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 June 30, 201 7

or

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

For the transition period from __________________ to __________________

 

 

 

Commission

File Number

Registrant, State of Incorporation,

Address and Telephone Number

I.R.S. Employer

Identification No.

 

 

 

 

AMERCOLOGO

 

 

 

 

1-11255

AMERCO

88-0106815

 

( Nevada Corporation)

 

 

5555 Kietzke Lane , Ste. 100

 

 

Reno, Nevada 895 11

 

 

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 req uired 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 Interactiv e 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   [ ]

In dicate 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 definition s of “large accelerated filer,” “accelerated filer” , “sma ller 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 [ ]

Emerg ing 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 finanical 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 August 1, 201 7 .



 

TABLE OF CONTENTS

 

 

Page  

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a) Condensed Consolidated Balance Sheets as of June 30, 201 7 (unaudited) and March 31, 201 7

1

 

b) Condensed Consolidated Statements of Operations for the Quarters E nded June 30, 201 7 and 201 6 (unaudited)

2

 

c ) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarters E nded June 30, 201 7 and 201 6 (unaudited)

3

 

d ) Condensed Consolidated Statements of Cash Flows for the Quarters E nded June 3 0 , 201 7 and 201 6 (unaudited)

4

 

e ) Notes to Condensed Consolidated Financial Statements (unaudited)

5

Item 2.

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

3 2

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4 8

Item 4.

Controls and Procedures

49

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

5 1

Item 6.

Exhibits

51


 

 


Part i Financial information

ITEM 1. Financial Statements

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

June 30,

 

March 31,

 

 

2017

 

2017

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

803,522

$

697,806

Reinsurance recoverables and trade receivables, net

 

187,037

 

178,081

Inventories, net

 

93,374

 

82,439

Prepaid expenses

 

80,118

 

124,728

Investments, fixed maturities and marketable equities

 

1,763,031

 

1,663,768

Investments, other

 

376,224

 

367,830

Deferred policy acquisition costs, net

 

128,878

 

130,213

Other assets

 

99,550

 

97,525

Related party assets

 

80,865

 

86,168

 

 

3,612,599

 

3,428,558

Property, plant and equipment, at cost:

 

 

 

 

Land

 

661,622

 

648,757

Buildings and improvements

 

2,710,924

 

2,618,265

Furniture and equipment

 

529,374

 

510,415

Rental trailers and other rental equipment

 

515,733

 

492,280

Rental trucks

 

4,228,778

 

4,091,598

 

 

8,646,431

 

8,361,315

Less: Accumulated depreciation

 

(2,457,890)

 

(2,384,033)

Total property, plant and equipment

 

6,188,541

 

5,977,282

Total assets

$

9,801,140

$

9,405,840

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

432,122

$

450,541

Notes, loans and leases payable, net

 

3,386,851

 

3,262,880

Policy benefits and losses, claims and loss expenses payable

 

1,091,550

 

1,086,322

Liabilities from investment contracts

 

1,221,381

 

1,112,498

Other policyholders' funds and liabilities

 

14,232

 

10,150

Deferred income

 

37,135

 

28,696

Deferred income taxes, net

 

854,805

 

835,009

Total liabilities

 

7,038,076

 

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 June 30 and March 31, 2017

 

 

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

 

 

 

 

issued and outstanding as of June 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 June 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 June 30 and March 31, 2017

 

10,497

 

10,497

Additional paid-in capital

 

452,319

 

452,172

Accumulated other comprehensive loss

 

(35,098)

 

(51,236)

Retained earnings

 

3,019,100

 

2,892,893

Cost of common shares in treasury, net (22,377,912 shares as of June 30 and March 31, 2017)

 

(525,653)

 

(525,653)

Cost of preferred shares in treasury, net (6,100,000 shares as of June 30 and March 31, 2017)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(6,104)

 

(6,932)

Total stockholders' equity

 

2,763,064

 

2,619,744

Total liabilities and stockholders' equity

$

9,801,140

$

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 June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except share and per share data)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

669,858

$

646,336

Self-storage revenues

 

76,718

 

67,722

Self-moving and self-storage products and service sales

 

78,911

 

77,303

Property management fees

 

6,762

 

6,604

Life insurance premiums

 

39,091

 

40,892

Property and casualty insurance premiums

 

11,815

 

11,255

Net investment and interest income

 

27,217

 

27,331

Other revenue

 

47,553

 

45,748

Total revenues

 

957,925

 

923,191

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

416,924

 

385,082

Commission expenses

 

75,365

 

73,816

Cost of sales

 

47,595

 

43,362

Benefits and losses

 

47,720

 

47,003

Amortization of deferred policy acquisition costs

 

6,321

 

7,942

Lease expense

 

8,287

 

11,048

Depreciation, net of (gains) losses on disposals of ($4,741) and ($18,640), respectively

 

126,682

 

95,381

Total costs and expenses

 

728,894

 

663,634

 

 

 

 

 

Earnings from operations

 

229,031

 

259,557

Interest expense

 

(30,345)

 

(26,426)

Pretax earnings

 

198,686

 

233,131

Income tax expense

 

(72,479)

 

(85,958)

Earnings available to common stockholders

$

126,207

$

147,173

Basic and diluted earnings per common share

$

6.44

$

7.51

Weighted average common shares outstanding: Basic and diluted

 

19,587,891

 

19,586,069

 

Related party revenues for the first quarter of fiscal 201 8 and 201 7 , net of eliminations, were $ 8.0 million and $ 7.8 million , respectively.

Related party costs and expenses for the first quarter of fiscal 201 8 and 201 7 , net of eliminations, were $ 16.6 million and $ 16.4 million , respectively.

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 June 30, 2017

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

198,686

$

(72,479)

$

126,207

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation

 

8,267

 

 

8,267

Unrealized net gain on investments

 

10,631

 

(3,720)

 

6,911

Change in fair value of cash flow hedges

 

1,550

 

(590)

 

960

Total comprehensive income

$

219,134

$

(76,789)

$

142,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 30, 2016

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

233,131

$

(85,958)

$

147,173

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation

 

(278)

 

 

(278)

Unrealized net gain on investments

 

29,828

 

(10,440)

 

19,388

Change in fair value of cash flow hedges

 

2,081

 

(791)

 

1,290

Total comprehensive income

$

264,762

$

(97,189)

$

167,573

 

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

 

 

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

Net earnings

$

126,207

$

147,173

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

131,423

 

114,021

Amortization of deferred policy acquisition costs

 

6,321

 

7,942

Amortization of debt issuance costs

 

932

 

961

Interest credited to policyholders

 

7,651

 

5,059

Change in allowance for losses on trade receivables

 

(26)

 

21

Change in allowance for inventory reserves

 

1,114

 

1,221

Net gain on sale of real and personal property

 

(4,741)

 

(18,640)

Net gain on sale of investments

 

(1,985)

 

(2,406)

Deferred income taxes

 

12,024

 

22,733

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

(8,870)

 

(14,138)

Inventories

 

(11,982)

 

(4,391)

Prepaid expenses

 

44,788

 

39,828

Capitalization of deferred policy acquisition costs

 

(8,228)

 

(7,252)

Other assets

 

17,812

 

(3,392)

Related party assets

 

7,836

 

4,084

Accounts payable and accrued expenses

 

61,704

 

57,099

Policy benefits and losses, claims and loss expenses payable

 

4,747

 

1,373

Other policyholders' funds and liabilities

 

4,083

 

242

Deferred income

 

8,393

 

8,727

Related party liabilities

 

(2,532)

 

781

Net cash provided by operating activities

 

396,671

 

361,046

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

Purchase of:

 

 

 

 

Property, plant and equipment

 

(480,259)

 

(437,287)

Short term investments

 

(16,491)

 

(277,038)

Fixed maturity investments

 

(123,090)

 

(166,648)

Real estate

 

(505)

 

(3,495)

Mortgage loans

 

(24,382)

 

(62,572)

Proceeds from sales and paydowns of:

 

 

 

 

Property, plant and equipment

 

142,343

 

147,196

Short term investments

 

24,639

 

279,341

Fixed maturity investments

 

36,559

 

55,946

Preferred stock

 

 

2,000

Real estate

 

2,664

 

831

Mortgage loans

 

6,054

 

94,015

Net cash used by investing activities

 

(432,468)

 

(367,711)

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

Borrowings from credit facilities

 

155,367

 

103,338

Principal repayments on credit facilities

 

(64,819)

 

(48,326)

Payment of debt issuance costs

 

(1,734)

 

(223)

Capital lease payments

 

(56,522)

 

(37,405)

Employee Stock Ownership Plan

 

3,516

 

(1,393)

Securitization deposits

 

49

 

93

Common stock dividends paid

 

 

(19,586)

Investment contract deposits

 

155,437

 

74,157

Investment contract withdrawals

 

(54,205)

 

(14,051)

Net cash provided by financing activities

 

137,089

 

56,604

 

 

 

 

 

Effects of exchange rate on cash

 

4,424

 

(4,397)

 

 

 

 

 

Increase in cash and cash equivalents

 

105,716

 

45,542

Cash and cash equivalents at the beginning of period

 

697,806

 

600,646

Cash and cash equivalents at the end of period

$

803,522

$

646,188

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 first fiscal quarter that ends on the 30 th of June for each year that is referenced. Our insurance company subsidiaries ha ve a first quarter that ends on the 3 1 st of March 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 departme nts. 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 201 7 and 20 16 correspond to fiscal 201 8 and 201 7 for AMERCO.

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

The condensed consolidated balance sheet as of June 30 , 201 7 and the related condensed consolidated statements of operations , comprehensive income (loss) and cash flows f or the first quarter of fiscal 201 8 and 201 7 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 Result s of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 201 7 .

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”),

Rep w est Insurance Company (“Rep w est”), and

Oxford Life Insurance Company (“Oxford”).

Unless the context otherwise requires, the term s “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 operati ng segment (“Moving and Storage”) include s 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, a nd 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 Rep w est and its wholly-owned subsidiaries and ARCOA R isk R etention G roup (“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 ® , Safeto w ® , Safemove Plus ® , Safestor ® and Safestor Mobile ® protection packages to U-Haul customers. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul - related programs. ARCOA is a group captive in surer 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 I nsurance 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 calculate d 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 19,553 and 21,548 as of June 30 , 201 7 and June 30 , 201 6 , respectively.

3. Investments

Expected maturities may differ from contractual maturities as borrowers may have the right to call o r 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 $ 28.1 million and $16. 8 million at June 30 , 201 7 and March 31, 2017, respectively .

Available-for-Sale Investments

Available-for-sale investments at June 30 , 201 7 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

$

123,328

$

3,169

$

$

(1,605)

$

124,892

U.S. government agency mortgage-backed securities

 

27,330

 

1,005

 

(6)

 

(327)

 

28,002

Obligations of states and political subdivisions

 

165,559

 

9,917

 

(19)

 

(308)

 

175,149

Corporate securities

 

1,289,221

 

38,855

 

(5,322)

 

(7,744)

 

1,315,010

Mortgage-backed securities

 

81,009

 

550

 

 

(282)

 

81,277

Redeemable preferred stocks

 

13,789

 

348

 

 

(46)

 

14,091

Common stocks

 

15,732

 

8,890

 

(10)

 

(2)

 

24,610

 

$

1,715,968

$

62,734

$

(5,357)

$

(10,314)

$

1,763,031

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Available-for-sale investments at March 31 , 201 7 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 table s 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 wi th a fair value of $35.6 million during the first quarter of fiscal 201 8 . The gross realized net gains on these sales totaled $ 1.6 million.

The unrealized losses of more than twelve months in the available-for-sale table s 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 futur e 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 first quarter of fiscal 201 8 or 201 7 .

The investment portfolio primarily consists of corporate securities and U.S. government securities. We believe we monitor our investments as appropriate. Our methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balanc e 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 loss es 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 first quarter of fiscal 2018.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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

 

 

June 30, 2017

 

March 31, 2017

 

 

Amortized

Cost

 

Estimated

Market

Value

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudi ted)

 

 

 

 

 

 

(In thousands)

Due in one year or less

$

33,197

$

33,448

$

35,399

$

35,795

Due after one year through five years

 

355,226

 

365,085

 

324,286

 

333,016

Due after five years through ten years

 

608,698

 

622,859

 

598,232

 

607,184

Due after ten years

 

608,317

 

621,661

 

616,585

 

622,763

 

 

1,605,4 38

 

1,643,053

 

1,574,502

 

1,598,758

 

 

 

 

 

 

 

 

 

Mortgage backed securities

 

81,009

 

81,277

 

26,577

 

27,087

Redeemable preferred stocks

 

13,789

 

14,091

 

13,789

 

13,489

Equity securities

 

15,732

 

24,610

 

15,732

 

24,434

 

$

1,715,968

$

1,763,031

$

1,630,600

$

1,663,768

4. Borrowings

Long Term Debt

Long term debt was as follows:

 

 

 

 

 

June 30,

 

March 31,

 

2018 Rate (a)

 

Maturities

 

2017

 

2017

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

2.62% - 6.93%

 

2023

$

166,789

$

169,289

Senior mortgages

3.72% - 5.50%

 

2022 - 2038

 

1,366,248

 

1,292,160

Working capital loan (revolving credit)

2.51%

 

2018

 

85,000

 

85,000

Fleet loans (amortizing term)

1.95% - 4.76%

 

2017 - 2024

 

341,313

 

324,977

Fleet loan (securitization)

4.90%

 

2017

 

50,055

 

52,112

Fleet loans (revolving credit)

2.19% - 2.20%

 

2018 - 2021

 

423,000

 

417,000

Capital leases (rental equipment)

1.92% - 4.86%

 

2017 - 2024

 

909,406

 

876,828

Other obligations

2.75% - 8.00%

 

2017 - 2047

 

70,216

 

69,867

Notes, loans and leases payable

 

 

 

 

3,412,027

 

3,287,233

Less: Debt issuance costs

 

 

 

 

(25,176)

 

(24,353)

Total notes, loans and leases payable, net

 

 

 

$

3,386,851

$

3,262,880

 

 

 

 

 

 

 

 

(a) Interest rate as of June 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 June 30, 2017 , the outstanding balance on the Real Estate Loan was $166.8 million . The Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Real Estate Loan is secured by va rious properties owned by the borrowers. The final maturity of the term loan is April 20 23 .  

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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 Jun e 30, 2017 , the applicable LIBOR was 1.12 % and the applicable margin was 1.50 %, the sum of which was 2.62 % , which was applied to $39.0 million of the Real Estate Loan . The rate of the remaining balance of $127.8 million of the Real Estate Loan is hedged wi th 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 Re al 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 June 30, 2017 were in the aggregate amount of $ 1,366.2 million and mature between 20 22 and 2038. The senior mortgages require monthly princi pal 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 repa yment 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 schedu le. 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-c ontrol covenants. There are limited restrictions regarding our use of the funds.

Working Capital Loans

Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $ 50 .0 million. At June 30, 2017 , the full $50.0 million was available to be drawn. This loan is secured by certain properties owned by the borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement . The final maturi ty of this loan is September 2018 . This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under an as set backed working capital loan. The maximum amount that can be drawn at any one time is $85.0 million. At June 3 0 , 201 7 , the outstanding balance was $ 85.0 million. This loan is secured by certain properties owned by the borrower s . This loan agreement prov ides 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 u n paid interest due at maturity. The interest rate, per the provision of the loan agreement, is the applicable LIBOR plus the applicable margin. At June 3 0 , 201 7 , the applicable LIBOR was 1.01 % and the margin was 1.50%, the sum of which was 2.51 %. AMERCO is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The aggregate balance of the loans as of June 30, 2017 was $ 341.3 million with the final maturities between July 2017 and June 2024 .

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


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 margin s . At June 30, 2017 , the applicable LIBOR was between 1.05 % and 1.16 % and applicable margins were between 1.72% and 2.50%. The interest rates are hedged with interest rate swaps fixing the rates between 2.82% and 4.76% based on current margins. Additionally, $ 276.0 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 o ther 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 June 30, 2017 , the outstanding balance was $ 50.1 million . The note is secur ed by the box trucks purchase d 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 customa ry covenants of bankruptcy-remote special purpose entities. The default provisions of this note include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Rental Truck Revolvers

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $ 150 million, which can be increased to a maximum of $225 million. Th is loan matures in Septem ber 2018. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus th e applicable margin . At June 30, 2017 , the applicable LIBOR was 1.04 % and the margin was 1. 1 5%, the sum of which was 2.19 %. Only interest is paid on the loan until the last nine months when principal is due monthly . As of June 30, 2017, the outstanding balance was $ 150.0 million .

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $1 5 0 million, which can be increased to a maximum of $ 190 million. Th is loan matures in March 2020 . The in terest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus the applicable margin. At June 30, 2017, the applicable LIBOR was 1.05 % and the margin wa s 1.15%, the sum of which was 2.20 %. Only interest is paid on the loan until the las t nine months when principal is due monthly . As of June 30, 2017 , the outstanding balance was $ 150.0 million .

Various subsidiaries of U-Haul International, Inc. entered into a revolving fleet loan for $150 million. The loan matures in November 2021. The in terest rate, per the provision of the Loan Agreement is the applicable LIBOR plus the applicable margin. At June 30, 2017, the applicable LIBOR was 1.05% and the margin was 1.15%, the sum of which was 2.20%. Only interest is paid on the loan until the last nine months when principal is due monthly. As of June 30, 2017, the outstanding balance was $123.0 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 quarter of fiscal 2018, we entered into $87.4 million of new capital leases. At June 30, 2017 and March 31, 2017 , the balance of our capital leases was $ 909.4 million and $876.8 million, respectively . The net book value of the corresponding capitalized assets was $ 1,259.1 million and $1,233.3 million at June 30, 2017 and March 31, 2017, respectively.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Other Obligations

In February 2011 , AMERCO and U . S . Bank, NA (the “Trustee”) entered into the U-Haul In vestors 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 co llateral 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 June 30, 2017, the aggregate outstanding principal balance of the U-Notes ® issued was $74.4 million of which $ 4.2 million is held by our insurance subsidiaries and eliminated in consolidation. I nterest rates range between 2 . 75 % and 8.00% and maturity dates range between 2017 and 204 7 .

Oxford is a member of the Federal Home Loan Bank (“FHLB”) and, as such, the FHLB has made deposits with Oxford. As of March 31, 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 S eptember 29 , 2017. As of March 31, 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 March 31, 2017, available-for-sale investments held with the FHLB totaled $129.0 million, of which $68 .6 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 an nual maturities of long term debt , including capital leases, as of June 30, 2017 for the next five years and thereafter are as follows:

 

 

Year Ended June 30,

 

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

539,396

$

536,031

$

470,174

$

294,609

$

259,118

$

1,312,699

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

29,629

$

24,085

Capitalized interest

 

(1,765)

 

(1,313)

Amortization of transaction costs

 

932

 

843

Interest expense resulting from derivatives

 

1,549

 

2,811

Total interest expense

$

30,345

$

26,426

Interest paid in cash , including payments related to derivative contracts, amounted to $ 31.0 million and $ 27.2 million for the first quarter of fiscal 201 8 and 201 7 , respectively.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

2.24%

 

1.73%

Interest rate at quarter end

 

2.25%

 

1.72%

Maximum amount outstanding during the quarter

$

508,000

$

410,000

Average amount outstanding during the quarter

$

499,659

$

369,637

Facility fees

$

76

$

41

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 cert ain 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 counterpartie s and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes. Following is a summary of our interest rate swap agreements at June 30, 2017:

 

Original variable rate debt and lease 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

 

14.7

(a)

 

7/6/2010

 

8/15/2010

 

7/15/2017

 

7/6/2010

 

25.0

(a)

 

4/26/2011

 

6/1/2011

 

6/1/2018

 

6/1/2011

 

50.0

(a)

 

7/29/2011

 

8/15/2011

 

8/15/2018

 

7/29/2011

 

20.0

(a)

 

8/3/2011

 

9/12/2011

 

9/10/2018

 

8/3/2011

 

15.1

(b)

 

3/27/2012

 

3/28/2012

 

3/28/2019

 

3/26/2012

 

25.0

 

 

4/13/2012

 

4/16/2012

 

4/1/2019

 

4/12/2012

 

44.3

 

 

1/11/2013

 

1/15/2013

 

12/15/2019

 

1/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

As of June 30 , 201 7 , the total notional amount of our variable interest rate swaps on debt and an operating lease was $ 194.4 million and $7.4 million , respectively

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


The derivative fair values reflected in A ccounts payable and accrued expenses in the balance sheets were as follows:

 

 

Net Liability Derivative Fair Value as of

 

 

June 30, 2017

 

March 31, 2017

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

3,353

$

4,903

 

 

 

The Effect of Interest Rate

 

 

Contracts on the Statements of Operations

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

1,549

$

2,811

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

$

(1,550)

$

(2,081)

Loss reclassified from AOCI into income (effective portion)

$

1,550

$

2,809

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

$

(1)

$

2

Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. During the first quarter of fiscal 201 8 , we recognized an increase in the fair value of our cash flow hedges of $1.0 million, net of taxes. Embedded in this change was $1.6 million of losses reclassified from accumulated other comprehensive inc ome (loss) to interest expense during the first quarter of fiscal 2018. At June 30, 2017, we expect to reclassify $3.4 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the nex t twelve months.

6 . Accumulated Other Comprehensive Income (Loss)

A summary of accumulated other comprehensive income (loss) 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 at March 31, 2017

$

(69,505)

$

23,099

$

(3,059)

$

(1,771)

$

(51,236)

Foreign currency translation

 

8,267

 

 

 

 

8,267

Unrealized net gain on investments

 

 

6,911

 

 

 

6,911

Change in fair value of cash flow hedges

 

 

 

2,510

 

 

2,510

Amounts reclassified from AOCI

 

 

 

(1,550)

 

 

(1,550)

Other comprehensive income (loss)

 

8,267

 

6,911

 

960

 

 

16,138

Balance at June 30, 2017

$

(61,238)

$

30,010

$

(2,099)

$

(1,771)

$

(35,098)

7 . Stockholders’ Equity

On July 5, 2017, we declared a cash dividend on our Common Stock of $1.00 per share to holders of record on July 20, 2017. The dividend was paid on A ugust 3, 2017.

On June 8, 2016, the stockholder’s approved the 2016 AMERCO Stock Option Plan (Shelf Stock Option Plan). As of June 30, 2017, no awards had been issued under this plan.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


8 . Contingent Liabilities and Commitments

We lease a portion of our rent al equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2019. As of June 30, 2017 , we have guaranteed $16.5 million of residual values for these rental equipment assets at the end of t he respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, we have the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. We have been leasing equipment since 1987 and ha ve experienced no material losses relating to these types of residual value guarantees.

Operating and ground lease commitments for leases having terms of more than one year were as follows:

 

 

Property, Plant and Equipment

 

Rental

Equipment

 

 

 

 

Ground

 

Operating

 

Operating

 

Total

 

 

(Unaudited)

 

 

(In thousands)

Year ended June 30:

 

 

 

 

 

 

 

 

2018

$

957

$

16,616

$

10,808

$

28,381

2019

 

1,008

 

15,235

 

7,315

 

23,558

2020

 

1,024

 

15,873

 

429

 

17,326

2021

 

1,025

 

15,216

 

 

16,241

2022

 

1,030

 

14,963

 

 

15,993

Thereafter

 

46,653

 

30,640

 

 

77,293

Total

$

51,697

$

108,543

$

18,552

$

178,792

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.

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


10 . Related Party Transactions

As set forth in the Company’s Audit Committee Charter and consistent with N ASDAQ Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required to b e 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 ongoi ng 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. Management believes that the transactions described below and in the related notes were com pleted on terms substantially equivalent to those that would prevail in arm’s-length transactions.

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 .

Related Party Revenue

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,205

$

1,223

U-Haul management fee revenue from SAC Holdings

 

5,201

 

5,118

U-Haul management fee revenue from Private Mini

 

961

 

902

U-Haul management fee revenue from Mercury

 

600

 

584

 

$

7,967

$

7,827

During the first quarter of fiscal 201 8 , a subsidiary of ours held a junior unsecured note from SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Willow Grove Holdings LP , which is owned by Mark V. Shoen ( a significant share holder ), and v arious trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant shareholder) and Mark V. Shoen . We do not have an equity ownership interest in SAC Holdings. We rece ived cash interest payments of $ 1.1 million from SAC H oldings during the first quarter of both fiscal 201 8 and 201 7 . The largest aggregate amount of the note receivable outstanding during the first quarter of fiscal 201 8 was $48.1 million and the aggregate note receivable balance at June 30 , 201 7 was $ 47.8 m i llion. In accordance with the terms of th is note, SAC Holdings may prepay the note without penalty or premium at any time. We are currently negotiating to extend this note. The scheduled maturity of this note is 2017.

We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini Storage Realty, L.P. (“Private Mi ni”) 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 $ 10.0 m illion and $8.7 million from the above mentioned entities during the first quarter of fiscal 201 8 and 201 7, respectively . This management fee is consistent with the fee received for other properties we previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mark V. Shoen controls the general partner of Mercury. The limited partner interests of Mercury are indirectly owned by M ark V. Shoen, James P. Shoen ( a significant shareh older ) and a trust benefitting the children and grandchild of Edward J. Shoen .

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Related Party Costs and Expenses

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

681

$

688

U-Haul commission expenses to SAC Holdings

 

14,926

 

14,701

U-Haul commission expenses to Private Mini

 

960

 

1,052

 

$

16,567

$

16,441

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

At June 30 , 201 7 , subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based upon equipment rental revenues .

These agreements and note with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy an d Private Mini, excluding Dealer Agreements, provided revenues of $ 7.4 million, expenses of $ 0.7 million and cash flows of $ 6.6 million during the first quarter of fiscal 201 8 . Revenues and commission expenses related to the Dealer Agreements were $ 72.8 mi llion and $ 15.9 million, respectively during the first quarter of fiscal 201 8 .

Pursuant to the variable interest entity (“VIE”) model under Accounting Standards Codification (“ASC”) 810 – Consolidation (“ASC 810”) , m anagement determined that the junior not e of SAC Holdings as well as the management agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represents potential variable interests for us. Management evaluated whether it should be identified as the primary beneficiary of one or more of these VIEs using a two - step approach in which management (i) identified all other parties that hold interests in the VIEs, and (ii) determined if any variable interest holder has the power to direct the activities of the VIEs that most signific antly impact their economic performance.

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

We have junior debt with the holding entit y SAC Holding Corporation which represents a variable interest in the entity. Though we have certain protective rights within th is debt agreement, we have no present influence or control over th is holding entit y unless the protective rights become exercisable, which management considers unlikely based on their payment histo ry. As a result, we have no basis under ASC 810 to consolidate th is entit y .

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

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


We have not provided financial or other support explicitly or implicitly during the quarter ended June 3 0 , 201 7 to any of these entities that it was not previously contractually required to provide. In addition, we currently have no plan to provide any financial support to any of these entities in the future. The carrying amount and classification of the assets and liabilities in our balance sheet s that relate to our variable interests in the aforemen tioned entities are as follows, which approximate the maximum exposure to loss as a result of our involvement with these entities:

Related Party Assets

 

 

June 30,

 

March 31,

 

 

2017

 

2017

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes receivable from SAC Holdings

 

47,783

 

48,098

U-Haul interest receivable from SAC Holdings

 

5,498

 

5,397

U-Haul receivable from SAC Holdings

 

20,050

 

23,202

U-Haul receivable from Mercury

 

4,804

 

9,195

Other (a)

 

2,730

 

276

 

$

80,865

$

86,168

(a) Timing differences for intercompany balances with insurance subsidiaries resulting from the three month difference in reporting periods .

 

1 1 . Consolidating Financial Information by Industry Segment

AMERCO’s three reportable segments are:

  • Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,
  • Property and Casualty Insurance, comprised of Rep w est and its subsidiaries and ARCOA, and
  • Life Insurance , comprised of Oxford and its subsidiaries.

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

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

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

 

 


amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


1 1 . Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of June 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

748,823

$

8,291

$

46,408

$

 

$

803,522

Reinsurance recoverables and trade receivables, net

 

52,275

 

103,382

 

31,380

 

 

 

187,037

Inventories, net

 

93,374

 

 

 

 

 

93,374

Prepaid expenses

 

80,118

 

 

 

 

 

80,118

Investments, fixed maturities and marketable equities

 

 

259,126

 

1,503,905

 

 

 

1,763,031

Investments, other

 

33,183

 

63,337

 

279,704

 

 

 

376,224

Deferred policy acquisition costs, net

 

 

 

128,878

 

 

 

128,878

Other assets

 

96,466

 

589

 

2,495

 

 

 

99,550

Related party assets

 

81,146

 

11,380

 

18,428

 

(30,089)

(c)

 

80,865

 

 

1,185,385

 

446,105

 

2,011,198

 

(30,089)

 

 

3,612,599

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

489,779

 

 

 

(489,779)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

Land

 

661,622

 

 

 

 

 

661,622

Buildings and improvements

 

2,710,924

 

 

 

 

 

2,710,924

Furniture and equipment

 

529,374

 

 

 

 

 

529,374

Rental trailers and other rental equipment

 

515,733

 

 

 

 

 

515,733

Rental trucks

 

4,228,778

 

 

 

 

 

4,228,778

 

 

8,646,431

 

 

 

 

 

8,646,431

Less:  Accumulated depreciation

 

(2,457,890)

 

 

 

 

 

(2,457,890)

Total property, plant and equipment

 

6,188,541

 

 

 

 

 

6,188,541

Total assets

$

7,863,705

$

446,105

$

2,011,198

$

(519,868)

 

$

9,801,140

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances as of March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating balance sheets by industry segment as of June 30, 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

415,785

$

3,178

$

13,159

$

 

$

432,122

Notes, loans and leases payable

 

3,386,851

 

 

 

 

 

3,386,851

Policy benefits and losses, claims and loss expenses payable

 

406,786

 

238,930

 

445,834

 

 

 

1,091,550

Liabilities from investment contracts

 

 

 

1,221,381

 

 

 

1,221,381

Other policyholders' funds and liabilities

 

 

4,284

 

9,948

 

 

 

14,232

Deferred income

 

37,135

 

 

 

 

 

37,135

Deferred income taxes

 

826,856

 

10,924

 

17,025

 

 

 

854,805

Related party liabilities

 

27,228

 

2,421

 

440

 

(30,089)

(c)

 

To tal liabilities

 

5,100,641

 

259,737

 

1,707,787

 

(30,089)

 

 

7,038,076

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity :

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

Serial common stock

 

 

 

 

 

 

Common stock

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

452,529

 

91,120

 

26,271

 

(117,601)

(b)

 

452,319

Accumulated other comprehensive income (loss)

 

(35,098)

 

8,030

 

21,980

 

(30,010)

(b)

 

(35,098)

Retained earnings

 

3,018,890

 

83,917

 

252,660

 

(336,367)

(b)

 

3,019,100

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

(6,104)

 

 

 

 

 

(6,104)

Total stockholders' equity

 

2,763,064

 

186,368

 

303,411

 

(489,779)

 

 

2,763,064

Total liabilities and stockholders' equity

$

7,863,705

$

446,105

$

2,011,198

$

(519,868)

 

$

9,801,140

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances as of March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating balance sheets by industry segment as of March 31, 201 7 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(In thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

671,665

$

12,725

$

13,416

$

 

$

697,806

Reinsurance recoverables and trade receivables, net

 

41,234

 

107,757

 

29,090

 

 

 

178,081

Inventories, net

 

82,439

 

 

 

 

 

82,439

Prepaid expenses

 

124,728

 

 

 

 

 

124,728

Investments, fixed maturities and marketable equities

 

 

248,816

 

1,414,952

 

 

 

1,663,768

Investments, other

 

35,342

 

63,086

 

269,402

 

 

 

367,830

Deferred policy acquisition costs, net

 

 

 

130,213

 

 

 

130,213

Other assets

 

93,197

 

1,922

 

2,406

 

 

 

97,525

Related party assets

 

88,829

 

11,496

 

18,465

 

(32,622)

(c)

 

86,168

 

 

1,137,434

 

445,802

 

1,877,944

 

(32,622)

 

 

3,428,558

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

477,058

 

 

 

(477,058)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

Land

 

648,757

 

 

 

 

 

648,757

Buildings and improvements

 

2,618,265

 

 

 

 

 

2,618,265

Furniture and equipment

 

510,415

 

 

 

 

 

510,415

Rental trailers and other rental equipment

 

492,280

 

 

 

 

 

492,280

Rental trucks

 

4,091,598

 

 

 

 

 

4,091,598

 

 

8,361,315

 

 

 

 

 

8,361,315

Less:  Accumulated depreciation

 

(2,384,033)

 

 

 

 

 

(2,384,033)

Total property, plant and equipment

 

5,977,282

 

 

 

 

 

5,977,282

Total assets

$

7,591,774

$

445,802

$

1,877,944

$

(509,680)

 

$

9,405,840

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating balance sheets by indus try segment as of March 31, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(In thousands)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

441,667

$

1,926

$

6,948

$

 

$

450,541

Notes, loans and leases payable

 

3,262,880

 

 

 

 

 

3,262,880

Policy benefits and losses, claims and loss expenses payable

 

399,181

 

244,980

 

442,161

 

 

 

1,086,322

Liabilities from investment contracts

 

 

 

1,112,498

 

 

 

1,112,498

Other policyholders' funds and liabilities

 

 

4,184

 

5,966

 

 

 

10,150

Deferred income

 

28,696

 

 

 

 

 

28,696

Deferred income taxes

 

809,566

 

11,243

 

14,200

 

 

 

835,009

Related party liabilities

 

30,040

 

2,539

 

43

 

(32,622)

(c)

 

Total liabilities

 

4,972,030

 

264,872

 

1,581,816

 

(32,622)

 

 

6,786,096

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity :

 

 

 

 

 

 

 

 

 

 

 

Series preferred stock:

 

 

 

 

 

 

Series A preferred stock

 

 

 

 

 

 

Series B preferred stock

 

 

 

 

 

 

Series A common stock

 

 

 

 

 

 

Common stock

 

10,497

 

3,301

 

2,500

 

(5,801)

(b)

 

10,497

Additional paid-in capital

 

452,382

 

91,120

 

26,271

 

(117,601)

(b)

 

452,172

Accumulated other comprehensive income (loss)

 

(51,236)

 

6,166

 

16,933

 

(23,099)

(b)

 

(51,236)

Retained earnings

 

2,892,683

 

80,343

 

250,424

 

(330,557)

(b)

 

2,892,893

Cost of common shares in treasury, net

 

(525,653)

 

 

 

 

 

(525,653)

Cost of preferred shares in treasury, net

 

(151,997)

 

 

 

 

 

(151,997)

Unearned employee stock ownership plan shares

 

(6,932)

 

 

 

 

 

(6,932)

Total stockholders' equity

$

2,619,744

 

180,930

 

296,128

 

(477,058)

 

 

2,619,744

Total liabilities and stockholders' equity

 

7,591,774

$

445,802

$

1,877,944

$

(509,680)

 

$

9,405,840

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate investment in subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany receivables and payables

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating statement of operations by industry segment for the quarter ended June 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Self-moving equipment rentals

$

670,698

$

$

$

(840)

(c)

$

669,858

Self-storage revenues

 

76,718

 

 

 

 

 

76,718

Self-moving and self-storage products and service sales

 

78,911

 

 

 

 

 

78,911

Property management fees

 

6,762

 

 

 

 

 

6,762

Life insurance premiums

 

 

 

39,091

 

 

 

39,091

Property and casualty insurance premiums

 

 

11,815

 

 

 

 

11,815

Net investment and interest income

 

2,657

 

4,291

 

20,655

 

(386)

(b)

 

27,217

Other revenue

 

46,781

 

 

910

 

(138)

(b)

 

47,553

Total revenues

 

882,527

 

16,106

 

60,656

 

(1,364)

 

 

957,925

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

404,043

 

8,232

 

5,617

 

(968)

(b,c)

 

416,924

Commission expenses

 

75,365

 

 

 

 

 

75,365

Cost of sales

 

47,595

 

 

 

 

 

47,595

Benefits and losses

 

 

2,438

 

45,282

 

 

 

47,720

Amortization of deferred policy acquisition costs

 

 

 

6,321

 

 

 

6,321

Lease expense

 

8,334

 

 

 

(47)

(b)

 

8,287

Depreciation, net of (gains) losses on disposals

 

126,682

 

 

 

 

 

126,682

Total costs and expenses

 

662,019

 

10,670

 

57,220

 

(1,015)

 

 

728,894

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations before equity in earnings of subsidiaries

 

220,508

 

5,436

 

3,436

 

(349)

 

 

229,031

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

5,810

 

 

 

(5,810)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

226,318

 

5,436

 

3,436

 

(6,159)

 

 

229,031

Interest expense

 

(30,694)

 

 

 

349

(b)

 

(30,345)

Pretax earnings

 

195,624

 

5,436

 

3,436

 

(5,810)

 

 

198,686

Income tax expense

 

(69,417)

 

(1,862)

 

(1,200)

 

 

 

(72,479)

Earnings available to common shareholders

$

126,207

$

3,574

$

2,236

$

(5,810)

 

$

126,207

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances for the quarter ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease / interest income

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating statements of operations by industry for the quarter ended June 30, 2016 are as follows:

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Self-moving equipment rentals

$

647,116

$

$

$

(780)

(c)

$

646,336

Self-storage revenues

 

67,722

 

 

 

 

 

67,722

Self-moving and self-storage products and service sales

 

77,303

 

 

 

 

 

77,303

Property management fees

 

6,604

 

 

 

 

 

6,604

Life insurance premiums

 

 

 

40,892

 

 

 

40,892

Property and casualty insurance premiums

 

 

11,255

 

 

 

 

11,255

Net investment and interest income

 

2,112

 

5,630

 

19,994

 

(405)

(b)

 

27,331

Other revenue

 

44,974

 

 

909

 

(135)

(b)

 

45,748

Total revenues

 

845,831

 

16,885

 

61,795

 

(1,320)

 

 

923,191

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

373,672

 

6,285

 

6,031

 

(906)

(b,c)

 

385,082

Commission expenses

 

73,816

 

 

 

 

 

73,816

Cost of sales

 

43,362

 

 

 

 

 

43,362

Benefits and losses

 

 

3,097

 

43,906

 

 

 

47,003

Amortization of deferred policy acquisition costs

 

 

 

7,942

 

 

 

7,942

Lease expense

 

11,095

 

 

 

(47)

(b)

 

11,048

Depreciation, net of (gains) losses on disposals

 

95,381

 

 

 

 

 

95,381

Total costs and expenses

 

597,326

 

9,382

 

57,879

 

(953)

 

 

663,634

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations before equity in earnings of subsidiaries

 

248,505

 

7,503

 

3,916

 

(367)

 

 

259,557

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of subsidiaries

 

7,574

 

 

 

(7,574)

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from operations

 

256,079

 

7,503

 

3,916

 

(7,941)

 

 

259,557

Interest expense

 

(26,793)

 

 

 

367

(b)

 

(26,426)

Pretax earnings

 

229,286

 

7,503

 

3,916

 

(7,574)

 

 

233,131

Income tax expense

 

(82,113)

 

(2,626)

 

(1,219)

 

 

 

(85,958)

Earnings available to common shareholders

$

147,173

$

4,877

$

2,697

$

(7,574)

 

$

147,173

 

 

 

 

 

 

 

 

 

 

 

 

(a)  Balances for the quarter ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

(b) Eliminate intercompany lease/interest income

 

 

 

 

 

 

 

 

 

 

 

(c) Eliminate intercompany premiums

 

 

 

 

 

 

 

 

 

 

 

(d) Eliminate equity in earnings of subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating cash flow statements by industry segment for the quarter ended June 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

126,207

$

3,574

$

2,236

$

(5,810)

 

$

126,207

Earnings from consolidated subsidiaries

 

(5,810)

 

 

 

5,810

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

131,423

 

 

 

 

 

131,423

Amortization of deferred policy acquisition costs

 

 

 

6,321

 

 

 

6,321

Amortization of debt issuance costs

 

932

 

 

 

 

 

932

Interest credited to policyholders

 

 

 

7,651

 

 

 

7,651

Change in allowance for losses on trade receivables

 

(26)

 

 

 

 

 

(26)

Change in allowance for inventory reserve

 

1,114

 

 

 

 

 

1,114

Net gain on sale of real and personal property

 

(4,741)

 

 

 

 

 

(4,741)

Net gain on sale of investments

 

 

(589)

 

(1,396)

 

 

 

(1,985)

Deferred income taxes

 

16,765

 

(1,600)

 

(3,141)

 

 

 

12,024

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

(10,955)

 

4,375

 

(2,290)

 

 

 

(8,870)

Inventories

 

(11,982)

 

 

 

 

 

(11,982)

Prepaid expenses

 

44,788

 

 

 

 

 

44,788

Capitalization of deferred policy acquisition costs

 

 

 

(8,228)

 

 

 

(8,228)

Other assets

 

16,237

 

1,665

 

(90)

 

 

 

17,812

Related party assets

 

7,721

 

115

 

 

 

 

7,836

Accounts payable and accrued expenses

 

48,255

 

1,249

 

12,200

 

 

 

61,704

Policy benefits and losses, claims and loss expenses payable

 

7,125

 

(6,051)

 

3,673

 

 

 

4,747

Other policyholders' funds and liabilities

 

 

101

 

3,982

 

 

 

4,083

Deferred income

 

8,393

 

 

 

 

 

8,393

Related party liabilities

 

(2,812)

 

(117)

 

397

 

 

 

(2,532)

Net cash provided by operating activities

 

372,634

 

2,722

 

21,315

 

 

 

396,671

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(480,259)

 

 

 

 

 

(480,259)

Short term investments

 

 

(10,779)

 

(5,712)

 

 

 

(16,491)

Fixed maturities investments

 

 

(11,602)

 

(111,488)

 

 

 

(123,090)

Real estate

 

(505)

 

 

 

 

 

(505)

Mortgage loans

 

 

(6,059)

 

(18,323)

 

 

 

(24,382)

Proceeds from sales and paydowns of:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

142,343

 

 

 

 

 

142,343

Short term investments

 

 

15,424

 

9,215

 

 

 

24,639

Fixed maturities investments

 

 

4,275

 

32,284

 

 

 

36,559

Real estate

 

2,664

 

 

 

 

 

2,664

Mortgage loans

 

 

1,585

 

4,469

 

 

 

6,054

Net cash used by investing activities

 

(335,757)

 

(7,156)

 

(89,555)

 

 

 

(432,468)

 

 

(page 1 of 2)

(a) Balance for the period ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Continuation of consolidating cash flow statements by industry segment for the quarter ended June 30, 2017 are as follows:

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Borrowings from credit facilities

 

155,367

 

 

 

 

 

155,367

Principal repayments on credit facilities

 

(64,819)

 

 

 

 

 

(64,819)

Payments of debt issuance costs

 

(1,734)

 

 

 

 

 

(1,734)

Capital lease payments

 

(56,522)

 

 

 

 

 

(56,522)

Employee Stock Ownership Plan

 

3,516

 

 

 

 

 

3,516

Securitization deposits

 

49

 

 

 

 

 

49

Investment contract deposits

 

 

 

155,437

 

 

 

155,437

Investment contract withdrawals

 

 

 

(54,205)

 

 

 

(54,205)

Net cash provided by financing activities

 

35,857

 

 

101,232

 

 

 

137,089

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

4,424

 

 

 

 

 

4,424

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

77,158

 

(4,434)

 

32,992

 

 

 

105,716

Cash and cash equivalents at beginning of period

 

671,665

 

12,725

 

13,416

 

 

 

697,806

Cash and cash equivalents at end of period

$

748,823

$

8,291

$

46,408

$

 

$

803,522

 

 

(page 2 of 2)

(a) Balance for the period ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Consolidating cash flow statements by industry segment for the quarter ended June 30, 2016 are as follows:

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

147,173

$

4,877

$

2,697

$

(7,574)

 

$

147,173

Earnings from consolidated subsidiaries

 

(7,574)

 

 

 

7,574

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

114,021

 

 

 

 

 

114,021

Amortization of deferred policy acquisition costs

 

 

 

7,942

 

 

 

7,942

Amortization of debt issuance costs

 

961

 

 

 

 

 

961

Interest credited to policyholders

 

 

 

5,059

 

 

 

5,059

Change in allowance for losses on trade receivables

 

21

 

 

 

 

 

21

Change in allowance for inventory reserve

 

1,221

 

 

 

 

 

1,221

Net gain on sale of real and personal property

 

(18,640)

 

 

 

 

 

(18,640)

Net gain on sale of investments

 

 

(2,163)

 

(243)

 

 

 

(2,406)

Deferred income taxes

 

22,401

 

(21)

 

353

 

 

 

22,733

Net change in other operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Reinsurance recoverables and trade receivables

 

(10,746)

 

(421)

 

(2,971)

 

 

 

(14,138)

Inventories

 

(4,391)

 

 

 

 

 

(4,391)

Prepaid expenses

 

39,828

 

 

 

 

 

39,828

Capitalization of deferred policy acquisition costs

 

 

 

(7,252)

 

 

 

(7,252)

Other assets

 

(5,817)

 

2,377

 

48

 

 

 

(3,392)

Related party assets

 

3,687

 

397

 

 

 

 

4,084

Accounts payable and accrued expenses

 

58,699

 

(142)

 

(1,458)

 

 

 

57,099

Policy benefits and losses, claims and loss expenses payable

 

(1,600)

 

(1,746)

 

4,719

 

 

 

1,373

Other policyholders' funds and liabilities

 

 

8

 

234

 

 

 

242

Deferred income

 

8,727

 

 

 

 

 

8,727

Related party liabilities

 

861

 

(7)

 

(73)

 

 

 

781

Net cash provided by operating activities

 

348,832

 

3,159

 

9,055

 

 

 

361,046

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(437,287)

 

 

 

 

 

(437,287)

Short term investments

 

 

(18,901)

 

(258,137)

 

 

 

(277,038)

Fixed maturities investments

 

 

(13,469)

 

(153,179)

 

 

 

(166,648)

Real estate

 

(3,495)

 

 

 

 

 

(3,495)

Mortgage loans

 

(1,838)

 

(3,063)

 

(57,671)

 

 

 

(62,572)

Proceeds from sales and paydowns of:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

147,196

 

 

 

 

 

147,196

Short term investments

 

 

11,246

 

268,095

 

 

 

279,341

Fixed maturities investments

 

 

8,201

 

47,745

 

 

 

55,946

Preferred stock

 

 

2,000

 

 

 

 

2,000

Real estate

 

 

 

831

 

 

 

831

Mortgage loans

 

3,490

 

6,217

 

84,308

 

 

 

94,015

Net cash used by investing activities

 

(291,934)

 

(7,769)

 

(68,008)

 

 

 

(367,711)

 

 

(page 1 of 2)

(a) Balance for the period ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


Continuation of consolidating cash flow statements by industry segment for the quarter ended June 30, 2016 are as follows:

 

 

Moving & Storage

Consolidated

 

Property &

Casualty

Insurance (a)

 

Life

Insurance (a)

 

Elimination

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Borrowings from credit facilities

 

103,338

 

 

 

 

 

103,338

Principal repayments on credit facilities

 

(48,326)

 

 

 

 

 

(48,326)

Payments of debt issuance costs

 

(223)

 

 

 

 

 

(223)

Capital lease payments

 

(37,405)

 

 

 

 

 

(37,405)

Employee Stock Ownership Plan

 

(1,393)

 

 

 

 

 

(1,393)

Securitization deposits

 

93

 

 

 

 

 

93

Common stock dividends paid

 

(19,586)

 

 

 

 

 

(19,586)

Investment contract deposits

 

 

 

74,157

 

 

 

74,157

Investment contract withdrawals

 

 

 

(14,051)

 

 

 

(14,051)

Net cash provided (used) by financing activities

 

(3,502)

 

 

60,106

 

 

 

56,604

 

 

 

 

 

 

 

 

 

 

 

 

Effects of exchange rate on cash

 

(4,397)

 

 

 

 

 

(4,397)

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

48,999

 

(4,610)

 

1,153

 

 

 

45,542

Cash and cash equivalents at beginning of period

 

585,666

 

14,049

 

931

 

 

 

600,646

Cash and cash equivalents at end of period

$

634,665

$

9,439

$

2,084

$

 

$

646,188

 

 

(page 1 of 2)

(a) Balance for the period ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financial statements – (continued)


 

1 2 . Industry Segment and Geographic Area Data

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

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

Quarter Ended June 30, 2017

 

 

 

 

 

 

Total revenues

$

913,114

$

44,811

$

957,925

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

 

131,499

 

1,504

 

133,003

Interest expense

 

29,643

 

702

 

30,345

Pretax earnings

 

191,973

 

6,713

 

198,686

Income tax expense

 

70,610

 

1,869

 

72,479

Identifiable assets

 

9,390,397

 

410,743

 

9,801,140

 

 

 

United States

 

Canada

 

Consolidated

 

 

(Unaudited)

 

 

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

Quarter Ended June 30, 2016

 

 

 

 

 

 

Total revenues

$

880,729

$

42,462

$

923,191

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

 

102,000

 

1,323

 

103,323

Interest expense

 

26,426

 

 

26,426

Pretax earnings

 

224,913

 

8,218

 

233,131

Income tax expense

 

83,745

 

2,213

 

85,958

Identifiable assets

 

8,269,109

 

274,700

 

8,543,809

 

1 3 . Employee Benefit Plans

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

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

 

 

Service cost for benefits earned during the period

$

268

$

256

Interest cost on accumulated postretirement benefit

 

217

 

204

Other components

 

15

 

22

Net periodic postretirement benefit cost

$

500

$

482

 

1 4 . Fair Value Measurements

Fair values of cash equivalents approximate carrying value due to the short period of time to maturity. F air values of short term investments, investments available-for-sale, long term investments, mortgage loans and notes on real estate, and interest rate swap contracts are based on quoted market prices, dealer quotes or discounted cash flows. Fair values of trade receivables approximate their recorded value.

amerco and consolidated subsidiaries

notes to condensed consolidated financia l statements – (continued)


Our financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, reinsurance recoverables and notes receivable. Limited cre dit risk exists on trade receivables due to the diversity of our customer base and their dispersion across broad geographic markets. We place our temporary cash investments with financial institutions and limit the amount of credit exposure to any one fina ncial institution.

We have mortgage receivables, which potentially expose us to credit risk. The portfolio of notes is principally collateralized by self- storage facilities and commercial properties. We have not experienced any material losses related to t he notes from individual or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method and using interest rates currently offered for similar loans to borrowers with simila r credit ratings.

The carrying amount of long term debt and short term borrowings are estimated to approximate fair value as the actual interest rate is consistent with the rate estimated to be currently available for debt of similar term and remaining mat urity.

Other investments including short term investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.

Certain a ssets and liabilities are recorded at fa ir value on the condensed consolidated balance sheets and are measured and classified based upon a three tiered approach to valuation. ASC 820 - Fair Value Measurements and Disclosure (“ASC 820”) requires that financial assets and liabilities recorded at f air value be classified and disclosed in one of the following three categories:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 

Level 2 – Quoted prices fo r identical or similar financial instruments in markets that are not considered to be active, or similar financial instruments for which all significant inputs are observable, either directly or indirectly, or inputs other than quoted prices that are obser vable, or inputs that are derived principally from or corroborated by observable market data through correlation or other means; and

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobserv able. These reflect management’s assumptions about the assumptions a market participant would use in pricing the asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significan t to the fair value measurement. The following table s represent the financial assets and liabilities on the condensed consolidated balance sheet as of June 30, 2017 and March 31, 2017 that are subject to ASC 820 and the valuation approach applied to each o f these items.

As of June 30, 2017

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

(Unaudi ted)

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

Short-term investments

$

546,743

$

546,542

$

201

$

Fixed maturities - available for sale

 

1,724,331

 

6,506

 

1,717,496

 

329

Preferred stock

 

14,090

 

14,090

 

 

Common stock

 

24,610

 

24,610

 

 

Derivatives

 

4,288

 

4,288

 

 

Total

$

2,314,062

$

596,036

$

1,717,697

$

329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Guaranteed residual values of TRAC leases

$

$

$

$

Derivatives

 

3,353

 

 

3,353

 

Total

$

3,353

$

$

3,353

$

 

 

 

 

 

 

 

 

 

 

amerco and consolidated subsidiaries

notes to condensed consolidated financia l statements – (continued)


As of March 31, 2017

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

Short-term investments

$

521,911

$

521,710

$

201

$

Fixed maturities - available for sale

 

1,625,845

 

6,491

 

1,619,024

 

330

Preferred stock

 

13,489

 

13,489

 

 

Common stock

 

24,434

 

24,434

 

 

Derivatives

 

4,260

 

4,260

 

 

Total

$

2,189,939

$

570,384

$

1,619,225

$

330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Guaranteed residual values of TRAC leases

$

$

$

$

Derivatives

 

4,903

 

 

4,903

 

Total

$

4,903

$

$

4,903

$

Th e following table represents the fair value measurements for our assets at June 30, 2017 using significant unobservable inputs (Level 3).

 

 

Fixed Maturities - Asset Backed Securities

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2017

$

330

 

 

 

Fixed Maturities - Asset Backed Securities - redeemed

 

(2)

Fixed Maturities - Asset Backed Securities - net loss (unrealized)

 

1

Balance at June 30, 2017

$

329

1 5 . Real Estate Agreements

In February 2017, Real Estate entered into an agreement with a qualified intermediary related to a potential 1031 Exchange.  The qualified intermediary formed an LLC to facilitate the reverse exchange portion of the 1031 Exchange, which was determined to be a VIE.  Real Estate was deemed to be the primary beneficiary of this VIE as it has the ability to direct the activities that most significantly impact its economic performance and has all of the risks and rewards of ownership.  Accordingly, Real Estate consolidated this VIE.  As of June 30, 2017, Real Estate had loa ned $60.5 million to the VIE for the purchase of the replacement properties.  The sale of the relinquished property had not been completed as of this filing, and as such, the acquired properties remained in the possession of the VIE. At the earlier of the sale of the relinquished property or 180 days from the acquisition date of each replacement property,  the sole membership interest in each property held within the VIE will be assigned to Real Estate in satisfaction of the outstanding loan, resulting in t he property being wholly owned by Real Estate.

amerco and consolidated subsidiaries

notes to condensed consolidated financia l statements – (continued)


1 6 . Subsequent Events

Real Estate Agreement

On July 25, 2017, Real Estate further amended its Purchase and Sale Agreement with 23 rd and 11 th Associate, L.L.C., for the sale of a portion of Real Estate’s real property and improvements thereon located in Manhattan, New York to change the closing date to September 2017, with the ability of either party to further extend the closing date to October 2017.  Real Estate will maintain ownership of one building at the Manhattan location thus allowing U-Haul to serve the equipment rental needs of our customers in the area.  Real Estate’s book value of the property being sold is approximately $5 million.  The Company continues to intend to reinvest the proceeds into its s elf-storage holdings via a tax free exchange pursuant to Section 1031 of the Internal Revenue Code.

Financial Strength Rating

In August 2017, A.M. Best upgraded the financial strength rating (FSR) for Repwest Insurance Company to B++ from B+.  The FSR outl ook remains stable.  In addition, A.M. Best upgraded the long-term issuer credit rating (LTICR) to bbb from bbb-.  The LTICR outlook has been revised to positive from stable. 

 


 


ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) with the overall strategy of AMERCO, followed by a description of , and strategy related to, our operating segments to give the reader an overview of the goals of our businesses and the direction in which our businesses and products are moving. We then discuss our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. Next, w e discuss our results of operations for the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7 , which are followed by an analysis of liquidity changes in our balance sheets and cash flows, and a discussion of our financial commitments in the sections entitled Liquidity and Capit al Resources - Summary and Disclosures about Contractual Obligations and Commercial Commitments and a discussion of off-balance sheet arrangements . We conclude this MD&A by discussing our current outlook for the remainder of fiscal 201 8 .

This MD&A should b e read in conjunction with the other sections of this Quarterly Report, including the Notes to Condensed Consolidated Financial Statements. The various sections of this MD&A contain a number of forward-looking statements, as discussed under the caption , Ca utionary Statements Regarding Forward-Looking Statements , all of which are based on our current expectations and could be affected by the uncertainties and risk s described throughout this filing or in our most recent Annual Report on Form 10-K for the fisc al year ended March 31, 201 7 . Many of these risks and uncertainties are beyond our control and our actual results may differ materially from these forward-looking statements.

AMERCO, a Nevada corporation, has a first fiscal quarter that ends on the 30 th o f June for each year that is referenced. Our insurance company subsidiaries have a first quarter that ends on the 3 1 st of March 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 referen ces to our insurance subsidiaries’ years 201 7 and 20 16 correspond to fiscal 201 8 and 201 7 for AMERCO.

Overall Strategy

Our overall strategy is to maintain our leadership position in the North American “do-it-yourself” moving and storage industry. We accomp lish this by providing a seamless and integrated supply chain to the “do-it-yourself” moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul with our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.

Our primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities , portable moving and storage units and related movi ng and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage rooms and portable moving and storage units available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our eMove ® capabilities.

Property and Casualty Insurance is focused on providing and administering property and casualty insurance to U-Haul and its customers, its independent dealers and affiliates. 

Life Insurance is focused on long term capital growth through direct writing and reinsuring of life insurance , Medicare supplement and annuity products in the senior marketplace.

Description of Operating Segments

AMERCO’s three reportab le segments are:

  • Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate,
  • Property and Casualty Insurance, comprised of Rep w est and its wholly-owned subsidiaries and ARCOA, and
  • Life Insurance, comprised of Oxford and its wholly-owned subsidiaries.

 


Moving and Storage

Moving and Storage consists of the rental of trucks, trailers, portable moving and storage units, specialty rental items and self-storage spaces primarily to the househol d mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul ® throughout the United States and Canada.

With respect to our truck, trailer, specialty rental items and self-stora ge rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.

U-Haul brand self-moving related products and services, such as boxes, pads and tape allow our customers to, among other things; protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-you rself” moving and storage customer in mind.

uhaul.com ® is an online marketplace that connects consumers to our operations as well as independent Moving Help ® service providers and thousands of independent Self-Storage Affiliates. Our network of customer rated affiliates and service provide rs furnish pack and load help, cleaning help, self-storage and similar services, all over the United States and Canada . Our goal is to further utilize our web -based technology platform to increase service to consumers and businesses in the moving and storage market.

Since 1945, U-Haul has incorporated sustainable practices into its everyday operations. We believe that our basic business premise of equipment sha ring helps reduce greenhouse gas emissions and reduces the inventory of total large capacity vehicles. We continue to look for ways to reduce waste within our business and are dedicated to manufacturing reusable components and recyclable products. We belie ve that our commitment to sustainability, through our products and services and everyday operations , has helped us to reduce our impact on the environment.

Property and Casualty Insurance

Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul through regional offices across 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 . We continue to focus on increasing the penetration of these products into the moving and storage market. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul ® related programs.

Life Insura nce

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.

Critical Accounting Policies and Estimates

Our financial s tatements have been prepared in accordance with GAAP in the United States. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Certain accountin g policies require us to make difficult and subjective judgments and assumptions, often as a result of the need to estimate matters that are inherently uncertain.

Following is a detailed description of the accounting policies that we deem most critical to us and that require management’s most difficult and subjective judgments. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptio ns that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions; such differences may be material.

We also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting esti mates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following :

 


Principles of Consolidation

We appl y Accounting Standards Codification (“ASC”) 810 - Consolidation (“ASC 810”) in our principles of consolidation. ASC 810 addresses arrangements where a company does not hold a majority of the voting or similar interests of a variable interest entity (“VIE”). A company is required to consolidate a VIE if it has determined it is the primary beneficiary. ASC 810 also addresses the policy when a company owns a majority of the voting or similar rights and exercises effective c ontrol.

As promulgated by ASC 810, a VIE is not self-supportive due to having one or both of the following conditions: (i ) it has an insufficient amount of equity for it to finance its activities without receiving additional subordinated financial support or (ii ) its owners do not hold the typical risks and rights of equity owners. This determination is made upon the creatio n of a variable interest and is re-assessed on an on-going basis should certain changes in the operations of a VIE, or its relationship with the primary beneficiary trigger a reconsideration under the provisions of ASC 810. After a triggering event occurs the facts and circumstances are utilized in determining whether or not a company is a VIE, which other company( ie s) have a variable interest in the entity, and whether or not the company’s interest is such that it is the primary beneficiary.

We will contin ue to monitor our relationships with the other entities regarding who is the primary beneficiary, which could change based on facts and circumstances of any reconsideration events.

Recoverability of Property, Plant and Equipment

Our p roperty, plant and eq uipment is stated at cost. Interest expense incurred during the initial construction of buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes using the straight-line or an accelerated method ba sed on a declining balance formula over the following estimated useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses o n dispositions of property, plant and equipment are netted against depreciation expense when realized. Equipment depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal, i.e., minimize gains or lo sses. In determining the depreciation rate, historical disposal experience, holding periods and trends in the market for vehicles are reviewed. As a result of the changes in IRS regulations regarding the capitalization of assets, beginning in the first qua rter of fiscal 2017, the Company has changed its depreciation policy to raise the value threshold before certain assets are capitalized. This change in procedure results in the immediate recognition of reported operating costs with a lagging decrease in de preciation expense over the term that these assets would have been depreciated. Due to this change, we had additional operating expenses of $ 6.3 million and $4.6 million in the first quarter of fiscal 2018 and 2017, respectively. This change in procedure i s expected to benefit the Company through the immediate recognition of tax deductible costs.

We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets are shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will resu lt in an increase in depreciation expense over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net c ash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected lif e of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets . If asset residual values are determined to be recoverable, but the useful lives are shorter or longer than originall y estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.

M anagement determined that additions to the fleet resulting from purchase s should be depreciated on an accelerated method based upon a declining formula. Under the declining balances method (2.4 times declining balance), the book value of a rental truck is reduced approximately 16%, 13%, 11%, 9%, 8%, 7%, and 6% during years one through seven, respectively , and then reduced on a straight-line basis to a salvage value of 20 % by the end of year fifteen. Beginning in October 2012, rental equipment subject to this depreciation schedule will be depreciated to a salvage value of 15%. Comparatively, a standard straight-line approach would reduce the book va lue by approximately 5. 7 % per year over the life of the

 


truck.

Although we intend to sell our used vehicles for prices approximating book value, the extent to which we realize a gain or loss on the sale of used vehicles is dependent upon various factors including but not limited to, the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and the depreciation rates with respect to the vehicle . We typically sell our used vehicles at our sales centers t hroughout the United States and Canada , on our website at uhaul.com/trucksales or by phone at 1-866-404-0355. Additionally, we sell a large portion of our pickup and cargo van fleet at automobile dealer auctions.

Insurance Reserves

Liabilities for life in surance and certain annuity and health policies are established to meet the estimated future obligations of policies in force, and are based on mortality, morbidity and withdrawal assumptions from recognized actuarial tables which contain margins for adver se deviation. In addition, liabilities for health, disability and other policies include estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred, but not yet reported (“IBNR”) . Liabilities for annuity contr acts consist of contract account balances that accrue to the benefit of the policyholders.

Insurance reserves for Property and Casualty Insurance and U-Haul take into account losses incurred based upon actuarial estimates and are management’s best approxim ation of future payments.  These estimates are based upon past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation.  These reserves consist of case reserves for reported losse s and a provision for IBNR losses, both reduced by applicable reinsurance recoverables, resulting in a net liability .

Due to the nature of the underlying risks and high degree of uncertainty associated with the determination of the liability for future pol icy benefits and claims, the amounts to be ultimately paid to settle these liabilities cannot be precisely determined and may vary significantly from the estimated liability, especially for long-tailed casualty lines of business such as excess workers’ com pensation.  As a result of the long-tailed nature of the excess workers compensation policies written by Repwest during 1983 through 200 1 , it may take a number of years for claims to be fully reported and finally settled.

On a regular basis insurance reserve adequacy is reviewed by management to determine if existing assumptions need to be updated . In determining the assumptions for calculating workers compensation reserves, management considers multiple factors including the following:

  • Claimant longe vity
  • Cost trends associated with claimant treatments
  • Changes in ceding entity and third party administrator reporting practices
  • Changes in environmental factors including legal and regulatory
  • Current conditions affecting claim settlements
  • Future economic c onditions including inflation

We have reserved each claim based upon the accumulation of current claim costs projected through each claimant s life expectancy, and then adjusted for applicable reinsurance arrangements.  Management reviews each claim bi-ann ually to determine if the estimated life-time claim costs have increased and then adjusts the reserve estimate accordingly at that time.  We have factored in an estimate of what the potential cost increases could be in our IBNR liability.  We have not assu med settlement of the existing claims in calculating the reserve amount, unless it is in the final stages of completion.

Continued increases in claim costs, including medical inflation and new treatments and medications could lead to future adverse develop ment resulting in additional reserve strengthening.  Conversely, settlement of existing claims or if injured workers return to work or expire prematurely, could lead to future positive development.

 


Impairment of Investments

Investments are evaluated pursu ant to guidance contained in ASC 320 - Investments - Debt and Equity Securities to determine if and when a decline in market value below amortized cost is other-than-temporary. Management makes certain assumptions or judgments in its assessment including b ut not limited to: our ability and intent to hold the security, quoted market prices, dealer quotes or discounted cash flows, industry factors, financial factors, and issuer specific information such as credit strength. Other-than-temporary impairment in v alue is recognized in the current period operating results. There were no write downs in the first quarter of fiscal 201 8 or 201 7 .

Income Taxes

AMERCO files a consolidated tax return with all of its legal subsidiaries.

Our tax returns are periodically revi ewed by various taxing authorities. The final outcome of these audits may cause changes that could materially impact our financial results.

Fair Values

Fair values of cash equivalents approximate carrying value due to the short period of time to maturity. Fair values of short term investments, investments available-for-sale, long term investments, mortgage loans and notes on real estate, and interest rate swap contracts are based on quoted market prices, dealer quotes or discounted cash flows. Fair values o f trade receivables approximate their recorded value.

Our financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables, reinsurance recoverables and notes receivable. Limited cre dit risk exists on trade receivables due to the diversity of our customer base and their dispersion across broad geographic markets. We place our temporary cash investments with f inancial institutions and limit the amount of credit exposure to any one fina ncial institution.

We have mortgage receivables, which potentially expose us to credit risk. The portfolio of notes is principally collateralized by self- storage facilities and commercial properties. We have not experienced any material losses related to t he notes from individual or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method and using interest rates currently offered for similar loans to borrowers with simila r credit ratings.

The carrying amount of long term debt and short term borrowings are estimated to approximate fair value as the actual interest rate is consistent with the rate estimated to be currently available for debt of similar term and remaining mat urity.

Other investments including short term investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.

Adoption of New Accounting Pronouncements

In October 2016, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ASU”) 2016-17, Interests Held through Related Parties That Are under Common Control , which modifies existing guidance with respect to how a decision mak er that holds an indirect interest in a VIE through a common control party determines whether it is the primary beneficiary of the VIE as part of the analysis of whether the VIE would need to be consolidated. Under ASU 2016-17 , a decision maker would need to consider only its proportionate indirect interest in the VIE held through a common control party. Previous guidance had required the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself . As a result of ASU 2016-17 , in certain cases, previous consolidation conclusions may change. We adopted this standard in the first quarter of fiscal 2018. The adoption of this standard did not have a material impact on our consolidated financial statemen ts .

 


Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , an updated standard on revenue recognition. The standard creates a five-step model for revenue recognition that requires companies to exe rcise judgment when considering contract terms and relevant facts and circumstances. The standard requires expanded disclosure surrounding revenue recognition. Early application is not permitted. The standard was initially to be effective for fiscal period s beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of Effective Date , which delays the effective date o f ASU 2014-09 by one year to fiscal periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as requirements in ASU 2015-14. We do not expect adoption of ASU 2014-09 to have a material effect o n our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 addresses certain aspects of re cognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the new guidance requires the fair value measurement of investments in certain equity securities. For investments without readily determinable fair value s, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices minus impairment. All changes in measurement will be recognized in net income. The guidance is effective for interim periods and annual period beginning after December 15, 2017. Early adoption is not permitted, except for certain provisions relating to financial liabilities. We are currently evaluating the impact of the adoption of this standard on our consolidated financial sta tements.

In February 2016, the FASB issued ASU 2016-02, Leases – (Topic 842) . This update will require lessees to recognize all leases with terms greater than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. Th is update maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The basic principle is that leases of all types convey the right to direct the use and obtain substantially all the economic benefits of an identified asset, meaning they create an asset and liability for lessees. Lessees will classify leases as either finance leases (comparable to current capital lease s) or operating leases (comparable to current operating leases). Costs for a finance lease will be split between amortization and interest expense, with a single lease expense reported for operating leases. This update also will require both qualitative an d quantitative disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018 , including interim periods wi thin those fiscal years ; however, early adoption is permitted. We have determined that the provisions of ASU 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities. W e are still in the process of determining the impact on our consolidated financial statements. For the last ten years, we have reported a discounted estimate of the off-balance sheet lease obligations in our MD&A.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) . This update will require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted f rom the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. This update will become effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of this standard on our consolidated financial statements.

 


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Cl assification of Certain Cash Receipts and Cash Payments . This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.   The effective date of ASU 2016-15 is for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory , which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs.   This update will become effective for the Company for fiscal years beginnin g after December 31, 2017, and interim periods within those fiscal years with early adoption permitted.   We are currently evaluating the impact of this standard on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statem ent of Cash Flows (Topic 230) Restricted Cash . The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statements of cash flows include restricted cash and restricted cash equivalents. If re stricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclos e information about the nature of the restrictions. This update will become effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluat ing the impact of this standard on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . This update is to clarify the definition of a business with t he objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, di sposals, goodwill, and consolidation. This update will become effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. We are currently evaluating the impact of this standard on our consoli dated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which changes how companies that sponsor defin ed benefit pension plans present the related net periodic benefit cost in the income statement. The service cost component of the net periodic benefit cost will continue to be presented in the same income statement line items, however other components of t he net periodic benefit cost will be presented as a component of other income and excluded from operating profit. ASU 2017-07 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2017 with earl y adoption permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Cost (Subtopic 310-20), Premium Amortization on P urchased Callable Debit Securities. These amendments shorten the amortization period for certain callable debit securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after Dece mber   15, 2018. Early adoption is permitted including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact of this standard on our consolidated financial stat ements.

From time to time, new accounting pronouncements are issued by the FASB or the SEC that are adopted by us as of the specified effective date. Unless otherwise discussed, these ASUs entail technical corrections to existing guidance or affect guidanc e related to specialized industries or entities and therefore will have minimal, if any, impact on our financial position or results of operations upon adoption.

 


Results of Operations

AMERCO and Consolidated Entities

Quarter Ended June 30, 201 7 compared w ith the Quarter Ended June 30, 201 6

Listed below , on a consolidated basis , are revenues for our major product lines for the first quarter of fiscal 201 8 and the first quarter of fiscal 201 7 :

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$

669,858

$

646,336

Self-storage revenues

 

76,718

 

67,722

Self-moving and self-storage products and service sales

 

78,911

 

77,303

Property management fees

 

6,762

 

6,604

Life insurance premiums

 

39,091

 

40,892

Property and casualty insurance premiums

 

11,815

 

11,255

Net investment and interest income

 

27,217

 

27,331

Other revenue

 

47,553

 

45,748

Consolidated revenue

$

957,925

$

923,191

Self-moving equipment rental revenues increased $ 23.5 million during the first quarter of fiscal 201 8 , compared with t he first quarter of fiscal 201 7 .   Revenue gains were the result of increases in both one-way and in-town transactions.  Compared to the same period last year, we increased the number of trucks, trailers and towi ng devices in the rental fleet.  Additionally, we continued with the expansion of our independent dealer network as well as Company-owned locations.

Self-storage revenues increased $ 9.0 million during the first quarter of fiscal 201 8 , com pared with the first quarter of fiscal 201 7.  The average monthly amount of occupied square feet increased by 8.1 % during the first quarter of fiscal 201 8 compared with the same period last year.  The growth in revenues and square feet rented comes from a combination of improved rates per square foot, occupancy gains at existing locations and from the addition of new facilities to the portfolio. Over the last twelve months, we added approximately 3.1 million net rentable square feet or a 12.4 % increase, with approximately 0.7 mil lion of that coming on during the first quarter of fiscal 2018 .

Sales of self-moving and self-storage products and services increased $1.6 million during the first quarter of fiscal 2018, compared with the first quarter of fiscal 2017. Increases we re recognized in the sales of moving supplies and towing accessories and related installations.

Life insurance premiums de c reased $ 1.8 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 2017 due primarily to decrease d life and Medicare supplement premiums .

Property and casualty insurance premiums increased $ 0.6 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7 due to an increase in Safetow ® and Safestor ® sales which is a reflection of the increased equipment and storage rental transactions.

Other revenue in creased $ 1.8 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7, primarily coming from our U-Box ® program.

As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $ 957.9 million for the first quarter of fiscal 201 8 , compared with $ 923.2 million for the first quarter of fiscal 201 7 .

 


Listed below are revenues and earning s from operations at each of our operating segments for the first quarter of fiscal 201 8 and the first quarter of fiscal 201 7 . The insurance companies first quarters ended March 31 , 201 7 and 20 16 .

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Moving and storage

 

 

 

 

Revenues

$

882,527

$

845,831

Earnings from operations before equity in earnings of subsidiaries

 

220,508

 

248,505

Property and casualty insurance 

 

 

 

 

Revenues

 

16,106

 

16,885

Earnings from operations

 

5,436

 

7,503

Life insurance  

 

 

 

 

Revenues

 

60,656

 

61,795

Earnings from operations

 

3,436

 

3,916

Eliminations

 

 

 

 

Revenues

 

(1,364)

 

(1,320)

Earnings from operations before equity in earnings of subsidiaries

 

(349)

 

(367)

Consolidated Results

 

 

 

 

Revenues

 

957,925

 

923,191

Earnings from operations

 

229,031

 

259,557

Total costs and expenses increased $ 65.3 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7. The Moving and Storage segment accounted for $64.7 million of the increase . Operating expenses for Moving and Storage increased $30.4 million, largely from increased personnel costs, equipment maintenance and property tax.  Depreciation expense increased $1 7 . 4 million due to the additional amount of equipment in the rental fleet.  Gains from the disposal of property, plant and equipment decreased $13. 9 million.  Compared with the first quarter of last year, the trucks we are selling had a higher average cost and we are receiving lower average proceeds per unit.  Lease expense decreased $2.8 million as a result of our shift in financing new equipment on the balance sheet versus through operating leases .

As a result of the above mentioned changes in revenues and expenses, earnings from operations de creased to $ 229.0 million for the first quarter of fiscal 201 8 , compared with $ 259.6 million for the first quarter of fiscal 201 7 .

Interest expense for the first quarter of fiscal 201 8 was $ 30.3 million, compared with $ 26.4 million for the first quarter of fiscal 201 7 primarily due to increased borrowings .

Income tax expense was $ 72.5 million for the first quarter of fiscal 201 8 , compared with $ 86.0 million for the first quarter of fiscal 201 7 .

As a result of the above mentioned items, earnings available to common shareholders were $126.2 million for the first quarter of fiscal 201 8 , compared with $ 147.2 million for the first quarter of fiscal 201 7 .

Basic and diluted earnings per share for the f irst quarter of fiscal 201 8 were $ 6.44 , compared with $ 7.51 for the first quarter of fiscal 201 7 .

The weighted average common shares outstanding basic and diluted were 19,58 7 , 891 for the first quarter of fiscal 201 8 , compared with 19,586,069 for the first quarter of fiscal 201 7 .

 


Moving and Storage

Quarter Ended June 30, 201 7 compared with the Quarter Ended June 30, 201 6

Listed below are revenues for our major product lines at Moving and Storage for the first quarter of fiscal 201 8 and the first quarter of fiscal 201 7 :

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Self-moving equipment rentals

$

670,698

$

647,116

Self-storage revenues

 

76,718

 

67,722

Self-moving and self-storage products and service sales

 

78,911

 

77,303

Property management fees

 

6,762

 

6,604

Net investment and interest income

 

2,657

 

2,112

Other revenue

 

46,781

 

44,974

Moving and Storage revenue

$

882,527

$

845,831

Self-moving equipment rental revenues increased $ 23.6 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7 .   Revenue gains were the result of increases in both one-way and in-town transactions.  Compared to the same period last year we increased the number of trucks, trailers and towing dev ices in the rental fleet.  Additionally, we continued with the expansion of our independent dealer network as well as Company-owned locations.      

Self-storage revenues increased $ 9.0 million during the first quarter of fiscal 201 8 , com pared with the first quarter of fiscal 201 7.  The average monthly amount of occupied square feet increased by 8.1 % during the first quarter of fiscal 2018 compared with the same period last year.  The growth in revenues and square feet rented comes from a combination of improved rates per square foot, occupancy gains at existing locations and from the addition of new facilities to the portfolio. Over the last twelve months we added approximately 3.1 million net rentable square feet or a 12.4 % increase, with approximately 0.7 mil lion of that coming on during the first quarter of fiscal 2018 .

Sales of self-moving and self-storage products and services increased $1.6 million during the first quarter of fiscal 2018, compared with the first quarter of fiscal 2017. Increases wer e recognized in the sales of moving supplies and towing accessories and related installations.

Net investment and interest income increased $0.5 million during the first quarter of fiscal 2018, compared with the first quarter of fiscal 201 7 .   

Other reven ue in creased $ 1.8 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7 caused primarily by the U-Box ® program.

We own and manage self-storage facilities. Self-storage revenues reported in the consolidated financia l statements represent Company-owned locations only. Self-storage data for our owned storage locations follows:

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands, except occupancy rate)

Room count as of June 30

 

328

 

287

Square footage as of June 30

 

28,044

 

24,941

Average monthly number of rooms occupied

 

237

 

219

Average monthly occupancy rate based on room count

 

73.0%

 

77.4%

Average monthly square footage occupied

 

21,383

 

19,791

 

 


Over the last twelve months we added approximately 3.1 million net rentable square feet of new storage to the system. This was a mix of existing storage locations we acquired and new development. On average, the occupancy rate of this new capacity on the date it was added was 11.1%.

Total cos ts and expenses in creased $ 64.7 million during the first quarter of fiscal 201 8 , compared with the first quarter of fiscal 201 7 Operating expenses increased $ 30.4 million largely from increased personnel costs, equipment maintenance and property tax.   De preciation expense increased $ 17.4 million due to the additional amount of equipment in the rental fleet.  G ains from the disposal of property, plant and equipment decreased $13.9 million.  Compared with the first quarter of last year, the trucks we are selling had a higher average cost and we are receiving lower average proceeds per unit.  Lease expense decreased $2.8 million as a result of our shift in financing new equipment on the balance sheet versus through operating leases .

As a result of the above mentioned changes in revenues and expenses, earnings from operations for Moving and Storage before consolidation of the equity in the earnings of the insurance subsidiaries, de creased to $220.5 million for the first quarter of fiscal 2018, compared with $ 248.5 million for the first quarter of fiscal 2017.

Equity in the earnings of AMERCO’s insurance subsidiaries was $ 5.8 million for the first quarter of fiscal 2018, compared with $7.6 million for the first quarter of fiscal 201 7 .

As a result of the above m entioned changes in revenues and expenses, earnings from operations de creased to $ 226.3 million for the first quarter of fiscal 201 8 , compared with $ 256.1 million for the first quarter of fiscal 201 7 .

Property and Casualty Insurance

Quarter Ended March 31 , 201 7 compared with the Quarter Ended March 31, 2016

Net premiums were $11.8 million and $11.3 million for the quarters ended March 31, 2017 and 2016, respectively. A significant portion of Repwest’s premiums are from policies sold in conjunction with U-Ha ul rental transactions. The premium increase corresponded with the increased moving and storage transactions at U-Haul during the same period.

Net inves tment and interest income was $4.3 million and $5.6 million for quarters ended March 31, 2017 and 2016 , respectively. The main driver of the decrease in net investment income was the decrease in net realized gains to $0.6 million in 2017 from $2.1 million in 2016.

Net operating expenses were $8.2 million and $6.3 million for the quarters ended March 31, 2017 and 2016, respectively.

Benefits and losses incurred were $2.4 million and $3.1 million for the quarters ended March 31, 2017 and 2016, respectively, as a result of a $0.7 million improvement in loss experience associated with the moving and storage relat ed insurance business.

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $5.4 million and $7.5 million for the three months ended March 31, 2017 and 2016 , respectively.

Life Insurance

Quarter Ended March 31, 2017 compared with the Quarter Ended March 3 1 , 20 16

Net premiums were $39.1 million and $40.9 million for the quarters ended March 31 , 201 7 and 201 6 , respectively . Medicare Supplement premiums decreased by $1.4 million due to the reduction in ne w sales and declined premiums on the run off business partially offset by rate increases on renewal premiums. A remaining decrease of $0.4 million was from reduced supplemental contract considerations and life insurance premiums. Deferred annuity deposits were $95.4 million or $39.7 million above prior year and are accounted for on the balance sheet as deposits rather than premiums.

Net investment income was $ 20.7 million and $ 20.0 million for the quarters ended March 31 , 201 7 and 201 6 , respectively . Realiz ed gains from our fixed maturities portfolio increased by $1.2 million compared with the prior year quarter while investment income decreased by $0.5 million. The prior year quarter investment income included an additional $4.1 million gain from our mortga ge loan portfolio compared with $0.4 million in the current year quarter.

 


Net operating expenses were $ 5.6 million and $6.0 million for the quarters ended March 31 , 201 7 and 201 6, respectively. The decrease was primarily due to a reduction in commission ex pense from decreased Medicare supplement premiums.

Benefits and losses incurred were $ 45.3 million and $ 43.9 million for the quarters ended March 31 , 201 7 and 201 6 , respectively . The increase was primarily due to a $2.6 million increase in interest credited to policyholders as a result of the increased annuity deposit base along with $0.9 million from life insurance benefits. Partially offsetting this was a $1.8 million decrease in Medicare supplement benefits from an improved benefit to premium rati o and a $0.3 million decrease in supplemental contract and immediate annuity payouts.

Amortization of deferred acquisition costs (“DAC”) , sales inducement asset (“SIA”) and the value of business acquired (“VOBA”) was $ 6.3 million and $ 7.9 million for the q uarters ended March 31 , 201 7 and 201 6 , respectively . The decrease was primarily due to an additional $2.5 million amortization in the first quarter of the prior year quarter generated by added gains on mortgage loan investments.  

As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $ 3.4 million and $ 3.9 million for the quarters ended March 31 , 201 7 and 201 6 , respectively.

Liquidity and Capital Resources

We believe our current capital structure is a posit ive factor that will enable us to pursue our operational plans and goals , and provide us with sufficient liquidity for the foreseeable future. T here are many factors which could affect our liquidity, including some which are beyond our control, and there i s no assurance that future cash flows and liquidity resources will be sufficient to meet our outstanding debt obligations and our other future capital needs.

At June 30, 2017 , cash and cash equivalents totaled $ 803.5 million, compared with $ 697.8 million a t March 31, 201 7 . The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations ( Moving and Storage ). As of June 30, 2017 (or as otherwise indicated), cash and cash equivalents, other financial as sets (receivables, short-term investments, other investments, fixed maturities, and related party assets) and debt obligations of each operating segment were:

 

 

Moving & Storage

 

Property and Casualty Insurance (a)

 

Life Insurance (a)

 

 

(Unaudited)

 

 

(In thousands)

Cash and cash equivalents

$

748,823

$

8,291

$

46,408

Other financial assets

 

166,604

 

437,225

 

1,833,417

Debt obligations

 

3,386,851

 

 

 

 

 

 

 

 

 

(a) As of March 31, 2017

 

 

 

 

 

 

At June 30, 2017, Moving and Storage had additional cash available under existing credit facilities of $ 77.0 million .

Net cash pro vided by operating activities in cre ased $ 35.6 million in the first quarter of fiscal 2018 compared with the first quarter of fiscal 201 7.   

Net cash used in invest ing activities in cr eased $ 64.8 million in the first quarter of fiscal 201 8, compared with the first quarter of fiscal 201 7 . Purchases of property, plant and equipment, which are reported net of cash from sales and lease-back transactions, in creased $ 43.0 m illion. Cash from the sales of property, plant and equipment de creased $ 4.9 million largely due to reduced fleet sales. For our insurance subsidiaries, net cash used in investing activities increased $20.9 million due to additional investment purchases.  

 


Net cash provided by fina ncing activities in creased $80.5 million in the first quarter of fiscal 201 8 , as compared with the first quarter of fiscal 201 7.  This was due to a combination of increased debt and capital lease repayments of $35.6 million, an inc rease in cash from borrowings of $52.0 million and an in crease in net annuity deposits from Life Insurance of $41.1 million, a $19.6 million dividend payment in the first quarter of fiscal 2017 that did not recur in the first quarter of fiscal 2018.

Liquid ity and Capital Resources and Requirements of Our Operating Segments

Moving and Storage

To meet the needs of our customers, U-Haul maintains a large fleet of rental equipment. Capital expenditures have primarily consisted of new rental equipment acquisitio ns and the buyouts of existing fleet from leases. The capital to fund these expenditures has historically been obtained internally from operations and the sale of used equipment and externally from debt and lease financing. In the future, we anticipate tha t our internally generated funds will be used to service the existing debt and fund operations. U-Haul estimates that during fiscal 201 8, we will reinvest in our truck and trailer rental fleet approximately $ 440 million , net of equipment sales excluding an y lease buyouts. Through the first quarter of fiscal 2018, we have invested , net of equipment sales, $ 256 million before any lease buyouts in our truck and trailer fleet of this projected amount . Fleet investments in fiscal 201 8 and beyond will be dependen t upon several factors including availability of capital, the truck rental environment and the used-truck sales market. We anticipate that the fiscal 201 8 investments will be funded largely through debt financing, external lease financing and cash from ope rations. Management considers several factors including cost and tax consequences when selecting a method to fund capital expenditures. Our allocation between debt and lease financing can change from year to year based upon financial market conditions whic h may alter the cost or availability of financing options.

Real Estate has traditionally financed the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations and sales. Our plan for the expansion of owned storage properties includes the acquisition of existing self-storage locations from third parties, the acquisition and development of bare land, and the acquisition and redevelopment of existing buildings not currently used for self-storage. We are funding these development projects through construction loans and internally generated funds. For the first quarter of fiscal 201 8 , we invested $142.5 million in real estate acquisitions, new construction and renovation and major repair. For fiscal 201 8 , the timing of new projects will be dependent upon several factors including the entitlement process, availability of capital, weather, and the identification and successful acquisition of target properties. U-Haul's growth plan in self-storage also includes the expansion of the U-Haul Storage Affiliate program, which does not require significant capital.

Net capital expenditures (purchases of property, plant and equipment less proceeds from the sale of property, plant and equipment and lease proceeds ) were $ 337.9 million and $ 290.1 million for the first quarter of fiscal 201 8 and 201 7 , respectively. The components of our net capital expenditures are provided in the following table:

 

 

Quarter Ended June 30,

 

 

2017

 

2016

 

 

(Unaudited)

 

 

(In thousands)

Purchases of rental equipment

$

396,068

$

418,975

Equipment lease buyouts

 

 

7,864

Purchases of real estate, construction and renovations

 

142,499

 

123,531

Other capital expenditures

 

29,083

 

30,289

Gross capital expenditures

 

567,650

 

580,659

Less: Lease proceeds

 

(87,391)

 

(143,372)

Less: Sales of property, plant and equipment

 

(142,343)

 

(147,196)

Net capital expenditures

 

337,916

 

290,091

Moving and Storage continues to hold significant cash and has access to additional liquidity. Management may invest these funds in our existing operations, expand our product lines or pursue external opportunities in the self-moving and storage market plac e or reduce existing indebtedness where possible.

 


Property and Casualty Insurance

State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Property and Casualty Insurance’s assets ar e generally not available to satisfy the claims of AMERCO or its legal subsidiaries.

We believe that stockholder’s equity at Property and Casualty remains sufficient and we do not believe that its ability to pay ordinary dividends to AMERCO will be restric ted per state regulations.

Property and Casualty s tockholder’s equity was $ 186.4 million and $ 180.9 million at March 31, 2017 and December 31, 20 16 , respectively. The increase resulted from net earnings of $ 3.6 m illion and a n increase in other comprehensiv e income of $ 1.9 million. Property and Casualty Insurance does not use debt or equity issues to increase capital and therefore has no direct exposure to capital market conditions other than through its investment portfolio.

Life Insurance

Life Insurance manages its financial assets to meet policyholder and other obligations including investment contract withdrawals and deposits . Life Insurance’s net deposits for the quarter ended March 31, 2017 were $ 101.2 million. State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Life Insurance’s funds are generally not available to satisfy the claims of AMERCO or its legal subsidiaries.

Life Insurance’s stockholder’s equity was $ 303.4 millio n and $ 296.1 million at March 31, 2017 and December 31, 20 16 , respectively. The increase resulted from net earnings of $ 2.2 million and an increase in other comprehensive income of $ 5.1 million primarily due to the effect of interest rate changes on the fixed maturity portion of the investment portfolio. Life Insurance has not historically used debt or equity issues to increase capital and therefore has not had any significant direct expo sure to capital market conditions other than through its investment portfolio. However, a s of March 31, 201 7, Oxford ha d outstanding deposits of $ 60.0 million through their membership in the FHLB system.   For a more detailed discussion of this deposit , ple ase see Note 4, Borrowings , of the Notes to Condensed Consolidated Financial Statements.  

Cash Provided from Operating Activities by Operating Segments

Moving and Storage

Net cash provided from operating activities were $ 372.6 million and $348.8 million f or the first quarter of fiscal 201 8 and 201 7 , respectively .

Property and Casualty Insurance

Net cash provided by operating activities were $2.7 million and $3.2 million for the first quarters ended March 31, 2017 and 2016, respectively.

Property and Casual ty Insurance’s cash and cash equivalents and short-term investment portfolio s amounted to $ 11.6 million and $ 20.7 million at March 31, 2017 and December 31, 20 16 , respectively. Th e s e balance s reflect funds in transition from maturity proceeds to long term investments. Management believes this level of liquid assets, combined with budgeted cash flow, is adequate to meet foreseeable cash needs. Capital and operating budgets allow Property and Casualty Insurance to schedule cash needs in accordance with invest ment and underwriting proceeds.

Life Insurance

Net cash provided by operating activities were $ 21.3 million and $ 9.1 million for the first quarter ended March 31, 2017 and 20 16 , respectively. The increase in operating cash flows was primarily due to timing of settlement of payables offset by a decrease resulting from a federal income tax payment.

In addition to cash flows from operating activities and financing activities, a substantial amount of liquid funds are avail able through Life Insurance’s short-term portfolio and its membership in the FHLB . At March 31, 2017 and December 31, 20 16 , cash and cash equivalents and short-term investments amounted to $ 50.2 million and $ 20.6 million, respectively. Management believes that the overall sources of liquidity are adequate to meet foreseeable cash needs.

 


Liquidity and Capital Resources - Summary

We believe we have the financial resources needed to meet our business plans including our working capital needs. We continue to ho ld significant cash and have access to existing credit facilities and additional liquidity to meet our anticipated capital expenditure requirements for investment in our rental fleet, rent al equipment and storage acquisitions and build outs.

Our borrowing strategy is primarily focused on asset-backed financing and rental equipment leases. As part of this strategy, we seek to ladder maturities and hedge floating rate loans through the use of interest rate swaps. While each of these loans typically contain s p rovisions governing the amount that can be borrowed in relation to specific assets, the overall structure is flexible with no limits on overall Company borrowings. Management believes it has adequate liquidity between cash and cash equivalents and unused b orrowing capacity in existing credit facilities to meet the current and expected needs of the Company over the next several years. At June 30, 2017 , we had available borrowing capacity under existing credit facilities of $ 77.0 million. It is possible that circumstances beyond our control could alter the ability of the financial institutions to lend us the unused lines of credit. W e believe that there are additional opportunities for leverage in our existing capital structure. For a more detailed discussion of our long term debt and borrowing capacity, please see Note 4, Borrowings , of the Notes to Condensed Consolidated Financial Statements.

Fair Value of Financial Instruments

Certain a ssets and liabilities are recorded at fair value on the condensed consoli dated balance sheets and are measured and classified based upon a three tiered approach to valuation. ASC 820 requires that financial assets and liabilities recorded at fair value be classified and disclosed in a Level 1, Level 2 or Level 3 category. For m ore information, please see Note 1 4 , Fair Value Measurements , of the Notes to Condensed Consolidated Financial Statements. 

The available-for-sale securities held by us are recorded at fair value. These values are determined primarily from actively traded markets where prices are based either on direct market quotes or observed transactions. Liquidity is a factor considered during the determination of the fair value of these securities. Market price quotes may not be readily available for certain securitie s or the market for them has slowed or ceased. In situations where the market is determined to be illiquid, fair value is determined based upon limited available information and other factors including expected cash flows. At June 30, 2017 , we had $ 0.3 mil lion of available-for-sale assets classified in Level 3.

The interest rate swaps held by us as hedges against interest rate risk for our variable rate debt are recorded at fair value. These values are determined using pricing valuation models which include broker quotes for which significant inputs are observable. They include adjustments for co unterparty credit quality and other deal-specific factors, where appropriate and are classified as Level 2.

Disclosures about Contractual Obligations and Commercial Commitments

Our estimates as to future contractual obligations have not materially changed from the disclosure included under the subheading Disclosures about Contractual Obligations and Commercial Commitments in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 1 0-K for the fiscal year ended March 31, 201 7 .

Off-Balance Sheet Arrangements

We use off-balance sheet arrangements in situations where management believes that the economics and sound business principles warrant their use.

We utilize operating leases for c ertain rental equipment and facilities with terms expiring substantially through 2019. In the event of a shortfall in proceeds from the sales of the underlying rental equipment assets, we have guaranteed $16.5 million of resid ual values at June 30, 2017 fo r these assets at the end of their respective lease terms. We have been leasing rental equipment since 1987. To date, we have not experienced residual value shortfalls related to these leasing arrangements. Using the average cost of fleet related debt as t he discount rate, the present value of our minimum lease payments and residual value guarantees were $ 33.8 million at June 30, 2017 .

 


Historically, we have used off-balance sheet arrangements in connection with the expansion of our self-storage business. For more information please see Note 10 , Related Party Transactions , of the Notes to Condensed Consolidated Financial Statements. These arrangements were pr imarily used when our overall borrowing structure was more limited. We do not face similar limitations currently and off-balance sheet arrangements have not been utilized in our self-storage expansion in recent years. In the future, we will continue to ide ntify and consider off-balance sheet opportunities to the extent such arrangements would be economically advantageous to us and our stockholders.

We currently manage the self-storage properties owned or leased by SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy , and Private Mini pursuant to a standard form of management agreement, under which we receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. We received management fees, exclusive of reimbursed expens es, of $ 10.0 million and $8.7 million from the above mentioned entities during the first quarter of fiscal 201 8 and 201 7, respectively . This management fee is consistent with the fee received for other properties we previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Blackwater is wholly-owned by Willow Grove Holding LP, which is owned by Mark V. Shoen (a significant shareholder), and v arious trusts associated with Edward J. Shoen and Mark V. Shoen. Mark V. Shoen controls the general partner of Mercury. The limited partner interests of Mercury are indirectly owned by Mark V. Shoen, James P. Shoen (a significant shareholder) and a trust b enefitting the children and grandchild of Edward J. Shoen (our Chairman of the Board, President and a significant shareholder) .

We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdi ngs, 5 SAC and Galaxy. Total lease payments pursuant to such leases were $ 0.7 million in the first quarters of both fiscal 201 8 and 201 7, respectively . The terms of the leases are similar to the terms of leases for other properties owned by unrelated parti es that are leased to us .

At June 30, 2017 , subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsi diaries are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based on equipment rental revenues. We paid the above mentioned entities $ 15.9 million and $ 15.8 million in commissions pursuant to such dealership contracts during the first quarter of fiscal 201 8 and 201 7 , respectively.

During the first quarter of fiscal 201 8, a subsidiary of ours held a junior unsecured note of SAC Holdings. Substantially all of the equity interest of SAC Holdin gs is controlled by Blackwater. We do not have an equity ownership interest in SAC Holdings. We recorded interest income of $ 1.2 million and $1.2 million, and received cash interest payments of $1.1 million and $1.1 million, from SAC Holdings during the fi rst quarter of fiscal 201 8 and 201 7 , respectively. The largest aggregate amount of the note receivable outstanding during the first quarter of fiscal 201 8 was $ 48.1 million and the aggregate note receivable balance at June 30, 2017 was $ 47.8 million. In ac cordance with the terms of th is note, SAC Holdings may prepay the note without penalty or premium at any time. We are currently negotiating to extend this note. The scheduled maturity of this note is 2017.

These agreements along with a note with subsidiari es of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $ 7.4 million, expenses of $ 0.7 million and cash flows of $ 6.6 million during the first quarter of fiscal 201 8 . Revenues and commission expenses related to the Dealer Agreements were $ 72.8 million and $ 15.9 million, respectively during the first quarter of fiscal 201 8 .

Fiscal 201 8 Outlook

We will continue to focus our attention on increasing transaction volume and improving pricing, product and uti lization for self-moving equipment rentals. Maintaining an adequate level of new investment in our truck fleet is an important component of our plan to meet our operational goals. Revenue in the U-Move ® program could be adversely impacted should we fail to execute in any of these areas. Even if we execute our plans, we could see declines in revenues primarily due to unforseen events including adverse economic conditions or heightened competition that is beyond our control.

 


W ith respect to our storage busin ess, w e have added new locations and expanded at existing locations. In fiscal 201 8, we are actively looking to acquire new locations, complete current projects and increase occupancy in our existing portfolio of locations. New projects and acquisitions wi ll be considered and pursued if they fit our long term plans and meet our financial objectives . We will continue to invest capital and resources in the U-Box ® program throughout fiscal 201 8 .

Property and Casualty Insurance will continue to provide loss adj usting and claims handling for U-Haul and underwrite components of the Safemove ® , Safetow ® , Safemove Plus ® , Safestor ® and Safestor Mobile ® protection packages to U-Haul customers.

Life Insurance is pursuing its goal of expanding its presence in the senior market through the sales of its Medicare supplement, life and annuity policies. This strategy includes growing its agency force, expanding its new product offerings, and pursuing business acquisition opportunities.

Item 3. Quantitative and Qualitative Disc losures A bout Market Risk

We are exposed to financial market risks, including changes in interest rates and currency exchange rates. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes.

Interest Rate Risk

The exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations and one variable rate operating lease . We have used interest rate swap agre ements and forward swaps to reduce our exposure to changes in interest rates. We enter into these arrangements with counterparties that are significant financial institutions with whom we generally have other financial arrangements. We are exposed to credi t risk should these counterparties not be able to perform on their obligations. Following is a summary of our interest rate swap agreements at June 30, 2017:

 

Notional Amount

 

 

Fair Value

 

Effective Date

 

Expiration Date

 

Fixed Rate

 

Floating Rate

 

(Unaudited)

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

$

127,778

 

$

(3,389)

 

8/18/2006

 

8/10/2018

 

5.43%

 

1 Month LIBOR

 

4,563

(a)

 

(2)

 

8/15/2010

 

7/15/2017

 

2.15%

 

1 Month LIBOR

 

8,750

(a)

 

(77)

 

6/1/2011

 

6/1/2018

 

2.38%

 

1 Month LIBOR

 

17,833

(a)

 

(88)

 

8/15/2011

 

8/15/2018

 

1.86%

 

1 Month LIBOR

 

7,050

(a)

 

(29)

 

9/12/2011

 

9/10/2018

 

1.75%

 

1 Month LIBOR

 

7,388

(b)

 

5

 

3/28/2012

 

3/28/2019

 

1.42%

 

1 Month LIBOR

 

9,792

 

 

29

 

4/16/2012

 

4/1/2019

 

1.28%

 

1 Month LIBOR

 

18,675

 

 

198

 

1/15/2013

 

12/15/2019

 

1.07%

 

1 Month LIBOR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

As of June 30, 2017 , we had $ 740.1 million of variable rate debt obligations and $7.4 million of a variable rate operating lease . If LIBOR were to increase 100 basis points, the increase in interest expense on the variable rate debt would decrease future earnings and cash flows by $ 5.5 mil lion annually (after consideration of the effect of the above derivative contracts) . 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 ra te on these mortgages would increase from the current fixed rate. We are using the anticipated repayment date for our maturity schedule.

Additionally, our insurance subsidiaries’ fixed income investment portfolios expose us to interest rate risk. This interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. As part of our insurance companies’ asset and liability management, actuaries estimate the cash flow patterns of our existing liabilities to determine their duration. These outcomes are compared to the characteristics of the assets that are currently supporting these liabilities assisting management in determining an asset allocation strategy for future investments that managemen t believes will mitigate the overall effect of interest rates.

 


Foreign Currency Exchange Rate Risk

The exposure to market risk for changes in foreign currency exchange rates relates primarily to our Canadian busi ness. Approximately 4.7% and 4.6% of our rev enue was generated in Canada during the first quarter of fiscal 201 8 and 201 7, respectively . The result of a 10.0% change in the value of the U.S. dollar relative to the Canadian dollar would not be material to net income. We typically do not hedge any for eign currency risk since the exposure is not considered material.

Cautionary Statements Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” regarding future events and our future results of operations. We may ma ke additional written or oral forward-looking statements from time to time in filings with the SEC or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of Section 27A of the Securities Act of 1933, a s amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) . Such statements may include, but are not limited to, estimates of capital expenditures, plans for future operations, products or services, financing needs a nd plans , our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us, liquidity, goals and strategies, plans for new business, storage occupancy, growth rate assumptions, pricing, costs, a nd access to capital and leasing markets , the impact of our compliance with environmental laws and cleanup costs, our used vehicle disposition strategy, the sources and availability of funds for our rental equipment and self-storage expansion and replaceme nt strategies and plans, our plan to expand our U-Haul storage affiliate program, that additional leverage can be supported by our operations and business, the availability of alternative vehicle manufacturers, our estimates of the residual values of our e quipment fleet, our plans with respect to off-balance sheet arrangements, our plans to continue to invest in the U-Box ® program, the impact of interest rate and foreign currency exchange rate changes on our operations, the sufficiency of our capital resour ces and the sufficiency of capital of our insurance subsidiaries as well as assumptions relating to the foregoing. The words “believe,” “expect,” “anticipate,” “plan,” “may,” “will,” “could,” “estimate,” “project” and similar expressions identify forward-l ooking statements, which speak only as of the date the statement was made.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could significantly affect results includ e, without limitation, the degree and nature of our competition; our leverage; general economic conditions; fluctuations in our costs to maintain and update our fleet and facilities; the limited number of manufacturers that supply our rental trucks; our ab ility to effectively hedge our variable interest rate debt; that we are controlled by a small contingent of stockholders; risks relating to our note receivable from SAC Holdings; fluctuations in quarterly results and seasonality; changes in, and our compli ance with, government regulations, particularly environmental regulations and regulations relating to motor carrier operations; our reliance on our third party dealer network; liability claims relating to our rental vehicles and equipment; our ability to a ttract, motivate and retain key employees; reliance on our automated systems and the internet; our credit ratings; our ability to recover under reinsurance arrangements and other factors described in our Annual Report on Form 10-K in Item 1A, Risk Factors, and in this Quarterly Report or the other documents we file with the SEC . The above factors, the following disclosures, as well as other statements in this Quarterly R eport and in the Notes to Condensed Consolidated Financial Statements, could contribute to or cause such risks or uncertainties, or could cause our stock price to fluctuate dramatically. Consequently, the forward-looking statements should not be regarded as representations or warranties by us that such matters will be realized. We assume no o bligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

Item 4. Controls and Procedures

Attached as exhibits to this Quarterly Report are certificat ions of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“C F O”), which are required in accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures" section includes information concerning the controls and procedures evalu ation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented in the section titled Evaluation of Disclosure Controls and Procedures .

 


Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the CEO and C F O, conducted an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (as such term is defined in the Exchange Act Rules 13a- 15(e) and 15d-15(e)) (“Disclosure Controls”) as of the end of the most recently completed fiscal quarter covered by this Quarterly Report . Our Disclosure Controls are designed to ensure that information required to be disclosed in our reports filed or subm itted under the Exchange Act, such as this Quarterly Report , is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our Disclosure Controls are also designed to ensure that such information is accumu lated and communicated to our management, including our CEO and C F O, as appropriate to allow timely decisions regarding required disclosure. Based upon the controls evaluation, our CEO and C F O have concluded that as of the end of the period covered by this Quarterly Report , our Disclosure Controls were effective at a reasonable assurance level related to the above stated design purposes.

Inherent Limitations on the Effectiveness of Controls

Ou r management, including our CEO and C F O, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide o nly reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Fur ther, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons , by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control O ver Financial Reporting

There have not been any changes in our internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d- 15(f) during the most recent ly completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


 


 

PART II Other information

Item 1. Legal Proceedings

The infor mation regarding our legal proceedings in Note 9 , Contingencies , of the Notes to Condensed Consolidated Financial Statements is incorporated by reference herein .

Item 1A. Risk Factors

We are not aware of any material updates to the risk factors described in our previously filed Annual Report on Form 10-K for the fiscal year ended March 31, 201 7 .

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following documents are filed as part of this report:

 

Exhibit Number

Description

Page or Method of Filing

3.1

Amended and Restated Articles of Incorporation of AMERCO

Incorporated by reference to AMERCO’s Current Report on Form 8-K, filed on June 9 , 201 6 , file no. 1-11255

 

3.2

Restated By l aws of AMERCO

Incorporated by reference to AMERCO’s Current Report on Form 8-K , filed on Sept ember 5 , 20 13 , file no. 1-11255

 

4.1

Thirtieth Supplemental Indenture, dated June 27, 2017 by and between AMERCO and U.S. Bank National Association

Incorporated by reference to AMERCO’s Current Report on Form 8-K , filed on June 27, 20 17 , file no. 1-11255

 

31.1

Rule 13a-14(a)/15d-14(a) Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO

 

Filed herewith

31.2

Rule 13a-14(a)/15d-14(a) Certificate of Jason A. Berg, Chief Financial Officer of AMERCO

 

Filed herewith

32.1

Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

32.2

Certificate of Jason A. Berg, Chief Financial Officer of AMERCO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

Furnished herewith

 


101.INS

XBRL Instance Document

 

Filed herewith

101.SCH

XBRL Taxonomy Extension Schema

 

Filed herewith

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

 

Filed herewith

101.LAB

XBRL Taxonomy Extension Label Linkbase

 

Filed herewith

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

Filed herewith

101.DEF

XBRL Taxonomy Extension Definition Linkbase

 

Filed herewith

 


 


SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Date:  Augu st 9, 2017

 

/s/ Edward J. Shoen          

 

 

E dward J. Shoen

 

 

P resident and Chairman of the Board

 

 

(Duly Authorized Officer )

 

 

 

 

 

 

 

 

 

Date:  August 9, 2017

 

/s/ Jason A. Berg                  

 

 

Jason A. Berg

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

 

 


EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Edward J. Shoen, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of AMERCO;
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with res pect to the period covered by this report;
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of t he Registrant as of, and for, the periods presented in this report;
  4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-1 5(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
  1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  2. Desi gned such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of fina ncial statements for external purposes in accordance with generally accepted accounting principles;
  3. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of t he disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  4. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
  1. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equi valent functions):
  1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and repor t financial information; and
  1. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
     

 

 

 

/s/  Edward J. Shoen

 

 

Edward J. Shoen

 

 

President and Chairman of the Board

Date: August 9, 2017

 

 

 


EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Form 10-Q for the quarter ended June 30 , 201 7 of AMERCO (the “Company”), as filed with the Securities and Exchange Commission on August 9, 2017 (the “Report”), I, Edward J. Shoen, President and Chairman of the Board of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, th at:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of opera tions of the Company.

 

 

 

 

 

AMERCO

 

 

a Nevada corporation

 

 

 

 

 

/s/  Edward J. Shoen

 

 

Edward J. Shoen

Date: August 9, 2017

 

President and Chairman of the Board

 


EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Form 10-Q for the quarter ended June 30 , 201 7 of AMERCO (the “Company”), as filed with the Securities and Exchange Commission on August 9, 2017 (the “Report”), I, Jason A. Berg, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Re port fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the C ompany.

 

 

 

 

 

AMERCO

 

 

a Nevada corporation

 

 

 

 

 

/s/  Jason A. Berg

 

 

Jason A. Berg

Date: August 9, 2017

 

Chief Financial Officer