UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended December 31, 2012

 

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

 

(A Nevada Corporation)

 

 

1325 Airmotive Way, Ste. 100

 

 

Reno, Nevada 89502-3239

 

 

Telephone (775) 688-6300

 

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer £   Accelerated filer þ  

 

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

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

19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 2013.

 

 



 


TABLE OF CONTENTS

 

 

 

Page 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

a)Condensed Consolidated Balance Sheets as of December 31, 2012 (unaudited) and March 31, 2012

1

 

b)Condensed Consolidated Statements of Operations for the Quarters ended December 31, 2012 and 2011 (unaudited)

2

 

c)Condensed Consolidated Statements of Operations for the Nine Months ended December 31, 2012 and 2011 (unaudited)

3

 

d)Condensed Consolidated Statements of Comprehensive Income for the Quarters and the Nine Months ended December 31, 2012 and 2011 (unaudited)

4

 

e)Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2012 and 2011 (unaudited)

5

 

f)Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.

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

38

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

Item 4.

Controls and Procedures

59

 

 

 

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

60

 

 


 


Part i Financial information

ITEM 1. Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED balance sheets

 

 

December 31,

 

March 31,

 

 

2012

 

2012

 

 

(Unaudited)

 

 

 

 

(In thousands, except share data)

ASSETS

 

 

 

 

Cash and cash equivalents

$

586,124

$

357,180

Reinsurance recoverables and trade receivables, net

 

226,340

 

297,974

Inventories, net

 

55,989

 

58,735

Prepaid expenses

 

55,148

 

41,858

Investments, fixed maturities and marketable equities

 

1,019,968

 

766,792

Investments, other

 

270,191

 

258,551

Deferred policy acquisition costs, net

 

93,533

 

63,914

Other assets

 

101,889

 

120,525

Related party assets

 

175,175

 

316,157

 

 

2,584,357

 

2,281,686

Property, plant and equipment, at cost:

 

 

 

 

Land

 

338,598

 

281,140

Buildings and improvements

 

1,155,754

 

1,087,119

Furniture and equipment

 

316,772

 

308,120

Rental trailers and other rental equipment

 

303,379

 

255,010

Rental trucks

 

2,044,639

 

1,856,433

 

 

4,159,142

 

3,787,822

Less: Accumulated depreciation

 

(1,524,194)

 

(1,415,457)

Total property, plant and equipment

 

2,634,948

 

2,372,365

Total assets

$

5,219,305

$

4,654,051

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Accounts payable and accrued expenses

$

326,182

$

335,326

Notes, loans and leases payable

 

1,667,008

 

1,486,211

Policy benefits and losses, claims and loss expenses payable

 

1,115,823

 

1,145,943

Liabilities from investment contracts

 

486,502

 

240,961

Other policyholders' funds and liabilities

 

6,348

 

7,273

Deferred income

 

27,840

 

31,525

Deferred income taxes

 

399,103

 

370,992

Total liabilities

 

4,028,806

 

3,618,231

 

 

 

 

 

Commitments and contingencies (notes 4, 8, 9 and 10)

 

 

Stockholders' equity:

 

 

 

 

Series preferred stock, with or without par value, 50,000,000 shares authorized:

 

 

 

 

Series A preferred stock, with no par value, 6,100,000 shares authorized;

 

 

 

 

6,100,000 shares issued and none outstanding as of December 31 and March 31, 2012

 

 

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

 

 

 

 

issued and outstanding as of December 31 and March 31, 2012

 

 

Series common stock, with or without par value, 150,000,000 shares authorized:

 

 

 

 

Series A common stock of $0.25 par value, 10,000,000 shares authorized;

 

 

 

 

none issued and outstanding as of December 31 and March 31, 2012

 

 

Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700

 

 

 

 

issued and 19,607,788 outstanding as of December 31 and March 31, 2012

 

10,497

 

10,497

Additional paid-in capital

 

436,926

 

433,743

Accumulated other comprehensive loss

 

(22,192)

 

(45,436)

Retained earnings

 

1,444,757

 

1,317,064

Cost of common shares in treasury, net (22,377,912 shares as of December 31 and March 31, 2012)

 

(525,653)

 

(525,653)

Cost of preferred shares in treasury, net (6,100,000 shares as of December 31 and March 31, 2012)

 

(151,997)

 

(151,997)

Unearned employee stock ownership plan shares

 

(1,839)

 

(2,398)

Total stockholders' equity

 

1,190,499

 

1,035,820

Total liabilities and stockholders' equity

$

5,219,305

$

4,654,051

 

 

 

 

 

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED Statements of operations

 

 

Quarter Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

394,945

$

375,744

Self-storage revenues

 

39,111

 

33,846

Self-moving and self-storage products and service sales

 

44,491

 

43,206

Property management fees

 

6,085

 

5,368

Life insurance premiums

 

43,248

 

132,643

Property and casualty insurance premiums

 

9,816

 

9,429

Net investment and interest income

 

18,927

 

15,234

Other revenue

 

22,188

 

17,619

Total revenues

 

578,811

 

633,089

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

290,285

 

269,834

Commission expenses

 

51,130

 

47,864

Cost of sales

 

23,153

 

24,505

Benefits and losses

 

38,932

 

173,748

Amortization of deferred policy acquisition costs

 

3,391

 

3,666

Lease expense

 

27,575

 

32,325

Depreciation, net of (gains) on disposals of (($1,831) and ($699), respectively)

 

62,399

 

56,274

Total costs and expenses

 

496,865

 

608,216

 

 

 

 

 

Earnings from operations

 

81,946

 

24,873

Interest expense

 

(22,076)

 

(22,744)

Pretax earnings

 

59,870

 

2,129

Income tax expense

 

(23,024)

 

(1,401)

Earnings available to common shareholders

$

36,846

$

728

Basic and diluted earnings per common share

$

1.89

$

0.04

Weighted average common shares outstanding: Basic and diluted

 

19,523,794

 

19,481,614

 

 

 

 

 

 

Related party revenues for the third quarter of fiscal 2013 and 2012, net of eliminations, were $9,422 thousand and $11,595 thousand, respectively.

 

Related party costs and expenses for the third quarter of fiscal 2013 and 2012, net of eliminations, were $10,372 thousand and $10,992 thousand, respectively.

 

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands, except share and per share amounts)

Revenues:

 

 

 

 

Self-moving equipment rentals

$

1,400,300

$

1,333,918

Self-storage revenues

 

111,825

 

99,682

Self-moving and self-storage products and service sales

 

173,399

 

167,352

Property management fees

 

15,847

 

14,929

Life insurance premiums

 

137,341

 

229,839

Property and casualty insurance premiums

 

26,006

 

25,076

Net investment and interest income

 

44,237

 

48,398

Other revenue

 

76,589

 

60,041

Total revenues

 

1,985,544

 

1,979,235

 

 

 

 

 

Costs and expenses:

 

 

 

 

Operating expenses

 

883,892

 

836,149

Commission expenses

 

180,801

 

168,865

Cost of sales

 

86,292

 

89,729

Benefits and losses

 

130,682

 

268,140

Amortization of deferred policy acquisition costs

 

9,290

 

10,716

Lease expense

 

89,962

 

99,271

Depreciation, net of (gains) on disposals of (($14,879) and ($18,326), respectively)

 

177,478

 

148,696

Total costs and expenses

 

1,558,397

 

1,621,566

 

 

 

 

 

Earnings from operations

 

427,147

 

357,669

Interest expense

 

(67,680)

 

(68,340)

Pretax earnings

 

359,467

 

289,329

Income tax expense

 

(132,632)

 

(109,367)

Net earnings

 

226,835

 

179,962

Less: Excess of redemption value over carrying value of preferred shares redeemed

 

 

(5,908)

Less: Preferred stock dividends

 

 

(2,913)

Earnings available to common shareholders

$

226,835

$

171,141

Basic and diluted earnings per common share

$

11.62

$

8.79

Weighted average common shares outstanding: Basic and diluted

 

19,512,974

 

19,470,886

 

 

 

 

 

 

Related party revenues for the first nine months of fiscal 2013 and 2012, net of eliminations, were $26,344 thousand and $33,549 thousand, respectively.

 

Related party costs and expenses for the first nine months of fiscal 2013 and 2012, net of eliminations, were $36,584 thousand and $34,906 thousand, 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 December 31, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

59,870

$

(23,024)

$

36,846

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(1,068)

 

 

(1,068)

Unrealized net gain on investments

 

18,368

 

(6,574)

 

11,794

Change in fair value of cash flow hedges

 

4,248

 

(1,614)

 

2,634

Total comprehensive income

$

81,418

$

(31,212)

$

50,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended December 31, 2011

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

2,129

$

(1,401)

$

728

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

1,578

 

 

1,578

Unrealized net gain on investments

 

14,079

 

(4,901)

 

9,178

Change in fair value of cash flow hedges

 

2,977

 

(1,131)

 

1,846

Total comprehensive income

$

20,763

$

(7,433)

$

13,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 2012

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

359,467

$

(132,632)

$

226,835

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

462

 

 

462

Unrealized net gain on investments

 

30,914

 

(10,923)

 

19,991

Change in fair value of cash flow hedges

 

4,501

 

(1,710)

 

2,791

Total comprehensive income

$

395,344

$

(145,265)

$

250,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31, 2011

 

Pre-tax

 

Tax

 

Net

 

 

(Unaudited)

 

 

(In thousands)

Comprehensive income:

 

 

 

 

 

 

Net earnings

$

289,329

$

(109,367)

$

179,962

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation

 

(4,179)

 

 

(4,179)

Unrealized net gain on investments

 

7,328

 

(2,159)

 

5,169

Change in fair value of cash flow hedges

 

(13,133)

 

4,991

 

(8,142)

Total comprehensive income

$

279,345

$

(106,535)

$

172,810

 

 

 

 

 

 

 

 

 

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

 

 


AMERCO AND CONSOLIDATED ENTITIES

Condensed consolidatED statements of cash flows

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

Cash flow from operating activities:

 

 

 

 

Net earnings

$

226,835

$

179,962

Adjustments to reconcile net earnings to cash provided by operations:

 

 

 

 

Depreciation

 

192,357

 

167,022

Amortization of deferred policy acquisition costs

 

9,290

 

10,716

Change in allowance for losses on trade receivables

 

(73)

 

(89)

Change in allowance for inventory reserves

 

2,050

 

3,005

Net gain on sale of real and personal property

 

(14,879)

 

(18,326)

Net gain on sale of investments

 

(1,050)

 

(5,454)

Deferred income taxes

 

17,757

 

94,581

Net change in other operating assets and liabilities:

 

 

 

 

Reinsurance recoverables and trade receivables

 

71,709

 

(145,727)

Inventories

 

696

 

173

Prepaid expenses

 

(13,283)

 

2,666

Capitalization of deferred policy acquisition costs

 

(43,085)

 

(19,072)

Other assets

 

22,712

 

3,623

Related party assets

 

138,042

 

(5,357)

Accounts payable and accrued expenses

 

(872)

 

7,428

Policy benefits and losses, claims and loss expenses payable

 

(30,226)

 

221,797

Other policyholders' funds and liabilities

 

(925)

 

(3,333)

Deferred income

 

(3,704)

 

1,070

Related party liabilities

 

2,970

 

2,965

Net cash provided by operating activities

 

576,321

 

497,650

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of:

 

 

 

 

Property, plant and equipment

 

(422,840)

 

(421,743)

Short term investments

 

(289,773)

 

(169,313)

Fixed maturities investments

 

(308,290)

 

(172,570)

Equity securities

 

(3,130)

 

(9,048)

Preferred stock

 

(2,761)

 

(1,617)

Real estate

 

(1,053)

 

(5,201)

Mortgage loans

 

(50,583)

 

(94,111)

Proceeds from sale of:

 

 

 

 

Property, plant and equipment

 

166,904

 

139,852

Short term investments

 

280,856

 

186,941

Fixed maturities investments

 

85,132

 

116,609

Equity securities

 

 

10,210

Preferred stock

 

5,728

 

1,252

Real estate

 

671

 

146

Mortgage loans

 

49,215

 

40,883

Net cash used by investing activities

 

(489,924)

 

(377,710)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Borrowings from credit facilities

 

251,319

 

234,562

Principal repayments on credit facilities

 

(234,698)

 

(166,615)

Debt issuance costs

 

(2,352)

 

(1,788)

Capital lease payments

 

(18,310)

 

(5,962)

Leveraged Employee Stock Ownership Plan - repayments from loan

 

559

 

827

Securitization deposits

 

(1,729)

 

40,500

Preferred stock redemption paid

 

 

(144,289)

Preferred stock dividends paid

 

 

(2,913)

Common stock dividends paid

 

(97,421)

 

Contribution to related party

 

 

(518)

Investment contract deposits

 

268,478

 

10,810

Investment contract withdrawals

 

(22,937)

 

(21,419)

Net cash provided (used) by financing activities

 

142,909

 

(56,805)

 

 

 

 

 

Effects of exchange rate on cash

 

(362)

 

(306)

 

 

 

 

 

Increase in cash and cash equivalents

 

228,944

 

62,829

Cash and cash equivalents at the beginning of period

 

357,180

 

382,514

Cash and cash equivalents at the end of period

$

586,124

$

445,343

 

 

 

 

 

 

 

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

 


AMERCO AND CONSOLIDATED ENTITIES

notes to Condensed consolidatED financial statements

1.Basis of Presentation

AMERCO, a Nevada corporation (“AMERCO”), has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period.  Consequently, all references to our insurance subsidiaries’ years 2012 and 2011 correspond to fiscal 2013 and 2012 for AMERCO.

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

The condensed consolidated balance sheet as of December 31, 2012 and the related condensed consolidated statements of operations and comprehensive income for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2013 and 2012 are unaudited.

In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this Quarterly Report on Form 10-Q (“Quarterly Report”) should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Intercompany accounts and transactions have been eliminated.

Description of Legal Entities

AMERCO is the holding company for:

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

Amerco Real Estate Company (“Real Estate”),

Repwest Insurance Company (“Repwest”), and

Oxford Life Insurance Company (“Oxford”).

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

Description of Operating Segments

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

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


 


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

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

2. Earnings per Share

Net earnings for purposes of computing earnings per common share for the third quarter and first nine months of fiscal 2012 are net earnings less preferred stock dividends paid, adjusted for the price paid by us for the redemption of our preferred stock less its carrying value on our balance sheet at that time. Preferred stock dividends include accrued dividends of AMERCO. Preferred stock dividends paid to or accrued for entities that are part of the consolidated group are eliminated in consolidation.

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 75,657 and 120,725 as of December 31, 2012 and December 31, 2011, respectively.

On June 1, 2011, we redeemed all 6,100,000 shares of our issued and outstanding Series A 8½% Preferred Stock (“Series A Preferred”) at a redemption price of $25 per share plus accrued dividends through that date.  Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 – Earnings Per Share (“ASC 260”), for earnings per share purposes, we recognize the deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares. 

The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $146.3 million prior to the redemption.  We paid $152.5 million to redeem the shares on June 1, 2011 of which $7.7 million was paid to our insurance subsidiaries in exchange for their holdings.  The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings was $5.9 million. This amount was recognized as a reduction to our earnings available to our common shareholders for the purposes of computing earnings per share for the first nine months of fiscal 2012.

3. Investments

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

We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $16.3 million at December 31, 2012.

 


Available-for-Sale Investments

Available-for-sale investments at December 31, 2012 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

$

21,201

$

2,910

$

(3)

$

$

24,108

U.S. government agency mortgage-backed securities

 

41,010

 

4,427

 

(7)

 

(1)

 

45,429

Obligations of states and political subdivisions

 

149,644

 

16,073

 

(2)

 

(54)

 

165,661

Corporate securities

 

662,087

 

52,067

 

(650)

 

(1,131)

 

712,373

Mortgage-backed securities

 

24,597

 

774

 

(25)

 

(30)

 

25,316

Redeemable preferred stocks

 

21,353

 

1,208

 

(342)

 

(11)

 

22,208

Common stocks

 

30,866

 

99

 

(6,092)

 

 

24,873

 

$

950,758

$

77,558

$

(7,121)

$

(1,227)

$

1,019,968

 

 

 

 

 

 

 

 

 

 

 

 

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

We sold available-for-sale securities with a fair value of $90.7 million during the first nine months of fiscal 2013. The gross realized gains on these sales totaled $1.9 million. The gross realized losses on these sales totaled $0.6 million.

The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. The majority of this unrealized loss is related to our long term investments in 1.8 million shares of Bank of America common stock. We track each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments may have declines determined by management to be other-than-temporary and we recognized these write-downs through earnings. Our insurance subsidiaries recognized $0.1 million in other-than-temporary impairments for the first nine months of fiscal 2012. There were no write downs in the third quarter of fiscal 2013 and 2012 or for the first nine months of fiscal 2013.

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

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

 


Credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows:

 

 

Credit Loss

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2012

$

552

Additions:

 

 

Other-than-temporary impairment not previously recognized

 

Balance at December 31, 2012

$

552

 

 

 

 

The adjusted cost and estimated market value of available-for-sale investments at December 31, 2012, by contractual maturity, were as follows:

 

 

Amortized

Cost

 

Estimated

Market

Value

 

 

(Unaudited)

 

 

(In thousands)

Due in one year or less

$

48,841

$

49,768

Due after one year through five years

 

168,987

 

180,963

Due after five years through ten years

 

243,324

 

263,840

Due after ten years

 

412,790

 

453,000

 

 

873,942

 

947,571

 

 

 

 

 

Mortgage backed securities

 

24,597

 

25,316

Redeemable preferred stocks

 

21,353

 

22,208

Common stocks

 

30,866

 

24,873

 

$

950,758

$

1,019,968

 

 

 

 

 

 

 


4. Borrowings

Long-Term Debt

Long-term debt was as follows:

 

 

 

 

 

December 31,

 

March 31,

 

2013 Rate (a)

 

Maturities

 

2012

 

2012

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

Real estate loan (amortizing term)

6.93%

 

2018

$

237,500

$

245,000

Real estate loan (revolving credit)

 

2018

 

 

Real estate loan (amortizing term)

2.11%

 

2016

 

24,779

 

25,451

Real estate loan (revolving credit)

 

2013

 

 

23,920

Senior mortgages

4.90% - 5.75%

 

2015 - 2038

 

560,775

 

459,822

Working capital loan (revolving credit)

 

2013

 

 

Fleet loans (amortizing term)

1.75% - 6.92%

 

2012 - 2020

 

360,690

 

384,888

Fleet loans (securitization)

4.90% - 5.56%

 

2014 - 2017

 

196,179

 

228,655

Capital leases (rental equipment)

2.37% - 9.57%

 

2015 - 2019

 

274,394

 

109,689

Other obligations

3.00% - 8.00%

 

2013 - 2042

 

12,691

 

8,786

Total notes, loans and leases payable

 

 

 

$

1,667,008

$

1,486,211

 

 

 

 

 

 

 

 

(a) Interest rate as of December 31, 2012, 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. The loan has a final maturity date of August 2018. The loan is comprised of a term loan facility with initial availability of $300.0 million and a revolving credit facility with current availability of $177.7 million. As of December 31, 2012, the outstanding balance on the Real Estate Loan was $237.5 million and we had the full $177.7 million available to be drawn. U-Haul International, Inc. is a guarantor of this loan. 

The amortizing term portion of the Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The revolving credit portion of the Real Estate Loan requires monthly interest payments when drawn, with the unpaid loan balance and any accrued and unpaid interest due at maturity. The Real Estate Loan is secured by various properties owned by the borrowers. 

The interest rate for the amortizing term portion, per the provisions of the amended loan agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At December 31, 2012, the applicable LIBOR was 0.22% and the applicable margin was 1.50%, the sum of which was 1.72%. The rate on the term facility portion of the Real Estate Loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin.

The interest rate for the revolving credit facility, per the provision of the amended loan agreement, is the applicable LIBOR plus the applicable margin. The margin ranges from 1.50% to 2.00%.

The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan effective June 29, 2006. This loan was modified and extended on June 27, 2011. This loan is now comprised of a term loan facility with an initial availability of $26.1 million and a final maturity of

 


June 2016. As of December 31, 2012, the outstanding balance was $24.8 million.

This Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and any accrued and unpaid interest due at maturity. The interest rate, per the provision of this loan agreement, is the applicable LIBOR plus a margin of 1.90%. At December 31, 2012, the applicable LIBOR was 0.21% and the margin was 1.90%, the sum of which was 2.11%. U-Haul International, Inc. and AMERCO are guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $100.0 million. This agreement was amended in March 2012 and the maturity extended to April 2013 with an option for a one year extension. As of December 31, 2012, we had the full $100.0 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.25%. AMERCO and U-Haul International, Inc. are guarantors of this facility. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Senior Mortgages

Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgage loan balances as of December 31, 2012 were in the aggregate amount of $560.8 million and mature between 2015 and 2038. The senior mortgages require average monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of the senior mortgages, range between 4.90% and 5.75%. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarantees of the senior mortgages. The default provisions of the senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds. 

Working Capital Loans

Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $25.0 million. At December 31, 2012, we had the full $25.0 million available to be drawn. This loan is secured by certain properties owned by the borrower. This loan agreement provides for revolving loans, subject to the terms of the loan agreement. This agreement was amended in March 2012 and the maturity extended to November 2013 with an option for a one year extension. This loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. The interest rate, per the provision of this loan agreement, is the applicable LIBOR plus a margin of 1.25%.

Fleet Loans

Rental Truck Amortizing Loans

U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of December 31, 2012 was $245.7 million with the final maturities between July 2013 and January 2020.

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 a margin between 0.90% and 2.63%. At December 31, 2012, the applicable LIBOR was between 0.21% and 0.22% and applicable margins were between 0.90% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 1.75% and 6.92% based on current margins. Additionally, $31.1 million of these loans are carried at fixed rates between 2.59% to 3.94%.

 


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

On December 31, 2009, a subsidiary of U-Haul International, Inc. entered into an $85.0 million term note that was used to fund cargo van and pickup acquisitions for the past two years. This term note was amended on August 26, 2011. The amount of the term note was increased to $95.0 million. On December 22, 2011, we entered into another term loan for $20.0 million. The final maturity date of these notes is August 2016.  The agreements contain options to extend the maturity through May 2017. These notes are secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  These notes have fixed interest rates between 3.52% and 3.53%. At December 31, 2012, the outstanding balance was $115.0 million.

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

Rental Truck Securitizations

U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“2007 Box Truck Note”) on June 1, 2007. 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 throughout fiscal 2008. U.S. Bank, NA acts as the trustee for this securitization.

The 2007 Box Truck Note has a fixed interest rate of 5.56% with an expected final maturity of February 2014. At December 31, 2012, the outstanding balance was $84.6 million. The note is secured by the box trucks that were purchased and the corresponding operating cash flows associated with their operation.

The 2007 Box Truck Note has the benefit of a financial guaranty insurance policy which guarantees the timely payment of interest on and the ultimate payment of the principal of this note.

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

The 2010 Box Truck Note has a fixed interest rate of 4.90% with an expected final maturity of October 2017. At December 31, 2012, the outstanding balance was $111.6 million. The note is secured by the box trucks being purchased and the corresponding operating cash flows associated with their operation.

The 2007 Box Truck Note and 2010 Box Truck Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of these notes include non-payment of principal or interest and other standard reporting and change-in-control covenants.

Capital Leases

We entered into capital leases for new equipment between April 2008 and December 2012, with terms of the leases between 5 and 7 years. At December 31, 2012, the outstanding balance of these leases was $274.4 million.

Other Obligations

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

 


At December 31, 2012, the aggregate outstanding principal balance of the U-Notes issued was $19.0 million of which $6.3 million is with our insurance subsidiaries with interest rates between 3.00% and 8.00% and maturity dates between 2013 and 2042.

Annual Maturities of Notes, Loans and Leases Payable

The annual maturities of long-term debt as of December 31, 2012 for the next five years and thereafter are as follows:

 

 

Year Ending December 31,

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

 

(Unaudited)

 

 

(In thousands)

Notes, loans and leases payable, secured

$

128,987

$

203,900

$

530,297

$

282,227

$

172,932

$

348,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Borrowings

Interest Expense

Components of interest expense include the following:

 

 

 

Quarter Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

16,540

$

16,009

Capitalized interest

 

(119)

 

(76)

Amortization of transaction costs

 

1,014

 

1,198

Interest expense resulting from derivatives

 

4,641

 

5,613

Total interest expense

$

22,076

$

22,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

Interest expense

$

48,715

$

47,888

Capitalized interest

 

(290)

 

(154)

Amortization of transaction costs

 

3,149

 

3,292

Interest expense resulting from derivatives

 

16,106

 

17,314

Total interest expense

$

67,680

$

68,340

 

 

 

 

 

 

Interest paid in cash including payments related to derivative contracts, amounted to $20.8 million and $21.7 million for the third quarter of fiscal 2013 and 2012, respectively and $63.3 million and $66.0 million for the first nine months of fiscal 2013 and 2012, respectively.

 


Interest Rates

Interest rates and Company borrowings were as follows:

 

 

Revolving Credit Activity

 

 

Quarter Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the quarter

 

1.57%

 

1.80%

Interest rate at the end of the quarter

 

1.61%

 

1.77%

Maximum amount outstanding during the quarter

$

25,000

$

38,920

Average amount outstanding during the quarter

$

24,185

$

37,779

Facility fees

$

115

$

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Activity

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands, except interest rates)

Weighted average interest rate during the first nine months

 

1.67%

 

1.72%

Interest rate at the end of the first nine months

 

1.61%

 

1.77%

Maximum amount outstanding during the first nine months

$

48,920

$

38,920

Average amount outstanding during the first nine months

$

24,830

$

24,685

Facility fees

$

399

$

416

 

 

 

 

 

 

5. Derivatives

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


 


 

Original variable rate debt amount

 

Agreement Date

 

Effective Date

 

Expiration Date

 

Designated cash flow hedge date

 

(Unaudited)

 

(In millions)

$

50.0

 

 

6/21/2006

 

7/10/2006

 

7/10/2013

 

6/9/2006

 

300.0

 

 

8/16/2006

 

8/18/2006

 

8/10/2018

 

8/4/2006

 

30.0

 

 

2/9/2007

 

2/12/2007

 

2/10/2014

 

2/9/2007

 

20.0

 

 

3/8/2007

 

3/12/2007

 

3/10/2014

 

3/8/2007

 

20.0

 

 

3/8/2007

 

3/12/2007

 

3/10/2014

 

3/8/2007

 

19.3

(a)

 

4/8/2008

 

8/15/2008

 

6/15/2015

 

3/31/2008

 

19.0

 

 

8/27/2008

 

8/29/2008

 

7/10/2015

 

4/10/2008

 

30.0

 

 

9/24/2008

 

9/30/2008

 

9/10/2015

 

9/24/2008

 

15.0

(a)

 

3/24/2009

 

3/30/2009

 

3/30/2016

 

3/25/2009

 

14.7

(a)

 

7/6/2010

 

8/15/2010

 

7/15/2017

 

7/6/2010

 

25.0

(a)

 

4/26/2011

 

6/1/2011

 

6/1/2018

 

7/1/2011

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) forward swap

 

 

 

 

 

 

 

 

 

 

(b) operating lease

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012, the total notional amount of our variable interest rate swaps on debt and an operating lease was $417.3 million and $14.1 million, respectively.

The derivative fair values located in accounts payable and accrued expenses in the balance sheets were as follows:

 

 

Liability Derivatives Fair Values as of

 

 

December 31, 2012

 

March 31, 2012

 

 

(Unaudited)

 

 

 

 

(In thousands)

Interest rate contracts designated as hedging instruments

$

56,089

$

59,313

 

 

 

 

 

 

 

 

The Effect of Interest Rate Contracts on the Statements of Operations

 

 

December 31, 2012

 

December 31, 2011

 

 

(Unaudited)

 

 

(In thousands)

Loss recognized in income on interest rate contracts

$

16,106

$

17,314

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

$

(4,501)

$

13,133

Loss reclassified from AOCI into income (effective portion)

$

14,828

$

17,984

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

$

1,277

$

(670)

 

 

 


Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At December 31, 2012, we expect to reclassify $16.6 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings as interest expense over the next twelve months.

6. Stockholders Equity

On June 1, 2011, we redeemed all 6,100,000 shares of our issued and outstanding Series A Preferred at a redemption price of $25 per share plus accrued dividends through that date.  Pursuant to ASC 260, for earnings per share purposes, we recognized the deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares.

The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $146.3 million prior to the redemption. We paid $152.5 million to redeem the shares on June 1, 2011 of which $7.7 million was paid to our insurance subsidiaries in exchange for their holdings. The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings was $5.9 million. This amount was recognized as a reduction to our earnings available to our common shareholders for the purposes of computing earnings per share for the first nine months of fiscal 2012.

On November 7, 2012, we declared a special cash dividend on our Common Stock of $5.00 per share to holders of record on November 19, 2012. The dividend was paid on November 30, 2012.

7. 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 Gain

 

Accumulated Other Comprehensive Income (Loss)

 

 

(Unaudited)

 

 

(In thousands)

Balance at March 31, 2012

$

(28,882)

$

20,866

$

(38,129)

$

709

$

(45,436)

Foreign currency translation

 

462

 

 

 

 

462

Unrealized net gain on investments

 

 

19,991

 

 

 

19,991

Change in fair value of cash flow hedges

 

 

 

2,791

 

 

2,791

Balance at December 31, 2012

$

(28,420)

$

40,857

$

(35,338)

$

709

$

(22,192)

 

 

 

 

 

 

 

 

 

 

 

 

8. Contingent Liabilities and Commitments

We lease a portion of our rental equipment and certain of our facilities under operating leases with terms that expire at various dates substantially through 2019. As of December 31, 2012, AMERCO has guaranteed $124.3 million of residual values for these rental equipment assets at the end of the 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. AMERCO has been leasing equipment since 1987 and has experienced no material losses relating to these types of residual value guarantees.

 


Lease commitments for leases having terms of more than one year were as follows:

 

 

Property,

Plant and

Equipment

 

Rental

Equipment

 

Total

 

 

(Unaudited)

 

 

 

 

(In thousands)

 

 

Year-ended December 31:

 

 

 

 

 

 

2013

$

13,930

$

88,539

$

102,469

2014

 

6,061

 

65,177

 

71,238

2015

 

894

 

41,182

 

42,076

2016

 

748

 

16,638

 

17,386

2017

 

629

 

11,308

 

11,937

Thereafter

 

5,170

 

13,115

 

18,285

Total

$

27,432

$

235,959

$

263,391

 

 

 

 

 

 

 

 

9. Contingencies

Shoen

In September 2002, Paul F. Shoen filed a shareholder derivative lawsuit in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al., CV 02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as Defendants. AMERCO is named as a nominal Defendant in the case. The complaint alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC prior to the filing of the complaint. The complaint seeks a declaration that such transfers are void as well as unspecified damages. In October 2002, the Defendants filed motions to dismiss the complaint. Also in October 2002, Ron Belec filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al., CV 02-06331 and in January 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et al., CV 03-00386. Two additional derivative suits were also filed against these parties. Each of these suits is substantially similar to the Paul F. Shoen case. The Court consolidated the five cases and thereafter dismissed these actions in May 2003, concluding that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Board. Plaintiffs appealed this decision and, in July 2006, the Nevada Supreme Court reversed the ruling of the trial court and remanded the case to the trial court for proceedings consistent with its ruling, allowing the Plaintiffs to file an amended complaint and plead in addition to substantive claims, demand futility.

In November 2006, the Plaintiffs filed an amended complaint. In December 2006, the Defendants filed motions to dismiss, based on various legal theories. In March 2007, the Court denied AMERCO’s motion to dismiss regarding the issue of demand futility, stating that “Plaintiffs have satisfied the heightened pleading requirements of demand futility by showing a majority of the members of the AMERCO Board of Directors were interested parties in the SAC transactions.” The Court heard oral argument on the remainder of the Defendants’ motions to dismiss, including the motion (“Goldwasser Motion”) based on the fact that the subject matter of the lawsuit had been settled and dismissed in earlier litigation known as Goldwasser v. Shoen, C.V.N.-94-00810-ECR (D.Nev), Washoe County, Nevada. In addition, in September and October 2007, the Defendants filed Motions for Judgment on the Pleadings or in the Alternative Summary Judgment, based on the fact that the stockholders of the Company had ratified the underlying transactions at the 2007 annual meeting of stockholders of AMERCO. In December 2007, the Court denied this motion. This ruling does not preclude a renewed motion for summary judgment after discovery and further proceedings on these issues. On April 7, 2008, the litigation was dismissed, on the basis of the Goldwasser Motion. On May 8, 2008, the

 


Plaintiffs filed a notice of appeal of such dismissal to the Nevada Supreme Court (the “Court”). On May 20, 2008, AMERCO filed a cross appeal relating to the denial of its Motion to Dismiss in regard to demand futility.

On May 12, 2011, the Nevada Supreme Court affirmed in part, reversed in part, and remanded the case for further proceedings.  First, the Court ruled that the Goldwasser settlement did not release claims that arose after the agreement and, therefore, reversed the trial court’s dismissal of the Complaint on that ground. Second, the Court affirmed the district court’s determination that the in pari delicto defense is available in a derivative suit and reversed and remanded to the district court to determine if the defense applies to this matter.  Third, the Court remanded to the district court to conduct an evidentiary hearing to determine whether demand upon the AMERCO Board was, in fact, futile.  Fourth, the Court invited AMERCO to seek a ruling from the district court as to the legal effect of the AMERCO Shareholders’ 2008 ratification of the underlying AMERCO/SAC transactions. 

Last, as to individual claims for relief, the Court affirmed the district court’s dismissal of the breach of fiduciary duty of loyalty claims as to all defendants except Mark Shoen.  The Court affirmed the district court’s dismissal of the breach of fiduciary duty: ultra vires Acts claim as to all defendants. The Court reversed the district court’s dismissal of aiding and abetting a breach of fiduciary duty and unjust enrichment claims against the SAC entities.  The Court reversed the trial court’s dismissal of the claim for wrongful interference with prospective economic advantage as to all defendants.

On remand, on July 22, 2011, AMERCO filed a Motion for Summary Judgment based upon the Shareholder’s Ratification of the SAC transactions. In addition, on August 29, 2011, certain defendants filed a Motion to Dismiss Plaintiffs’ Claim for Wrongful Interference with Prospective Economic Advantage. On August 31, 2011, the trial court held a status conference and entered an order setting forth the briefing schedule for the two motions. On December 23, 2011, the trial court denied AMERCO’s motion for summary judgment and certain defendants’ motion to dismiss. The court set a discovery schedule on the limited issue of demand futility.  A four day evidentiary hearing on demand futility was scheduled to begin on August 20, 2012.

On August 6, 2012, Max Belec and Glenbrook Capital Limited Partnership, voluntarily dismissed their complaint with prejudice. On August 20, 2012, the remaining plaintiffs, Paul Shoen and Alan Kahn, dismissed their complaint with prejudice. AMERCO paid none of plaintiffs attorneys’ fees or costs. In return, AMERCO released plaintiffs from further related litigation based on plaintiffs’ conduct in this litigation. Moreover, Paul Shoen, Alan Kahn, Grover Wickersham and numerous individuals and entities related to Paul Shoen and Grover Wickersham agreed to sell all of their AMERCO securities in the open market and not sue AMERCO or any of the other defendants for 20 years. If the plaintiffs or the related parties breach this agreement, Paul Shoen will be responsible for $5,000,000 in liquidated damages. The parties filed a final Mutual Release Agreement with the Court on October 16, 2012, thereby terminating the case in its entirety, with prejudice.

Environmental

Compliance with environmental requirements of federal, state and local governments has the potential to 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

The Company is 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 the Company’s financial position and results of operations.

 


10. Related Party Transactions

As set forth in the Audit Committee Charter and consistent with Nasdaq Listing Rules, our Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required to be disclosed under the Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, all such related party transactions are submitted to the Audit Committee for ongoing review and oversight. We believe that our internal processes ensure that our legal and finance departments identify and monitor potential related party transactions which 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 completed 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 self-storage properties. These properties are being managed by us pursuant to management agreements. In the past, we have sold various self-storage properties to SAC Holdings, and such sales provided significant cash flows to us.

Management believes that the sales of self-storage properties to SAC Holdings has provided a unique structure for the Company to earn moving equipment rental revenues and property management fee revenues from the SAC Holdings self-storage properties that the Company manages.

Related Party Revenue

 

 

Quarter Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

1,981

$

4,863

U-Haul interest income revenue from Private Mini

 

1,356

 

1,364

U-Haul management fee revenue from SAC Holdings

 

3,585

 

3,440

U-Haul management fee revenue from Private Mini

 

580

 

558

U-Haul management fee revenue from Mercury

 

1,920

 

1,370

 

$

9,422

$

11,595

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

U-Haul interest income revenue from SAC Holdings

$

6,438

$

14,537

U-Haul interest income revenue from Private Mini

 

4,059

 

4,083

U-Haul management fee revenue from SAC Holdings

 

11,271

 

10,990

U-Haul management fee revenue from Private Mini

 

1,720

 

1,664

U-Haul management fee revenue from Mercury

 

2,856

 

2,275

 

$

26,344

$

33,549

 

 

 

 

 

During the first nine months of fiscal 2013, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Mark V. Shoen, a significant shareholder of AMERCO. We do not have an equity ownership interest in SAC Holdings. We received cash interest payments of $10.7 million and $13.4 million, from SAC Holdings during the first nine months of fiscal 2013

 


and 2012, respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2012 was $195.4 million and the aggregate notes receivable balance at December 31, 2012 was $72.6 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2019 and 2024. We received repayments of $127.3 million during the first quarter of fiscal 2013 on these notes and interest receivables.

During the first nine months of fiscal 2013, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. We received cash interest payments of $4.1 million and $4.0 million from Private Mini during the first nine months of fiscal 2013 and 2012, respectively. The largest aggregate amount outstanding during the first nine months of fiscal 2013 was $66.3 million and the aggregate notes receivable balance at December 31, 2012 was $66.0 million.

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 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 $19.1 million and $18.0 million from the above mentioned entities during the first nine months of fiscal 2013 and 2012. 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. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant shareholder and director of AMERCO, has an interest in Mercury.

Related Party Costs and Expenses

 

 

Quarter Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

655

$

636

U-Haul commission expenses to SAC Holdings

 

9,142

 

9,764

U-Haul commission expenses to Private Mini

 

575

 

592

 

$

10,372

$

10,992

 

 

 

 

 

 

 

 

Nine Months Ended December 31,

 

 

2012

 

2011

 

 

(Unaudited)

 

 

(In thousands)

U-Haul lease expenses to SAC Holdings

$

1,971

$

1,762

U-Haul commission expenses to SAC Holdings

 

32,531

 

31,146

U-Haul commission expenses to Private Mini

 

2,082

 

1,998

 

$

36,584

$

34,906

 

 

 

 

 

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 December 31, 2012, 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 notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $23.5 million, expenses of $2.0 million and cash flows of $152.7 million during the first nine months of fiscal 2013. Revenues and commission expenses related to the Dealer Agreements were $158.4 million and $34.6 million, respectively during the first nine months of fiscal 2013.

Pursuant to the variable interest entity model under ASC 810 - Consolidation (“ASC 810”), Management determined that the junior notes of SAC Holdings and Private Mini as well as the management agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represent potential variable interests for us.  Management evaluated whether it should be identified as the primary beneficiary of one or more of these variable interest entities (“VIE’s”) using a two-step approach in which management (i) identified all other parties that hold interests in the VIE’s, and (ii) determined if any variable interest holder has the power to direct the activities of the VIE’s that most significantly impact their economic performance.

Management determined that they do not have a variable interest in the holding entities Mercury, 4 SAC, 5 SAC, or Galaxy based upon management agreements which are with the individual operating entities or through the issuance of junior debt; therefore, we are precluded from consolidating these entities. Additionally, after a redetermination caused by the SAC Holding II repayment of the outstanding principal on its junior notes with AMERCO during the first quarter of fiscal 2013, Management has determined that the Company does not have a variable interest in the SAC Holding II holding entity.

We have junior debt with the holding entities SAC Holding Corporation and Private Mini which represents a variable interest in each individual entity. Though we have certain protective rights within these debt agreements, we have no present influence or control over these holding entities unless their protective rights become exercisable, which management considers unlikely based on their payment history.  As a result, we have no basis under ASC 810 to consolidate these entities.

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, Blackwater, 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.

We have not provided financial or other support explicitly or implicitly during the first nine months ended December 31, 2012 to any of these entities that we were 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 sheets that relates to our variable interests in the aforementioned entities are as follows, which approximate the maximum exposure to loss as a result of our involvement with these related party entities:

Related Party Assets

 

 

December 31,

 

March 31,

 

 

2012

 

2012

 

 

(Unaudited)

 

 

 

 

(In thousands)

U-Haul notes, receivables and interest from Private Mini

$

70,706

$

68,798

U-Haul notes receivable from SAC Holdings

 

72,634

 

195,426

U-Haul interest receivable from SAC Holdings

 

14,407

 

18,667

U-Haul receivable from SAC Holdings

 

14,753

 

30,297

U-Haul receivable from Mercury

 

3,601

 

3,195

Other (a)

 

(926)

 

(226)

 

$

175,175

$

316,157

 

 

 

 

 

 

 

 

 

 

(a) Timing difference for intercompany balances with insurance subsidiaries

 

 

 

 

 


11. 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 Repwest 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 profitability 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 liabilities 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 accounting.

 


 


11. Financial Information by Consolidating Industry Segment:

Consolidating balance sheets by industry segment as of December 31, 2012 are as follows:

 

 

Moving & Storage

 

 

 

 

AMERCO Legal Group

 

 

 

 

 

AMERCO

 

U-Haul

 

Real Estate

 

Eliminations

 

 

Moving & Storage

Consolidated

 

Property & Casualty Insurance (a)

 

Life

Insurance (a)

 

Eliminations

 

 

AMERCO

Consolidated

 

 

(Unaudited)

 

 

(In thousands)

Assets:

 

 

Cash and cash equivalents

$

351,755

$

185,624

$

1,504

$

 

$

538,883

$

14,490

$

32,751

$

 

$

586,124

Reinsurance recoverables and trade receivables, net

 

 

24,882

 

 

 

 

24,882

 

172,370

 

29,088

 

 

 

226,340

Inventories, net

 

 

55,989

 

 

 

 

55,989

 

 

 

 

 

55,989

Prepaid expenses

 

12,578

 

42,030

 

540

 

 

 

55,148

 

 

 

 

 

55,148

Investments, fixed maturities and marketable equities

 

20,472

 

 

 

 

 

20,472

 

123,777

 

875,719

 

 

 

1,019,968

Investments, other

 

 

 

43,125

 

 

 

43,125

 

101,495

 

125,571

 

 

 

270,191

Deferred policy acquisition costs, net

 

 

 

 

 

 

 

 

93,533

 

 

 

93,533

Other assets

 

480

 

71,517

 

29,191

 

 

 

101,188

 

487

 

214

 

 

 

101,889

Related party assets

 

1,008,820

 

121,303

 

7

 

(951,978)

(c)

 

178,152

 

8,738

 

516

 

(12,231)

(c)

 

175,175

 

 

1,394,105

 

501,345

 

74,367

 

(951,978)

 

 

1,017,839

 

421,357

 

1,157,392

 

(12,231)

 

 

2,584,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

217,615

 

 

 

152,561

(b)

 

370,176

 

 

 

(370,176)

(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

106,859

 

231,739