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
second
quarter
and first six months
of fiscal 201
8
, compared with the
second
quarter
and first six months
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 Capital 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 be 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
,
Cautionary 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
fiscal
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
second
fiscal quarter that ends on the 30
th
of
September
for each year that is referenced. Our insurance company subsidiaries have a
second
quarter that ends on the 3
0
th
of
June
for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the
presentation of
financial position or results of operations.
We
disclose any material events
, if any,
occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 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
United States and Canada
“do-it-yourself” moving and storage industry. We accomplish 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 moving 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 reportable 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 Repwest 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 household 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-storage 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-yourself” 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 providers 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 sharing 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 believe 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
insurance
products in other
U-Haul
®
related programs.
Life Insurance
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 statements 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 accounting 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 assumptions 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 estimates, 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 control.
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 creation 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 continue 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 equipment
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 based 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 on 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 losses. 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 quarter 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 depreciation expense over the term that these assets would have been depreciated. Due to this change, we had additional operating expenses of $13.4 million and $11.7 million in the first six months of fiscal 2018 and 2017, respectively. This change in procedure is 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 result 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 cash 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 life 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 originally 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 15
% by the end of year fifteen.
Prior to October 2012, rental equipment subject to this depreciation schedule was depreciated to a salvage value of 20%. Comparatively,
a standard straight line approach would reduce the book value 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 throughout
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 insurance 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 adverse 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 contracts 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 approximation 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 losses 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 policy 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’ compensation. 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
, management reviews
insurance reserve adequacy 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 longevity
-
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 conditions including inflation
We
reserve each claim based upon the accumulation of claim costs projected through
each
claimant
’
s life expectancy, and then adjust for applicable reinsurance arrangements. Management reviews each claim bi-annually to determine if the estimated life-time claim costs have increased and then adjusts the reserve estimate accordingly at that time. We factor in an estimate of potential cost increases in our IBNR liability. We
do
not assume settlement of 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 development resulting in additional reserve strengthening. Conversely, settlement of existing claims or injured workers return
ing
to work or expir
ing
prematurely, could lead to future positive development.
Impairment of Investments
Investments are evaluated pursuant 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 but 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 value
is recognized in the current period operating results.
There were no write downs in the second quarter or first six months of fiscal 201
8 or 2017
.
Income Taxes
AMERCO files
a consolidated tax return with
all of its legal subsidiaries.
Our
tax returns are periodically reviewed 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 of 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 credit 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 financial 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 the 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 similar 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 maturity.
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
U
nder Common Control
, which modifies existing guidance with respect to how a decision maker 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 statements
.
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 exercise 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 periods 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 of 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 on 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 recognition, 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 values, 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 statements.
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. This 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 leases) 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 will
also
require both qualitative and 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 within 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. We 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 from 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): Classification 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 beginning 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,
Statement 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 restricted 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 disclose 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 do not expect adoption of ASU 201
6
-
18
to have a material effect 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 the 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, disposals, 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 do not expect adoption of ASU 201
7
-
01
to have a material effect on our consolidated 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 defined 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 the 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 early adoption permitted.
We do not expect adoption of ASU 201
7
-
07
to have a material effect 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 Purchased Callable Debt Securities.
These amendments shorten the amortization period for certain callable debt 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 December
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 statements.
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 guidance 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
September
30, 201
7
compared with the Quarter Ended
September
30, 201
6
Listed below on a consolidated basis are revenues for our major product lines for the
second
quarter of fiscal 201
8
and the
second
quarter of fiscal 201
7
:
|
|
Quarter Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Self-moving equipment rentals
|
$
|
740,558
|
$
|
711,710
|
Self-storage revenues
|
|
80,472
|
|
72,163
|
Self-moving and self-storage products and service sales
|
|
73,268
|
|
70,330
|
Property management fees
|
|
6,831
|
|
6,712
|
Life insurance premiums
|
|
38,862
|
|
40,893
|
Property and casualty insurance premiums
|
|
15,026
|
|
14,009
|
Net investment and interest income
|
|
26,469
|
|
25,590
|
Other revenue
|
|
61,200
|
|
57,278
|
Consolidated revenue
|
$
|
1,042,686
|
$
|
998,685
|
|
|
|
|
|
Self-moving equipment rental revenues increased $
28.8
million during the
second
quarter of fiscal 201
8
, compared
with t
he
second
quarter of fiscal 201
7
.
Increases in both one-way and in-town transactions led to the improvement in revenue. We increased the number of trucks, trailers, towing devices, independent dealers and Company-owned locations compared with the same period last year.
Self-storage revenues
increased $
8.3
million during the
second
quarter of fiscal 201
8
, com
pared with the
second
quarter of fiscal 201
7.
The average monthly amount of occupied square feet increased by
8.1
% during the
second
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 3.6
million net rentable square feet or a
14.2
% increase, with approximately
1.0
mil
lion of that coming on during the second
quarter
of fiscal 2018.
Sales of self-moving and self-storage products and services increased $2.9 million during the second quarter of fiscal 2018, compared with the second quarter of fiscal 2017. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.
Life insurance premiums
de
c
reased $
2.0
million during the
second
quarter of fiscal 201
8
, compared with the
second
quarter of fiscal
2017 due to decreased
Medicare Supplement premiums
.
Property and casualty insurance premiums increased $
1.0
million during the
second
quarter of fiscal 201
8
, compared with the
second
quarter of fiscal 201
7
due to an increase in Safetow
®
and
Safestor
®
sales which
corresponds with
increased equipment and storage rental transactions.
Net investment and interest income increased $0.9 million during the second quarter of fiscal 2018, compared with the second quarter of fiscal 2017 due to a larger invested asset base across the organization, partially offset by a decrease in gains generated from our mortgage loan portfolio at the insurance companies
.
Other revenue
in
creased $
3.9
million during the
second
quarter of fiscal 201
8
, compared with the
second
quarter of fiscal 201
7,
primarily
coming from growth in our
U-Box
®
program.
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were
$
1,042.7
million for the
second
quarter of fiscal 201
8
, compared with $
998.7
million for the
second
quarter of fiscal 201
7
.
Listed below are revenues and earnings
from operations at each of our operating segments for the
second
quarter of fiscal 201
8
and the
second
quarter of fiscal 201
7
. The insurance companies
second
quarters ended
June 30
, 201
7
and 20
16
.
|
|
Quarter Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Moving and storage
|
|
|
|
|
Revenues
|
$
|
965,208
|
$
|
920,400
|
Earnings from operations before equity in earnings of subsidiaries
|
|
216,930
|
|
293,160
|
Property and casualty insurance
|
|
|
|
|
Revenues
|
|
19,199
|
|
17,887
|
Earnings from operations
|
|
6,087
|
|
7,094
|
Life insurance
|
|
|
|
|
Revenues
|
|
60,430
|
|
61,961
|
Earnings from operations
|
|
6,718
|
|
7,098
|
Eliminations
|
|
|
|
|
Revenues
|
|
(2,151)
|
|
(1,563)
|
Earnings from operations before equity in earnings of subsidiaries
|
|
(354)
|
|
(372)
|
Consolidated results
|
|
|
|
|
Revenues
|
|
1,042,686
|
|
998,685
|
Earnings from operations
|
|
229,381
|
|
306,980
|
|
|
|
|
|
Total costs and expenses
increased $
121.6
million
during the
second
quarter of fiscal 201
8
, compared with the
second
quarter of fiscal
201
7. The Moving and Storage segment
accounted for $1
21.0
million of the increase. Operating expenses for Moving and Storage increased $9
3
.
9
million. In the second quarter of fiscal 2017, we recognized the difference
between
the accru
ed amount
and actual settlement
amount
of the PODS case as a $24.6 million reduction of operating expenses. Excluding th
is
effect
in the prior year,
operating expenses for Moving and Storage increased $6
9
.
3
million. Personnel costs, equipment maintenance and property tax led
to
the increase in operating expenses in the second quarter of fiscal 2018. Depreciation expense increased $18.6 million due to the additional amount of equipment in the rental fleet. Gains from the disposal of property, plant and equipment decreased $4.5 million. Compared with the second quarter of last year
, we sold fewer trucks and
the trucks we did sell had a higher average cost; however we received incrementally higher proceeds per unit. Lease expense decreased $0.8 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 $
229.4
million for the
second
quarter of fiscal 201
8
, compared with $
307.0
million for the
second
quarter of fiscal 201
7
.
Interest expense for the
second
quarter of
fiscal 2018
was $
32.0
million, compared with $
28.0
million for the second quarter of fiscal 201
7
primarily due to increased borrowings.
Income tax expense was $
72.7
million for the second
quarter of fiscal 201
8
, compared with $
102.5
million for the
second
quarter of fiscal 201
7
.
As a result of the above mentioned items, earnings available to common shareholders were
$
124.6
million for the
second
quarter of fiscal 201
8
, compared with $
176.5
million for the
second
quarter of fiscal 201
7
.
Basic and diluted earnings per share for the
second
quarter of fiscal 201
8
were
$
6.36
, compared with $
9.01
for the
second
quarter of fiscal 201
7
.
The weighted average common shares outstanding basic and diluted were
19,588,571
for
the
second
quarter of fiscal 201
8
, compared with
19,586,411
for the
second
quarter of fiscal 201
7
.
Moving and Storage
Quarter Ended
September
30, 201
7
compared with the Quarter Ended
September
30, 201
6
Listed below are revenues for the major product lines at our Moving and Storage operating segment for the
second
quarter of fiscal 201
8
and the
second
quarter of fiscal 201
7
:
|
|
Quarter Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Self-moving equipment rentals
|
$
|
741,714
|
$
|
712,739
|
Self-storage revenues
|
|
80,472
|
|
72,163
|
Self-moving and self-storage products and service sales
|
|
73,268
|
|
70,330
|
Property management fees
|
|
6,831
|
|
6,712
|
Net investment and interest income
|
|
3,177
|
|
2,353
|
Other revenue
|
|
59,746
|
|
56,103
|
Moving and Storage revenue
|
$
|
965,208
|
$
|
920,400
|
|
|
|
|
|
Self-moving equipment rental revenues increased $
29.0
million during the
second
quarter of fiscal 201
8
, compared
with the
second
quarter of fiscal 201
7
.
Increases in both one-way and in-town transactions led to the improvement in revenue. We increased the number of trucks, trailers, towing devices, independent dealers and Company-owned locations compared with the same period last year.
Self-storage revenues
increased $
8.3
million during the
second
quarter of fiscal 201
8
, com
pared with the
second
quarter of fiscal 201
7.
The average monthly amount of occupied square feet increased by
8.1
% during the
second
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 3.6
million net rentable square feet or a
14.2
% increase, with approximately
1.0
mil
lion of that coming on during the second
quarter
of fiscal 2018.
Sales of self-moving and self-storage products and services increased $2.9 million during the second quarter of fiscal 2018, compared with the second quarter of fiscal 2017. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.
Net investment and interest income increased $0.8 million during the second quarter of fiscal 2018, compared with the second quarter of fiscal
201
7.
Other
revenue
in
creased $
3.6
million during the
second
quarter of fiscal 201
8
, compared with the
second
quarter of fiscal 201
7,
caused primarily by
growth in
the U-Box
®
program.
We
own and manage self-storage facilities. Self-storage revenues reported in the consolidated financial statements represent Company-owned locations only. Self-storage data for our owned storage locations follows:
|
|
Quarter Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands, except occupancy rate)
|
Room count as of September 30
|
|
341
|
|
294
|
Square footage as of September 30
|
|
29,104
|
|
25,480
|
Average number of rooms occupied
|
|
249
|
|
230
|
Average occupancy rate based on room count
|
|
73.9%
|
|
78.9%
|
Average square footage occupied
|
|
22,408
|
|
20,722
|
|
|
|
|
|
Over the last twelve months we added approximately 3.6 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 6.1%.
Total costs and
expenses increased $1
21.0
million during the second quarter of fiscal 2018, compared with the second quarter of fiscal 2017. Operating expenses for Moving and Storage increased $9
3
.
9
million. In the second quarter of fiscal 2017, we recognized the difference
between
the accru
ed amount
and actual settlement
amount
of the PODS case as a $24.6 million reduction of operating expenses. Excluding th
is
effect
in the prior year
operating expenses for Moving and Storage increased $6
9
.
3
million. Personnel costs, equipment maintenance and property tax led the increase in operating expenses in the second quarter of fiscal 2018. Depreciation expense increased $18.6 million due to the additional amount of equipment in the rental fleet. Gains from the disposal of property, plant and equipment decreased $4.5 million. Compared with the second quarter of last year
, we sold fewer trucks and
the trucks we did sell had a higher average cost; however we received incrementally higher proceeds per unit.
Lease expense decreased $
0.8
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 $
216.9
million
for the second quarter of fiscal 2018, compared with $293.2 million for the second quarter of fiscal 2017.
Equity in the earnings of AMERCO’s insurance subsidiaries
was
$
8.4 million
and $
9.3
million
for the
second
quarter of fiscal 201
8 and
201
7, respectively
.
As a result of the above mentioned changes in revenues and expenses, earnings from operations
de
creased to $
225.3
million for
the
second
quarter of fiscal 201
8
, compared with $
302.5
million for the
second
quarter of fiscal 201
7
.
Property and Casualty Insurance
Quarter Ended
June 30
, 201
7
compared with the Quarter Ended
June 30, 2016
Net premiums were $1
5.5
million and $14
.0
million for the second quarters ended June 30, 201
7
and 201
6
, respectively. A significant portion of Repwest’s premiums are from policies sold in conjunction with U-Haul rental transactions. The premium increase corresponded with the increased moving and storage transactions at U-Haul during the same time period as well as from sales of Safestor
®
through independent storage operators not owned or managed by U-Haul.
Net investment income was $3.
7
million and $3.
9
million for the second quarters ended June 30, 201
7
and
2016
respectively.
Realized investment gains decreased by $0.5 million.
Net operating expenses were $
8.2 million and $7.2
million for the second quarters ended June 30, 201
7
and 201
6
,
due to an increase in commissions
and decreased loss adjusting fees and subrogation income
.
Benefits and losses incurred were $
4.9
million and $3.
6
million for the second quarters ended June 30, 201
7
and 201
6
,
respectively
due to increased premium volume
.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $
6
.1 million and $
7
.1 million for the sec
ond quarters ended June 30, 2017
and 201
6
, respectively.
Life Insurance
Quarter Ended
June 30, 2017
compared with the Quarter Ended
June 30
, 20
16
Net premiums were
$38.9 million and $40.9
million
for the
quarters
ended
June 30
,
201
7
and 201
6
,
respectively
. Medicare Supplement premiums decreased by $2.1 million due to the reduction in new sales and decreased premiums on the existing business partially offset by rate increases on renewal premiums. Life premiums increased $0.3 million primarily from the new sales of a whole life single premium product while supplemental contract considerations decreased $0.2 million. Deferred annuity deposits increased $21.3 million to $77.3 million and are accounted for on the balance sheet as deposits rather than premiums.
Net investment
and interest
income was $
20.0
million and $
19.8
million for the
quarters
ended
June 30
, 201
7
and 201
6
, respectively
. Investment income increased $1.9 million due to a larger invested asset base. This increase was offset by decreases in gains of $0.9 million from their mortgage loan portfolio and $0.8 million from fixed maturities.
Net operating expenses
were
$
5.5
million
and $5.6 million
for the
quarters
ended
June 30
, 201
7
and 201
6, respectively.
The decrease was primarily due to a reduction in commission expense resulting from decreased Medicare Supplement premiums.
Benefits and losses incurred were $
42.2
million and $
43.3
million for the
quarters
ended
June 30
, 201
7
and 201
6
, respectively
. The decrease was due to a $3.2 million reduction in Medicare supplement benefits resulting from an improved benefit to premium ratio and a $0.3 million decrease in supplemental contract and immediate annuity payouts. Partially offsetting this was a $1.6 million increase in interest credited to policyholders as a result of the increased annuity deposit base along with $0.8 million from life insurance benefits.
Amortization of deferred acquisition costs (“DAC”)
, sales inducement asset (“SIA”)
and the value of business acquired (“VOBA”) was $
5.9
million
and $
6.0
million for the
quarters
ended
June 30
, 201
7
and 201
6
, respectively
.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $
6.7
million and $
7
.1 million for the quarters ended June 30, 201
7
and 201
6
, respectively.
AMERCO and Consolidated Entities
Six Months Ended September 30, 201
7
compared with the Six Months Ended September 30, 20
16
Listed below on a consolidated basis are revenues for our major product lines for the first six months of fiscal 201
8
and the first six months of fiscal 201
7
:
|
|
Six Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Self-moving equipment rentals
|
$
|
1,410,416
|
$
|
1,358,046
|
Self-storage revenues
|
|
157,190
|
|
139,885
|
Self-moving and self-storage products and service sales
|
|
152,179
|
|
147,633
|
Property management fees
|
|
13,593
|
|
13,316
|
Life insurance premiums
|
|
77,953
|
|
81,785
|
Property and casualty insurance premiums
|
|
26,841
|
|
25,264
|
Net investment and interest income
|
|
53,686
|
|
52,921
|
Other revenue
|
|
108,753
|
|
103,026
|
Consolidated revenue
|
$
|
2,000,611
|
$
|
1,921,876
|
|
|
|
|
|
Self-moving equipment rental revenues increased $
52.4
million during the
first six months
of fiscal 201
8
, compared
with t
he first
six months
of fiscal 201
7. Increases in both one-way and in-town transactions led to the improvement in revenue. We increased the number of trucks, trailers, towing devices, independent dealers and Company-owned locations compared with the same period last year.
Self-storage revenues
increased $
17.3
million during the
first six months
of fiscal 201
8
, com
pared with the
first six months
of fiscal 201
7.
The average monthly amount of occupied square feet increased by
8.1
% during the
first six months 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 3.6
million net rentable square feet or a
14.2
% increase, with approximately
1.8
mil
lion of that coming on during the first six months of fiscal 2018
.
Sales of self-moving and self-storage products and services increased $4.5 million during the first six months of fiscal 2018, compared with the first six months of fiscal 2017. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.
Life insurance premiums
de
c
reased $
3.8
million during the
first six months
of fiscal 201
8
, compared with the
first six months
of fiscal
2017
due
primarily to
de
creased
Medicare supplement premiums
.
Property and casualty insurance premiums increased $
1.6
million during the
first six months
of fiscal 201
8
, compared with the
first six months
of fiscal 201
7
due to an increase in Safetow
®
and
Safestor
®
sales which
corresponds with
increased equipment and storage rental transactions.
Net investment and interest income increased $
0.8
million during the
first six months
of fiscal 201
8
, compared with the
first six months
of fiscal
2017
due to a larger invested asset base across the organization, partially offset by a decrease in gains generated from our mortgage loan portfolio at the insurance companies
.
Other revenue
in
creased $
5.7
million during the
first six months
of fiscal 201
8
, compared with the
first six months
of fiscal 201
7,
primarily
coming from growth in our
U-Box
®
program.
As a result of the items mentioned
above, revenues for AMERCO and its consolidated entities were
$
2,000.6
million for the first six months of fiscal 201
8
, as compared with $
1,921.9
million for the first six months of fiscal 201
7
.
Listed below are revenues and earnings from operations at each of our operating segments for the first six months of fiscal 201
8
and the first six months of fiscal 201
7
. The insurance companies
’
first six months ended
June
30, 201
7
and 20
16
.
|
|
Six Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Moving and storage
|
|
|
|
|
Revenues
|
$
|
1,847,735
|
$
|
1,766,231
|
Earnings from operations before equity in earnings of subsidiaries
|
|
437,438
|
|
541,665
|
Property and casualty insurance
|
|
|
|
|
Revenues
|
|
35,305
|
|
34,772
|
Earnings from operations
|
|
11,523
|
|
14,597
|
Life insurance
|
|
|
|
|
Revenues
|
|
121,086
|
|
123,756
|
Earnings from operations
|
|
10,154
|
|
11,014
|
Eliminations
|
|
|
|
|
Revenues
|
|
(3,515)
|
|
(2,883)
|
Earnings from operations before equity in earnings of subsidiaries
|
|
(703)
|
|
(739)
|
Consolidated results
|
|
|
|
|
Revenues
|
|
2,000,611
|
|
1,921,876
|
Earnings from operations
|
|
458,412
|
|
566,537
|
|
|
|
|
|
Total costs and
expenses increased $186.9
million during the first six months of fiscal 2018, compared with the first six months of fiscal 2017. Operating expenses at Moving and Storage increased $12
4.3
million. In the second quarter of fiscal 2017, we recognized the difference
between
the accru
ed amount
and actual settlement
amount
of the PODS case as a $24.6 million reduction of operating expenses. Excluding th
is
effect
in the prior year,
operating expenses for Moving and Storage increased $9
9
.
7
million. Personnel costs, equipment maintenance and property tax led the increase in operating expenses in the
first six months
of fiscal 2018
.
Depreciation expense increased $36.0 million due to the additional amount of equipment in the rental fleet. Gains from the disposal of property, plant and equipment decreased $18.4 million. This resulted in an increase of $54.4 million in depreciation expense, net. Compared with the first six months of
fiscal 2017,
we have sold fewer used trucks. On average the trucks sold had a higher average cost and we experienced a decrease in the average sales proceeds per unit. Lease
expense decreased $
3.5
million as a result of
our shift
in financing new equipment on the balance sheet versus through operating leases
; this ongoing shift in financing allocation also contributed to the increase in depreciation expense
.
As a result of the above mentioned changes in revenues and expenses, earnings from operations
de
creased to $
458.4
million for the
first six months of fiscal 2018
, as compared with $
566.5
million for the first six months of fiscal 201
7
.
Interest expense
for the first six months of fiscal 2018
was $
62.4
million, compared with $
54.4
million for the first six months of fiscal 201
7
primarily due to increased borrowings
.
Income tax expense was $
145.2
million for the first six months of fiscal 2018, compared with $188.5 million for first six months of fiscal 2017 due to lower pretax earnings for the first six months of fiscal 201
8
.
As a result of the above mentioned items, earnings available to common shareholders were
$
250.8
million
for
the first six months of fiscal 201
8
, compared with $
323.6
million
for
the first six months of fiscal 201
7
.
Basic and diluted earnings per common share for the first six months of fiscal 201
8
were
$
12.81
, compared with $
16.52
for the first six months of fiscal 201
7
.
The weighted average common shares outstanding basic and diluted were
19,588,231
for the first six months of fiscal 201
8
, compared with
19,586,240
for the first six months of fiscal 201
7
.
Moving and
Storage
Six Months Ended September 30, 201
7
compared with the Six Months Ended September 30, 20
16
Listed below are revenues for the major product lines at our Moving and
Storage
operating segment for the first six months of fiscal 201
8
and the
first six months of fiscal 2017
:
|
|
Six Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Self-moving equipment rentals
|
$
|
1,412,412
|
$
|
1,359,855
|
Self-storage revenues
|
|
157,190
|
|
139,885
|
Self-moving and self-storage products and service sales
|
|
152,179
|
|
147,633
|
Property management fees
|
|
13,593
|
|
13,316
|
Net investment and interest income
|
|
5,834
|
|
4,465
|
Other revenue
|
|
106,527
|
|
101,077
|
Moving and Storage revenue
|
$
|
1,847,735
|
$
|
1,766,231
|
|
|
|
|
|
Self-moving equipment rental revenues increased $
52.6
million during the
first six months
of fiscal 201
8
, compared
with t
he first
six months
of fiscal 201
7. Increases in both one-way and in-town transactions led to the improvement in revenue. We increased the number of trucks, trailers, towing devices, independent dealers and Company-owned locations compared with the same period last year.
Self-storage revenues
increased $
17.3
million during the
first six months
of fiscal 201
8
, com
pared with the
first six months
of fiscal 201
7.
The average monthly amount of occupied square feet increased by
8.1
% during the
first six months 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 3.6
million net rentable square feet or a
14.2
% increase, with approximately
1.8
mil
lion of that coming on during the first six months of fiscal 2018
.
Sales of self-moving and self-storage products and services increased $4.5 million during the first six months of fiscal 2018, compared with the first six months of fiscal 2017. Increases were recognized in the sales of moving supplies, propane and towing accessories and related installations.
Net investment and interest income increased $
1.4
million during the
first six months of fiscal 2018, compared with the first six months of fiscal 2017 due to improved rates on our invested cash balances.
Other revenue
in
creased $
5.5
million during the
first six months
of fiscal 201
8
, compared with the
first six months
of fiscal 201
7,
primarily
coming from growth in our
U-Box
®
program.
We
own and manage
self-storage
facilities. Self
-storage
revenues reported in the consolidated financial statements represent Company-owned locations only. Self
-storage
data for our owned
storage
locations follows:
|
|
Six Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands, except occupancy rate)
|
Room count as of September 30
|
|
341
|
|
294
|
Square footage as of September 30
|
|
29,104
|
|
25,480
|
Average number of rooms occupied
|
|
243
|
|
225
|
Average occupancy rate based on room count
|
|
73.5%
|
|
78.2%
|
Average square footage occupied
|
|
21,895
|
|
20,257
|
|
|
|
|
|
Over the last twelve months we added approximately 3.6 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 6.1%.
Moving and Storage total c
osts and expenses increased $185
.
7
million
during the first six months of fiscal 2018, compared with the first six months of fiscal 2017
. Operating expenses at Moving and Storage increased $12
4
.
3
million. In the second quarter of fiscal 2017, we recognized the difference
between
the accru
ed amount
and actual settlement
amount
of the PODS case as a $24.6 million reduction of operating expenses. Excluding th
is
in the prior year,
operating expenses for Moving and Storage increased $9
9
.
7
million. Personnel costs, equipment maintenance and property tax led the increase in operating expenses in the second quarter of fiscal 2018
.
Depreciation expense increased $36.0 million due to the additional amount of equipment in the rental fleet. Gains from the disposal of property, plant and equipment decreased $18.4 million. This resulted in an increase of $54.4 million in depreciation expense, net. Compared with the first six months of
fiscal 2017,
we have sold fewer used trucks. On average the trucks sold had a higher average cost and we experienced a decrease in the average sales proceeds per unit. Lease expense decreased $3.5 million as a result of our shift in financing new equipment on the balance sheet versus through operating leases; this ongoing shift in financing allocation also contributed to the increase
in depreciation expense
.
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 $
437.4 million for the first six months of fiscal 2018, compared with $541.7 million for the first six months of fiscal 2017.
Equity in the earnings of AMERCO’s insurance subsidiaries
was $14.2 million
for the first six months of fiscal 201
8
, compared with
$16.9 million for
the first six months of fiscal 201
7
.
As a result of the above mentioned changes in revenues and expenses, earnings from operations
de
creased to $
451.6
million for the
first six months of fiscal 2018
, compared with $
558.5
million for the first six months of fiscal 201
7
.
Property and Casualty Insurance
Six Months Ended June 30, 201
7
compared with the Six Months Ended June 30, 201
6
Net premiums were $2
7
.3 million and $2
5
.
3
million for the six months ended June 30, 201
7
and 201
6
, respectively. A significant portion of Repwest’s premiums are from policies sold in conjunction with U-Haul rental transactions. The premium increase corresponded with increased moving and storage transactions at U-Haul during the same time period.
Net investment income was $
8.0
million and $
9.5
million for the six months ended June 30, 201
7
and 201
6
, respectively.
Realized investment gains decreased by $1.9 million.
Net operating expenses were $1
6
.5 million and $13.
5
million for the six months ended June 30, 201
7
and 201
6
, respectively,
due to an increase in commissions
and decreased loss adjusting fees and subrogation income
.
Benefits and losses incurred were $
7.3
million and $
6.7
million for the six months ended June 30, 201
7
and 201
6
, respectively.
The increase
resulted from
increased premium volume in the Safe
s and Self-
Storage Programs
.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $1
1.5
million and $1
4
.
6
million for the six months ended June 30, 201
7
and 201
6
, respectively.
Life Insurance
Six Months Ended June 30, 201
7
compared with the Six Months Ended June 30, 20
16
Net premiums were $
78.0
million and $
81.8
million for the
six months
ended
June 30
, 201
7
and 201
6
,
respectively
. Medicare Supplement premiums decreased by $3.5 million due to the reduction in new sales and decreased premiums on the existing business offset by rate increases on renewal premiums. Other lines had a net decrease of $0.3 million. Deferred annuity deposits increased $61.0 million to $172.7 million and are accounted for on balance sheet as deposits rather than premiums.
Net investment income was $
40.6
million and $
39.8
million for the
six months
ended
June 30
, 201
7
and 201
6
, respectively.
Investment income and realized gain from fixed maturities increased $5.4 million from a larger invested asset base. This increase was offset by a $4.6 million decrease in gains from the mortgage loan portfolio.
Net operating expenses were $
11.1
million and $
11.6
million for the
six months
ended
June 30
, 201
7
and 201
6
, respectively
,
primarily due to a reduction in commission expense from decreased Medicare Supplement premiums.
Benefits and losses incurred were $
87.5
million and $
87.2
million for the
six months
ended
June
3
0
, 201
7
and 201
6
, respectively
. The increase was due to a $4.2 million increase in interest credited to policyholders as a result of the increased annuity deposit base along with $1.7 million from life insurance benefits. Partially offsetting this was a $5.0 million decrease in Medicare supplement benefits from an improved benefit to premium ratio and a $0.6 million decrease in supplemental contract payouts.
Amortization of DAC, SIA and the VOBA was $1
2.3
million and $
13.9
million for the six months ended June 30, 201
7
and 201
6
, respectively. The
de
crease was
primarily
due to additional DAC amortization
in the six months ended June 30, 2016,
generated by
gains on mortgage loan investments partially offset by the
increased amortization
from
a larger DAC asset
in the current year
.
As a result of the above mentioned changes in revenues and expenses, pretax earnings from operations were $
10.2
million and $
11.0
million for the six months ended June 30, 201
7
and 201
6
, respectively.
Liquidity and Capital Resources
We believe our current capital structure is a positive 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 is 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
September 30, 2017
, cash and cash equivalents totaled $
779.1
million, compared with $
697.8
million
at
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
September 30, 2017
(or as otherwise indicated), cash and cash equivalents, other financial assets (receivables,
short term
investments, other investments, fixed maturities, and related party assets) and
debt
obligations of each operating segment were:
|
|
Moving & Storage
|
|
Property & Casualty Insurance (a)
|
|
Life Insurance (a)
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
745,923
|
$
|
10,791
|
$
|
11,637
|
Other financial assets
|
|
171,517
|
|
450,987
|
|
1,920,603
|
Debt obligations
|
|
3,422,077
|
|
–
|
|
–
|
|
|
|
|
|
|
|
(a) As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017,
Moving and Storage
had
additional borrowing capacity available under
existing credit facilities of
$
194.0
million
. The majority of invested cash at the Moving and Storage segment is held in government money market funds.
Net cash pro
vided by operating activities de
creased $
43.4
million in the first six months of fiscal 201
8
compared with the first six months of fiscal 201
7. Fiscal 2018 includes a $23.0 million increase in federal income tax payments.
Net cash used in investing activities
in
creased $
112.3
million
in the first
six months
of fiscal 201
8, compared with the first six months of fiscal
201
7
.
Purchases of property, plant and
equipment, which are reported net of cash from sales and lease-back transactions,
de
creased $
7.2
million. Cash from the sales of property, plant and equipment decreased $
51.0
million largely due to reduced fleet sales.
For our insurance subsidiaries, net cash used in investing activities increased $72.4 million compared with the prior year period.
Net cash
provided
by fina
ncing
activities
de
creased
$115.2
million in the first
six months
of fiscal 201
8
, as compared with
the first six months of
fiscal 201
7. This was due to a combination of increased debt and capital lease repayments of $122.8 million, a decrease in cash from borrowings of $46.3 million and an increase in net annuity deposits from Life Insurance of $54.9 million.
Liquidity 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 acquisitions 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 that 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
$
470
million
, net of equipment sales excluding any lease buyouts. Through the first
six months
of
fiscal 2018,
we have invested
, net of equipment sales, approximately
$
409 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 dependent 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 operations. 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 which 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
six months
of fiscal 201
8
,
we invested approximately $257.5
million in real estate acquisitions, new construction and renovation and
major
repair
s
. For
the remainder of
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 $
494.6
million and $
450.9
million for the first
six months
of fiscal 201
8
and 201
7
, respectively.
The components of our net capital expenditures are provided in the following table:
|
|
Six Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
Purchases of rental equipment
|
$
|
665,159
|
$
|
665,165
|
Equipment lease buyouts
|
|
–
|
|
12,244
|
Purchases of real estate, construction and renovations
|
|
257,513
|
|
251,739
|
Other capital expenditures
|
|
65,286
|
|
65,980
|
Gross capital expenditures
|
|
987,958
|
|
995,128
|
Less: Lease proceeds
|
|
(233,906)
|
|
(233,851)
|
Less: Sales of property, plant and equipment
|
|
(259,450)
|
|
(310,409)
|
Net capital expenditures
|
|
494,602
|
|
450,868
|
|
|
|
|
|
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 place 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 are generally not available to satisfy the claims of AMERCO or its legal subsidiaries.
We believe that stockholder’s equity at Property and Casualty Insurance remains sufficient and we do not believe that its ability to pay ordinary dividends to AMERCO will be restricted per state regulations.
Property and Casualty Insurance’s s
tockholder’s equity was $
193.0
million and $
180.9
million at
June 30, 2017
and December 31, 20
16
, respectively. The
increase resulted from net earnings of $
7.6
m
illion
and a
n
in
crease in
other comprehensive income of $
4.5
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
first six months
ended
June 30, 2017
were $
135.5
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 $
315.2
million and $
296.1
million at
June 30, 2017
and December 31, 20
16
, respectively. The
in
crease resulted from
net
earnings of $
6.6
million
and an
in
crease in other comprehensive income of $
12.5
million
primarily due to the effect of interest rate changes on the fixed maturity portion of the investment portfolio
. Life Insurance
has
not
historically
use
d
debt or equity issues to
increase capital and therefore has not had
any significant
direct exposure to capital market conditions other than through its investment portfolio.
However, a
s of
June 30
, 201
7,
Oxford had
outstanding deposits of
$
60.0
million
through its membership in the FHLB system. For a more detailed discussion of this deposit, please 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 $
673.4
million and $
720.9
million for the first six months of fiscal 201
8 and 2017.
Fiscal 2018 includes a $23.0 million increase in federal income tax payments.
Property and Casualty Insurance
Net cash provided by operating activities were $
19.5
million and $
8.8
million for the six months ended June 30, 201
7
and 201
6
, respectively.
The increase was the result of changes in intercompany balances and the timing of payables activity
.
Property and Casualty Insurance’s
cash and cash equivalents and
short term
investment portfolio
s
amounted to $
16.9
million
and $
20.7
million at
June 30, 2017
and December 31, 20
16
, respectively. Th
ese
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 investment and underwriting proceeds.
Life Insurance
Net cash provided by operating activities were $
28.0
million and $
23.3
million for the six months ended June 30, 201
7
and 201
6
, respectively
.
The increase in operating cash flows was due to timing of collection of receivables and settlement of payables, offset by a decrease in collected premiums and a federal income tax payment.
In addition to cash flows from operating activities and financing activities, a substantial amount of liquid funds are available through Life Insurance’s
short term
portfolio
and its membership in the FHLB
. At
June 30, 2017
and December 31, 20
16
, cash and cash equivalents and
short term
investments amounted to $
16.5
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 hold 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
provisions 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 borrowing capacity in existing
credit
facilities to meet the current and expected needs of the Company over the next several years. At
September 30, 2017
, we had
available borrowing capacity
under existing credit facilities of $
194.0
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 consolidated 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 more information, please see Note
14,
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 securities 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
September 30, 2017
, we had
$0.3 million
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 counterparty 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 10-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 certain 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 September 30, 2017
for 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 the discount rate, the present value of
our
minimum lease payments and residual value guarantees were $
31.2
million at
September 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 primarily 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 identify and consider off-balance sheet opportunities to the extent such arrangements would be economically advantageous to
us
and
our
stockholders.
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 various trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant shareholder) and Mark V. Shoen.
We
currently manage the self-storage properties owned or leased by
Blackwater and
Mercury pursuant to a standard form of management agreement, under which
we
receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses.
We
received management fees, exclusive of reimbursed expenses, of
$17.0 million and $
15.5
million
from the above mentioned entities
for both
the first
six months
of fiscal 201
8
and 201
7
. This management fee is consistent with the fee received for other properties
we
previously managed for third parties.
Mark V. Shoen controls the general partner of Mercury. The limited partner interests of Mercury are indirectly owned by Mark V. Shoen, James P. Shoen (a significant shareholder) and a trust benefitting the children and grandchild of Edward J. Shoen
.
We
lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of
Blackwater
. Total lease paymen
ts pursuant to such leases were $
1.
4 million
for both
the first
six months
of fiscal 201
8
and 201
7
. 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
September 30, 2017
, subsidiaries of
Blackwater
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 on equipment rental revenues.
We
paid the above mentioned entities
$
33.4
million and $
32.9
million in commissions pursuant to such dealership contracts during the first
six months
of fiscal 201
8
and 201
7
, respectively.
During the first
six months
of fiscal 201
8,
a subsidiary of ours
held
a
junio
r unsecured note of SAC Holding Corporation
.
We
do not have an equity ownership interest in SAC Holding
Corporation
.
We
recorded interest income
of
$2.4 million and
$
2.5
million and received cash interest payments of
$2.2 million and
$
2.3
million from SAC
Holding
Corporation
for
the first
six months
of fiscal 201
8
and 201
7, respectively
. The largest aggregate amount of
the
note receivable outstanding during the first
six months
of fiscal 201
8
was $
48.1
million and the aggregate note receivable balance at
September 30, 2017
was
$47.5
million. In accordance with the terms of th
is
note, SAC Holding
Corporation
may prepay the notes without penalty or premium at any
time.
We are currently negotiating to extend this note. The scheduled maturity
of th
is
note
is
2017.
These agreements along with
a
note with subsidiaries of
Blackwater,
excluding Dealer Agreements, provided revenues of $
14.8
million, expenses of
$
1.4
million and cash flows of $
13.7
million during the first six months of fiscal 201
8
. Revenues and commission expenses related to the Dealer Agreements were $
155.2
million and $
33.4
million, respectively during the first six months of fiscal 201
8
.
Fiscal 201
8
Outlook
We will continue to focus our attention on increasing transaction volume and improving pricing, product and utilization 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 unforeseen events including
adverse economic conditions
or heightened competition
that
is
beyond our control.
W
ith respect to our storage business, 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 will 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 adjusting 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 Disclosures
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 agreements 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 credit risk should these counterparties not be able to perform on their obligations.
Following is a summary of our interest rate swap agreements at September 30, 2017:
|
Notional Amount
|
|
|
Fair Value
|
|
Effective Date
|
|
Expiration Date
|
|
Fixed Rate
|
|
Floating Rate
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
$
|
63,055
|
|
$
|
(2,273)
|
|
8/18/2006
|
|
8/10/2018
|
|
5.43%
|
|
1 Month LIBOR
|
|
8,438
|
(a)
|
|
(54)
|
|
6/1/2011
|
|
6/1/2018
|
|
2.38%
|
|
1 Month LIBOR
|
|
17,292
|
(a)
|
|
(60)
|
|
8/15/2011
|
|
8/15/2018
|
|
1.86%
|
|
1 Month LIBOR
|
|
6,800
|
(a)
|
|
(19)
|
|
9/12/2011
|
|
9/10/2018
|
|
1.75%
|
|
1 Month LIBOR
|
|
6,989
|
(b)
|
|
9
|
|
3/28/2012
|
|
3/28/2019
|
|
1.42%
|
|
1 Month LIBOR
|
|
9,479
|
|
|
32
|
|
4/16/2012
|
|
4/1/2019
|
|
1.28%
|
|
1 Month LIBOR
|
|
18,113
|
|
|
198
|
|
1/15/2013
|
|
12/15/2019
|
|
1.07%
|
|
1 Month LIBOR
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(a) forward swap
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(b) operating lease
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As of
September 30, 2017
,
we
had $
700.2
million of variable rate debt obligations
and $7.0 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
$
5.8
million
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 rate 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
as
compared to the characteristics of the
supporting
assets
.
Management uses these outcomes to
determin
e
an asset allocation strategy for future investments that management believe
s
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 4.9% and 4.8%
of our revenue was generated in Canada during the first
six months
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 foreign 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 make 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, as 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
,
plans
and strategies,
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, and
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 replacement 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 equipment 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 resources 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-looking 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 include, 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 ability 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 Holding Corporation; fluctuations in quarterly results and seasonality; changes in, and our compliance 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 attract, 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, 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 obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise
, except as required by law
.
Item 4.
Controls and Procedures
Attached as exhibits to this
Quarterly Report
are certifications 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 evaluation 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 submitted
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 accumulated 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
Our
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 only 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. Further, 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.
Change
s
in Internal Control
O
ver Financial Reporting
There ha
ve
not been any change
s
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 ha
ve
materially affected, or
are
reasonably likely to materially affect,
our
internal control over financial reporting.
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 Curren
t
Report on Form 8-K, filed on June 9, 2016, file no. 1-11255
|
3.2
|
Restated By
l
aws of AMERCO
|
Incorporated by reference to AMERCO’s Curren
t
Report on Form 8-K, filed on September 5, 2013, file no. 1-11255
|
4.1
|
Thirty-First Supplemental Indenture and Pledge and Security Agreement dated October 24, 2017, by and between AMERCO and U.S. Bank National Association, as trustee
|
Incorporated by reference to AMERCO’s Current
R
eport on Form 8-K, filed on October 25, 2017, file no. 1-11255
|
10.1
|
Credit Agreement, dated as of September 1, 2017, by and among AMERCO, as the Borrower, Bank of America, N.A., as Agent for all the lenders, and the financial institutions party thereto from time to time, as Lenders.
|
Incorporated by reference to AMERCO’s Current Report on Form 8-K, filed on Septem
b
er 7, 2017, 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
|