,635,561 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(7,823) |
$ |
3,408,708 |
Increase in market value of released ESOP shares |
|
– |
|
370 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
370 |
Release of unearned ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
8,083 |
|
8,083 |
Purchase of ESOP shares |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
|
(5,403) |
|
(5,403) |
Foreign currency translation |
|
– |
|
– |
|
(5,081) |
|
– |
|
– |
|
– |
|
– |
|
(5,081) |
Unrealized net loss on investments, net of tax |
|
– |
|
– |
|
(55,830) |
|
– |
|
– |
|
– |
|
– |
|
(55,830) |
Change in fair value of cash flow hedges, net of tax |
|
– |
|
– |
|
528 |
|
– |
|
– |
|
– |
|
– |
|
528 |
Amounts reclassified into earnings on hedging activities |
|
– |
|
– |
|
23 |
|
|
|
– |
|
– |
|
– |
|
23 |
Adjustment for adoption of ASU 2016 - 01 |
|
– |
|
– |
|
(9,724) |
|
9,724 |
|
– |
|
– |
|
– |
|
– |
Net earnings |
|
– |
|
– |
|
– |
|
370,026 |
|
– |
|
– |
|
– |
|
370,026 |
Common stock dividends: ($1.50 per share for fiscal 2019) |
|
– |
|
– |
|
– |
|
(29,384) |
|
– |
|
– |
|
– |
|
(29,384) |
Net activity |
|
– |
|
370 |
|
(70,084) |
|
350,366 |
|
– |
|
– |
|
2,680 |
|
283,332 |
Balance as of December 31, 2018 |
$ |
10,497 |
$ |
453,116 |
$ |
(74,707) |
$ |
3,985,927 |
$ |
(525,653) |
$ |
(151,997) |
$ |
(5,143) |
$ |
3,692,040 |
The accompanying notes are an integral part of these consolidated financial statements.
6
AMERCO AND CONSOLIDATED subsidiaries
Condensed consolidatED statements of cash flows
|
|
Nine Months Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Cash flows from operating activities: |
|
|
|
|
Net earnings |
$ |
319,680 |
$ |
370,026 |
Adjustments to reconcile net earnings to cash provided by operations: |
|
|
|
|
Depreciation |
|
494,753 |
|
431,652 |
Amortization of deferred policy acquisition costs |
|
20,625 |
|
18,584 |
Amortization of premiums and accretion of discounts related to investments, net |
|
9,848 |
|
9,802 |
Amortization of debt issuance costs |
|
3,275 |
|
2,922 |
Interest credited to policyholders |
|
38,169 |
|
28,540 |
Change in allowance for losses on trade receivables |
|
(76) |
|
124 |
Change in allowance for inventories and parts reserves |
|
(85) |
|
2,539 |
Net gains on disposal of personal property |
|
(32,526) |
|
(29,127) |
Net (gains) losses on disposal of real estate |
|
(1,311) |
|
10 |
Net (gains) losses on sales of investments |
|
(8,777) |
|
(3,594) |
Net (gains) losses on equity investments |
|
(3,749) |
|
4,289 |
Deferred income taxes |
|
87,805 |
|
104,325 |
Net change in other operating assets and liabilities: |
|
|
|
|
Reinsurance recoverables and trade receivables |
|
24,759 |
|
1,601 |
Inventories and parts |
|
589 |
|
(8,858) |
Prepaid expenses |
|
(16,402) |
|
(12,533) |
Capitalization of deferred policy acquisition costs |
|
(17,530) |
|
(19,994) |
Other assets |
|
(293) |
|
159,125 |
Related party assets |
|
(17,507) |
|
(1,838) |
Accounts payable and accrued expenses |
|
51,754 |
|
(14,231) |
Policy benefits and losses, claims and loss expenses payable |
|
3,974 |
|
(159,285) |
Other policyholders' funds and liabilities |
|
(2,123) |
|
2,867 |
Deferred income |
|
(2,317) |
|
(4,982) |
Related party liabilities |
|
446 |
|
(3,269) |
Net cash provided by operating activities |
|
952,981 |
|
878,695 |
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Escrow deposits |
|
7,153 |
|
(3,292) |
Purchases of: |
|
|
|
|
Property, plant and equipment |
|
(1,917,862) |
|
(1,325,365) |
Short term investments |
|
(47,457) |
|
(39,494) |
Fixed maturities investments |
|
(267,909) |
|
(394,266) |
Equity securities |
|
(83) |
|
(957) |
Preferred stock |
|
– |
|
(81) |
Real estate |
|
(484) |
|
(505) |
Mortgage loans |
|
(43,085) |
|
(56,892) |
Proceeds from sales and paydowns of: |
|
|
|
|
Property, plant and equipment |
|
599,797 |
|
561,848 |
Short term investments |
|
46,859 |
|
47,012 |
Fixed maturities investments |
|
193,196 |
|
82,776 |
Equity securities |
|
185 |
|
8,608 |
Preferred stock |
|
– |
|
1,625 |
Real estate |
|
311 |
|
– |
Mortgage loans |
|
9,052 |
|
116,800 |
Net cash used by investing activities |
|
(1,420,327) |
|
(1,002,183) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Borrowings from credit facilities |
|
867,862 |
|
693,132 |
Principal repayments on credit facilities |
|
(225,332) |
|
(255,123) |
Payment of debt issuance costs |
|
(3,671) |
|
(5,097) |
Finance/capital lease payments |
|
(247,188) |
|
(236,683) |
Employee stock ownership plan stock |
|
(206) |
|
(203) |
Common stock dividends paid |
|
(19,600) |
|
(29,385) |
Investment contract deposits |
|
171,465 |
|
300,920 |
Investment contract withdrawals |
|
(122,948) |
|
(109,641) |
Net cash provided by financing activities |
|
420,382 |
|
357,920 |
|
|
|
|
|
Effects of exchange rate on cash |
|
5,214 |
|
(9,435) |
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
(41,750) |
|
224,997 |
Cash and cash equivalents at the beginning of period |
|
673,701 |
|
759,388 |
Cash and cash equivalents at the end of period |
$ |
631,951 |
$ |
984,385 |
The accompanying notes are an integral part of these condensed consolidated financial statements .
7
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 30 th 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 material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2019 and 2018 correspond to fiscal 2020 and 2019 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, 2019 and the related condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity for the third quarter and first nine months of fiscal 2020 and 2019 and cash flows for the first nine months of fiscal 2020 and 2019 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, 2019.
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 ( 3 ) 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.
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
8
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 15,559 as of December 31, 2018. As of December 31, 2019, all of these shares have been released.
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 $ 30.9 million and $ 30.8 million as of December 31, 2019 and March 31, 2019, respectively.
Available-for-Sale Investments
Available-for-sale investments as of December 31, 2019 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 |
$ |
112,784 |
$ |
9,370 |
$ |
(3) |
$ |
– |
$ |
122,151 |
U.S. government agency mortgage-backed securities |
|
39,146 |
|
887 |
|
(2) |
|
– |
|
40,031 |
Obligations of states and political subdivisions |
|
292,619 |
|
23,669 |
|
(134) |
|
(45) |
|
316,109 |
Corporate securities |
|
1,699,751 |
|
102,544 |
|
(1,133) |
|
(528) |
|
1,800,634 |
Mortgage-backed securities |
|
153,880 |
|
7,602 |
|
(1) |
|
(2) |
|
161,479 |
Redeemable preferred stocks |
|
1,493 |
|
82 |
|
– |
|
– |
|
1,575 |
|
$ |
2,299,673 |
$ |
144,154 |
$ |
(1,273) |
$ |
(575) |
$ |
2,441,979 |
9
Available-for-sale investments as of March 31, 2019 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 |
$ |
136,010 |
$ |
2,409 |
$ |
(2,104) |
$ |
(447) |
$ |
135,868 |
U.S. government agency mortgage-backed securities |
|
31,101 |
|
433 |
|
(146) |
|
(19) |
|
31,369 |
Obligations of states and political subdivisions |
|
298,955 |
|
8,079 |
|
(233) |
|
(905) |
|
305,896 |
Corporate securities |
|
1,613,199 |
|
14,777 |
|
(14,257) |
|
(24,986) |
|
1,588,733 |
Mortgage-backed securities |
|
148,203 |
|
880 |
|
(285) |
|
(903) |
|
147,895 |
Redeemable preferred stocks |
|
1,493 |
|
20 |
|
– |
|
(45) |
|
1,468 |
|
$ |
2,228,961 |
$ |
26,598 |
$ |
(17,025) |
$ |
(27,305) |
$ |
2,211,229 |
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 $ 187.9 million during the first nine months of fiscal 2020. The gross realized gains on these sales totaled $ 4.6 million. The gross realized losses on these sales totaled $ 0.2 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 them on an individual basis for other-than-temporary impairments, including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognize these write-downs, if any, through earnings. There were no write-downs in the third quarter or first nine months of fiscal 2020 or 2019.
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 any 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) (“AOCI”) for the first nine months of fiscal 2020 and fiscal 2019, respectively.
10
The adjusted cost and estimated market value of available-for-sale investments by contractual maturity were as follows:
|
|
December 31, 2019 |
|
March 31, 2019 |
||||
|
|
Amortized Cost |
|
Estimated Market Value |
|
Amortized Cost |
|
Estimated Market Value |
|
|
(Unaudited) |
|
|
||||
|
|
(In thousands) |
||||||
Due in one year or less |
$ |
114,557 |
$ |
115,001 |
$ |
71,987 |
$ |
71,954 |
Due after one year through five years |
|
554,591 |
|
572,647 |
|
541,195 |
|
540,658 |
Due after five years through ten years |
|
662,534 |
|
707,015 |
|
621,031 |
|
614,485 |
Due after ten years |
|
812,618 |
|
884,262 |
|
845,052 |
|
834,769 |
|
|
2,144,300 |
|
2,278,925 |
|
2,079,265 |
|
2,061,866 |
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
153,880 |
|
161,479 |
|
148,203 |
|
147,895 |
Redeemable preferred stocks |
|
1,493 |
|
1,575 |
|
1,493 |
|
1,468 |
|
$ |
2,299,673 |
$ |
2,441,979 |
$ |
2,228,961 |
$ |
2,211,229 |
As of December 31, 2019 and March 31, 2019, our common stock and non-redeemable preferred stock that are included in Investments, fixed maturities and marketable equities on our balance sheet are stated in the table below. The changes in the fair value of these equity investments are recognized through Net investment and interest income.
Equity investments of common stock and non-redeemable preferred stock were as follows:
|
|
December 31, 2019 |
|
March 31, 2019 |
||||
|
|
Amortized Cost |
|
Estimated Market Value |
|
Amortized Cost |
|
Estimated Market Value |
|
|
(Unaudited) |
|
|
|
|
||
|
|
(In thousands) |
||||||
|
|
|
|
|
|
|
|
|
Common stocks |
$ |
9,775 |
$ |
19,988 |
$ |
10,123 |
$ |
17,379 |
Non-redeemable preferred stocks |
|
7,451 |
|
7,501 |
|
7,451 |
|
6,789 |
|
$ |
17,226 |
$ |
27,489 |
$ |
17,574 |
$ |
24,168 |
11
4. Borrowings
Long-Term Debt
Long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
March 31, |
|
2020 Rates (a) |
|
|
Maturities |
|
2019 |
|
2019 |
|||||
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|||
|
|
|
|
|
|
|
|
(In thousands) |
|||||
Real estate loan (amortizing term) |
|
|
|
3.22 |
% |
|
|
|
2023 |
$ |
95,413 |
$ |
102,913 |
Senior mortgages |
3.36 |
% |
- |
6.62 |
% |
|
2021 |
- |
2038 |
|
1,953,704 |
|
1,741,652 |
Real estate loans (revolving credit) |
3.03 |
% |
- |
3.20 |
% |
|
2022 |
- |
2024 |
|
435,000 |
|
429,400 |
Fleet loans (amortizing term) |
1.95 |
% |
- |
4.66 |
% |
|
2020 |
- |
2027 |
|
231,043 |
|
263,209 |
Fleet loans (revolving credit) |
2.84 |
% |
- |
2.86 |
% |
|
2022 |
- |
2024 |
|
585,000 |
|
530,000 |
Finance/capital leases (rental equipment) |
1.92 |
% |
- |
5.04 |
% |
|
2020 |
- |
2026 |
|
795,465 |
|
1,042,652 |
Finance liability (rental equipment) |
2.73 |
% |
- |
4.22 |
% |
|
2024 |
- |
2026 |
|
398,157 |
|
– |
Other obligations |
2.50 |
% |
- |
8.00 |
% |
|
2020 |
- |
2048 |
|
84,159 |
|
82,417 |
Notes, loans and finance/capital leases payable |
|
|
|
|
|
|
|
|
|
4,577,941 |
|
4,192,243 |
|
Less: Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(29,332) |
|
(28,920) |
Total notes, loans and finance/capital leases payable, net |
|
|
|
|
$ |
4,548,609 |
$ |
4,163,323 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Interest rates as of December 31, 2019, including the effect of applicable hedging instruments. |
|
|
|
|
Real Estate Backed Loans
Real Estate Loan
Real Estate and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a real estate loan (the “Real Estate Loan”). The Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers.
The interest rate, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. As of December 31, 2019, the applicable LIBOR was 1.72 % and the applicable margin was 1.50 %, the sum of which was 3.22 %. 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 Real Estate and U-Haul are borrowers under certain senior mortgages. 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 3.36 % and 6.62 %. 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. Real Estate and U-Haul 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.
12
Real Estate Loans (Revolving Credit)
Various subsidiaries of Real Estate are borrowers under asset-backed real estate loans with an aggregate borrowing capacity of $ 335.0 million. These loans are secured by certain properties owned by the borrowers. The loan agreements provide for term loans, subject to the terms of the loan agreements. The loans require 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 agreements, is the applicable LIBOR plus the applicable margin. As of December 31, 2019, the applicable LIBOR was 1.70 % and the margin was between 1.25 % and 1.50 %, the sum of which was between 2.95 % and 3.20 %. Certain loans have interest rate swaps fixing the rate between 3.03 % and 3.14 % based on current margins. AMERCO is the guarantor of these loans. 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 a real estate loan. The current maximum credit commitment is $ 150.0 million, which can be increased to $ 300.0 million by bringing in other lenders. As of December 31, 2019, the outstanding balance was $100.0 million. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. As of December 31, 2019, the applicable LIBOR was 1.70 % and the margin was 1.38 %, the sum of which was 3.08 %. 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
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 carried at fixed rates ranging between 1.95 % and 4.66 %.
AMERCO, and in some cases U-Haul, is guarantor 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 Revolvers
Various subsidiaries of U-Haul entered into three revolving fleet loans with an aggregate borrowing capacity of $ 590.0 million. The interest rates, per the provision of the loan agreements, are the applicable LIBOR plus the applicable margin. As of December 31, 2019, the applicable LIBOR was between 1.69 % and 1.71 %, and the margin was 1.15 %, the sum of which was between 2.84 % and 2.86 %. Only interest is paid on the loans until the last nine months of the respective loan terms when principal becomes due monthly.
Finance/Capital Leases
The Finance/Capital Lease balance represents our sale-leaseback transactions of rental equipment that were entered into and classified as capital leases prior to the adoption of ASC 842 on April 1, 2019. The historical capital lease balance was reclassified to Right-of-use assets-finance, net. The agreements are generally 7 year terms with interest rates ranging from 1.92 % to 5.04 %. All of our finance leases are collateralized by our rental fleet. There were no new financing leases, as assessed under the new leasing guidance, entered into during the nine months ended December 31, 2019.
13
Finance Liabilities
Finance Liabilities represent our rental equipment financing transactions that have historically been accounted for as capital leases prior to the adoption of ASC 842 on April 1, 2019, which substantially changed the accounting for sale-leasebacks going forward. In accordance with the new leasing guidance, we assess if sale-leaseback transactions qualify as a sale at initiation by determining if a transfer of ownership occurs. We have determined that our equipment sale-leasebacks do not qualify as a sale, as the buyer-lessors do not obtain control of the assets in our ongoing sale-leaseback arrangements. As a result, we expect future sale-leasebacks to be accounted for as a financial liability and the leased assets will be capitalized at cost. Our finance liabilities have an average term of 7 years and interest rates ranging from 2.73 % to 4.22 %. These finance liabilities are collateralized by our rental fleet.
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.
As of December 31, 2019, the aggregate outstanding principal balance of the U-Notes ® issued was $ 87.0 million, of which $ 2.9 million is held by our insurance subsidiaries and eliminated in consolidation. Interest rates range between 2.50 % and 8.00 % and maturity dates range between 2020 and 2048 .
Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made deposits with Oxford. As of September 30, 2019, the deposits had an aggregate balance of $ 60.0 million, for which Oxford pays fixed interest rates between 1.72 % and 2.95 % with maturities between March 30, 2019 and September 30, 2022. As of September 30, 2019, available-for-sale investments held with the FHLB totaled $ 120.1 million, of which $ 67.9 million were pledged as collateral to secure the outstanding deposits. The balances of these deposits are included within Liabilities from investment contracts on the condensed consolidated balance sheets.
Annual Maturities of Notes, Loans and Finance/Capital Leases Payable
The annual maturities of our notes, loans and finance/capital leases payable, as of December 31, 2019 for the next five years and thereafter are as follows:
|
|
Year Ending December 31, |
||||||||||
|
|
2020 |
|
2021 |
|
2022 |
|
2023 |
|
2024 |
|
Thereafter |
|
|
(Unaudited) |
||||||||||
|
|
(In thousands) |
||||||||||
Notes, loans and finance/capital leases payable, secured |
$ |
483,060 |
$ |
446,465 |
$ |
995,089 |
$ |
596,752 |
$ |
586,102 |
$ |
1,470,473 |
Interest on Borrowings
Interest Expense
Components of interest expense were as follows:
|
|
Quarter Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Interest expense |
$ |
45,037 |
$ |
38,825 |
Capitalized interest |
|
(5,775) |
|
(5,055) |
Amortization of transaction costs |
|
1,176 |
|
909 |
Interest expense effect resulting from cash flow hedges |
|
(465) |
|
148 |
Total interest expense |
$ |
39,973 |
$ |
34,827 |
14
|
|
Nine Months Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Interest expense |
$ |
133,111 |
$ |
109,241 |
Capitalized interest |
|
(17,943) |
|
(7,701) |
Amortization of transaction costs |
|
3,276 |
|
2,751 |
Interest expense effect resulting from cash flow hedges |
|
(461) |
|
820 |
Total interest expense |
$ |
117,983 |
$ |
105,111 |
Interest paid in cash, including payments related to derivative contracts, amounted to $ 41.9 million and $ 38.5 million for the third quarter of fiscal 2020 and 2019, respectively, and $ 127.8 million and $ 109.6 million for the first nine months of fiscal 2020 and 2019, respectively.
Interest Rates
Interest rates and Company borrowings were as follows:
|
|
Revolving Credit Activity |
|
||
|
|
Quarter Ended December 31, |
|
||
|
|
2019 |
|
2018 |
|
|
|
(Unaudited) |
|
||
|
|
(In thousands, except interest rates) |
|
||
Weighted average interest rate during the quarter |
|
3.09 |
% |
3.52 |
% |
Interest rate at the end of the quarter |
|
2.95 |
% |
3.57 |
% |
Maximum amount outstanding during the quarter |
$ |
1,025,000 |
$ |
865,000 |
|
Average amount outstanding during the quarter |
$ |
1,014,511 |
$ |
812,174 |
|
Facility fees |
$ |
40 |
$ |
41 |
|
|
|
Revolving Credit Activity |
|
||
|
|
Nine Months Ended December 31, |
|
||
|
|
2019 |
|
2018 |
|
|
|
(Unaudited) |
|
||
|
|
(In thousands, except interest rates) |
|
||
Weighted average interest rate during the period |
|
3.44 |
% |
3.31 |
% |
Interest rate at the end of the period |
|
2.95 |
% |
3.57 |
% |
Maximum amount outstanding during the period |
$ |
1,025,000 |
$ |
865,000 |
|
Average amount outstanding during the period |
$ |
995,508 |
$ |
632,509 |
|
Facility fees |
$ |
147 |
$ |
313 |
|
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 with 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.
15
The derivative fair values reflected in prepaid expense and accounts payable and accrued expenses in the condensed consolidated balance sheet were as follows:
|
|
Derivatives Fair Values as of |
||
|
|
December 31, 2019 |
|
March 31, 2019 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
Interest rate contracts designated as hedging instruments: |
|
|
|
|
Assets |
$ |
– |
$ |
139 |
Liabilities |
$ |
1,415 |
$ |
– |
Notional amount |
$ |
235,000 |
$ |
22,792 |
|
|
The Effect of Interest Rate Contracts on the Statements of Operations for the Quarters Ended |
||
|
|
|||
|
|
December 31, 2019 |
|
December 31, 2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
(Gain) loss recognized in AOCI on interest rate contracts |
$ |
1,558 |
$ |
(731) |
(Gain) loss reclassified from AOCI into income |
$ |
(458) |
$ |
789 |
Gains or losses recognized in income on derivatives are recorded as interest expense in the condensed consolidated statements of operations. During the first nine months of fiscal 2020, we recognized a decrease in the fair value of our cash flow hedges of $ 1.2 million, net of taxes. During the first nine months of fiscal 2020, we reclassified $ 0.5 million from accumulated other comprehensive income (loss) (“AOCI”) to interest expense. As of December 31, 2019, we expect to reclassify $ 0.1 million of net gains on interest rate contracts from AOCI to earnings as interest expense over the next twelve months.
6. Accumulated Other Comprehensive Income (Loss)
A summary of AOCI components, net of tax, were as follows:
|
|
Foreign Currency Translation |
|
Unrealized Net Gain on Investments |
|
Fair Market Value of Cash Flow Hedges |
|
Postretirement Benefit Obligation Net Loss |
|
Accumulated Other Comprehensive Income (Loss) |
|
|
(Unaudited) |
||||||||
|
|
(In thousands) |
||||||||
Balance as of March 31, 2019 |
$ |
(56,612) |
$ |
(7,259) |
$ |
107 |
$ |
(2,934) |
$ |
(66,698) |
Foreign currency translation |
|
2,919 |
|
– |
|
– |
|
– |
|
2,919 |
Unrealized net gain on investments |
|
– |
|
104,471 |
|
– |
|
– |
|
104,471 |
Change in fair value of cash flow hedges |
|
– |
|
– |
|
(1,173) |
|
– |
|
(1,173) |
Amounts reclassified into earnings on hedging activities |
|
– |
|
– |
|
(2) |
|
– |
|
(2) |
Other comprehensive income (loss) |
|
2,919 |
|
104,471 |
|
(1,175) |
|
– |
|
106,215 |
Balance as of December 31, 2019 |
$ |
(53,693) |
$ |
97,212 |
$ |
(1,068) |
$ |
(2,934) |
$ |
39,517 |
16
7. Stockholders’ Equity
The dividends declared or paid during the first nine months of fiscal 2020 were as follows:
Common Stock Dividends |
||||||
Declared Date |
|
Per Share Amount |
|
Record Date |
|
Dividend Date |
|
|
|
|
|
|
|
March 6, 2019 |
$ |
0.50 |
|
March 21, 2019 |
|
April 4, 2019 |
August 22, 2019 |
|
0.50 |
|
September 9, 2019 |
|
September 23, 2019 |
December 4, 2019 |
|
0.50 |
|
December 19, 2019 |
|
January 6, 2020 |
On June 8, 2016, our stockholders’ approved the 2016 AMERCO Stock Option Plan (Shelf Stock Option Plan). As of December 31, 2019, no awards had been issued under this plan.
8. Leases
Lessor
We have determined that revenues derived by providing self-moving equipment rentals, self-storage rentals and certain other revenues, including U-Box rentals, are within the scope of the accounting guidance contained in Topic 842. Our self-moving equipment rental related revenues have been accounted for under the revenue accounting standard Topic 606, until the adoption of Topic 842.
For the periods after April 1, 2019, we combined all lease and non-lease components of lease contracts for which the timing and pattern of transfer are the same and the lease component meets the classification of an operating lease, and account for them in accordance with Topic 842. The revenue streams accounted for in accordance with Topic 842 are recognized evenly over the period of rental. Please see Note 15, Revenue Recognition, of the Notes to Condensed Consolidated Financial Statements.
Lessee
We determine if an arrangement is a lease at inception. Operating leases, which are comprised primarily of storage rental locations, are included in Right-of-Use (“ROU“) assets - operating and operating lease liability in our condensed consolidated balance sheet dated December 31, 2019. Finance leases, which are comprised primarily of rental equipment leases, are included in ROU assets - financing, net, and notes, loans and finance/capital leases payable, net in our condensed consolidated balance sheet dated December 31, 2019.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected remaining lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease, which are included in the calculation of ROU assets when it is reasonably certain that we will exercise those options. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally not accounted for separately. Additionally, for certain leases, we apply a portfolio approach to account for the operating lease ROU assets and liabilities as the leases are similar in nature and have nearly identical contract provisions.
Adoption of this standard resulted in most of our operating lease commitments being recognized as operating lease liabilities and ROU assets, which increased total assets and total liabilities by approximately $ 105.4 million related to property operating leases, as of April 1, 2019. In addition, we reclassified a net amount of $ 948.2 million related to vehicle financing leases from property, plant, and equipment, net to ROU assets financing, net.
17
The standard also changed the manner by which we account for our equipment sale/leaseback transactions. Based on our assessment, the lease transactions are classified as financing leases, and therefore the transactions do not qualify as a sale. Pursuant to the guidance, new sale leaseback transactions that fail to qualify as a sale will be accounted for as a financial liability. Please see Note 4, Borrowings, of the Notes to Condendsed Consolidated Finanical Statements for additional information.
The following table shows the components of our right-of-use assets:
|
|
As of December 31, 2019 |
||||
|
|
Finance |
|
Operating |
|
Total |
|
|
(Unaudited) |
||||
|
|
(In thousands) |
||||
|
|
|
|
|
|
|
Buildings and improvements |
$ |
– |
$ |
121,919 |
$ |
121,919 |
Furniture and equipment |
|
27,309 |
|
– |
|
27,309 |
Rental trailers and other rental equipment |
|
117,987 |
|
– |
|
117,987 |
Rental trucks |
|
1,746,036 |
|
– |
|
1,746,036 |
Right-of-use assets, gross |
|
1,891,332 |
|
121,919 |
|
2,013,251 |
Less: Accumulated depreciation |
|
(760,859) |
|
(13,945) |
|
(774,804) |
Right-of-use assets, net |
$ |
1,130,473 |
$ |
107,974 |
$ |
1,238,447 |
|
|
Finance |
|
Operating |
|
|
|
(Unaudited) |
|
||
Weighted average remaining lease term (years) |
|
4 Years |
|
5 Years |
|
Weighted average discount rate |
|
3.43 |
% |
4.60 |
% |
For the first nine months ended December 31, 2019, cash paid for leases included in our operating and financing cash flow activities were $ 18.9 million and $ 247.2 million, respectively.
The components of lease costs were as follows:
|
|
Nine Months Ended |
|
|
December 31, 2019 |
|
|
(Unaudited) |
|
|
(In thousands) |
|
|
|
Operating lease costs |
$ |
20,324 |
|
|
|
Finance lease cost: |
|
|
Amortization of right-of-use assets |
$ |
143,574 |
Interest on lease liabilities |
|
24,083 |
Total finance lease cost |
$ |
167,657 |
18
Maturities of lease liabilities were as follows:
|
|
Finance leases |
|
Operating leases |
|
|
(Unaudited) |
||
Year ending December 31, |
|
(In thousands) |
||
|
|
|
|
|
2020 |
$ |
231,189 |
$ |
23,585 |
2021 |
|
174,105 |
|
21,204 |
2022 |
|
132,805 |
|
20,354 |
2023 |
|
115,521 |
|
19,689 |
2024 |
|
82,385 |
|
12,195 |
Thereafter |
|
59,460 |
|
67,422 |
Total lease payments |
|
795,465 |
|
164,449 |
Less: imputed interest |
|
– |
|
(56,868) |
Present value of lease liabilities |
$ |
795,465 |
$ |
107,581 |
9. Contingencies
Environmental
Compliance with environmental requirements of federal, state and local governments may significantly affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to result in a material adverse effect on AMERCO’s financial position or results of operations.
Other
We are named as a defendant in various other litigation and claims arising out of the normal course of business. In management’s opinion, none of these other matters will have a material effect on our financial position and results of operations.
10. Related Party Transactions
As set forth in the Company’s Audit Committee Charter and consistent with NASDAQ Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions, which are required to be disclosed under the Securities and Exchange Commission (“SEC”) rules and regulations and in accordance with generally accepted accounting principles (“GAAP”). Accordingly, all such related party transactions are submitted to the Audit Committee for ongoing review and oversight. Our internal processes are designed to ensure that our legal and finance departments identify and monitor potential related party transactions that may require disclosure and Audit Committee oversight.
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below.
19
SAC Holding Corporation and SAC Holding II Corporation (collectively “SAC Holdings”) were established in order to acquire and develop self-storage properties. These properties are being managed by us pursuant to management agreements. In the past, we sold real estate and various self-storage properties to SAC Holdings, and such sales provided significant cash flows to us. SAC Holdings, Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation, Galaxy Investments, L.P. and 2015 SAC self-storage are substantially controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly owned by Willow Grove Holdings LP (“WGHLP”), which is owned by Mark V. Shoen (a significant stockholder), and various trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant stockholder) and Mark V. Shoen.
Related Party Revenue
|
|
Quarter Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul management fee revenue from Blackwater |
$ |
5,763 |
$ |
5,776 |
U-Haul management fee revenue from Mercury |
|
3,335 |
|
2,123 |
|
$ |
9,098 |
$ |
7,899 |
|
|
Nine Months Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul management fee revenue from Blackwater |
$ |
18,330 |
$ |
18,254 |
U-Haul management fee revenue from Mercury |
|
5,157 |
|
4,253 |
|
$ |
23,487 |
$ |
22,507 |
We currently manage the self-storage properties owned or leased by Blackwater and Mercury Partners, L.P. (“Mercury”), pursuant to a standard form of management agreement, under which we receive a management fee of between 4 % and 10 % of the gross receipts plus reimbursement for certain expenses. We received management fees, exclusive of reimbursed expenses, of $ 22.7 million and $ 23.8 million from the above-mentioned entities during the first nine months of fiscal 2020 and 2019, respectively. This management fee is consistent with the fee received for other properties we previously managed for third parties. Mark V. Shoen controls the general partner of Mercury. The limited partner interests of Mercury are owned indirectly by James P. Shoen and various trusts benefitting Edward J. Shoen and James P. Shoen or their descendants. Mercury holds the option to purchase a portfolio of properties currently leased by Mercury and a U-Haul subsidiary, which option is exercisable in 2024.
Related Party Costs and Expenses
|
|
Quarter Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul lease expenses to Blackwater |
$ |
658 |
$ |
669 |
U-Haul commission expenses to Blackwater |
|
14,140 |
|
14,296 |
|
$ |
14,798 |
$ |
14,965 |
20
|
|
Nine Months Ended December 31, |
||
|
|
2019 |
|
2018 |
|
|
(Unaudited) |
||
|
|
(In thousands) |
||
U-Haul lease expenses to Blackwater |
$ |
1,974 |
$ |
2,009 |
U-Haul commission expenses to Blackwater |
|
49,959 |
|
49,129 |
|
$ |
51,933 |
$ |
51,138 |
We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of Blackwater. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to us.
As of December 31, 2019, subsidiaries of Blackwater acted as independent dealers. The financial and other terms of the dealership contracts are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based upon equipment rental revenues.
These agreements with subsidiaries of Blackwater, excluding Dealer Agreements, provided revenues of $ 18.3 million, expenses of $ 2.0 million and cash flows of $ 16.5 million during the first nine months of fiscal 2020. Revenues and commission expenses related to the Dealer Agreements were $ 236.4 million and $ 50.0 million, respectively, during the first nine months of fiscal 2020.
In December 2019, Real Estate completed the sale of two office buildings to Oxford at cost for approximately $ 15.0 million. Oxford assumed the debt securing the property of $ 11.5 million and paid the balance in cash. There were no gains on this transaction.
Management determined that we do not have a variable interest pursuant to the variable interest entity (“VIE”) model under Accounting Standards Codification (“ASC”) 810 – Consolidation (“ASC 810”) in the holding entities of Blackwater based upon management agreements which are with the individual operating entities; therefore, we are precluded from consolidating these entities.
Related Party Assets
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|
December 31, |
|
March 31, |
|