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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________ to __________________
Commission File Number 001-11255
State or other jurisdiction of
incorporation or organization
Registrant, State of Incorporation,
Address and Telephone Number
I.R.S. Employer
Identification No.
Nevada
88-0106815
U-Haul Holding Company
(A Nevada Corporation)
5555 Kietzke Lane Suite 100
Reno, Nevada 89511
Telephone (775) 688-6300
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.25 par value
UHAL
New York Stock Exchange
Series N Non-Voting Common Stock, $0.001 par value
UHAL.B
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
19,607,788 shares of Common Stock, $0.25 par value, were outstanding as of February 2, 2024.
176,470,092 shares of Series N Non-Voting Common Stock, $0.001 par value, were outstanding as of February 2, 2024.
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements
1
a) Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023 (unaudited)
b) Consolidated Statements of Operations for the Quarters Ended December 31, 2023 and 2022 (unaudited)
2
c) Consolidated Statements of Operations for the Nine Months Ended December 31, 2023 and 2022 (unaudited)
3
d) Consolidated Statements of Comprehensive Income (Loss) for the Quarters and Nine Months Ended December 31, 2023 and 2022 (unaudited)
4
e) Consolidated Statements of Changes in Stockholders’ Equity for the Quarters Ended December 31, 2023 and 2022 (unaudited)
5
f) Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended December 31, 2023 and 2022 (unaudited)
6
g) Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2023 and 2022 (unaudited)
7
h) Notes to Consolidated Financial Statements (unaudited)
8
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
74
Item 4.
Controls and Procedures
76
PART II OTHER INFORMATION
Legal Proceedings
77
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
78
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Part i Financial information
Item 1. Financial Statements
U-HAUL HOLDING COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED balance sheets
December 31,
March 31,
2023
(Unaudited)
(In thousands, except share data)
ASSETS
Cash and cash equivalents
$
1,805,976
2,060,524
Trade receivables and reinsurance recoverables, net
195,930
189,498
Inventories and parts
155,161
151,474
Prepaid expenses
240,525
241,711
Fixed maturity securities available-for-sale (net of allowance for credit loss of $1,704 and $2,101, respectively) at fair market value and amortized cost ($2,816,481 and $3,006,587, respectively)
2,474,624
2,709,037
Equity securities, at estimated fair value
59,675
61,357
Investments, other
660,253
575,540
Deferred policy acquisition costs, net
120,834
128,463
Other assets
52,807
51,052
Right of use assets - financing, net
326,244
474,765
Right of use assets - operating, net
65,361
58,917
Related party assets
48,766
48,308
6,206,156
6,750,646
Property, plant and equipment, at cost:
Land
1,649,346
1,537,206
Buildings and improvements
7,943,232
7,088,810
Furniture and equipment
983,683
928,241
Rental trailers and other rental equipment
927,038
827,696
Rental trucks
6,183,293
5,278,340
17,686,592
15,660,293
Less: Accumulated depreciation
(4,890,172
)
(4,310,205
Total property, plant and equipment, net
12,796,420
11,350,088
Total assets
19,002,576
18,100,734
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses
729,344
761,039
Notes, loans and finance leases payable, net
6,437,309
6,108,042
Operating lease liabilities
64,542
58,373
Policy benefits and losses, claims and loss expenses payable
838,945
880,202
Liabilities from investment contracts
2,363,143
2,398,884
Other policyholders' funds and liabilities
8,012
8,232
Deferred income
45,711
52,282
Deferred income taxes, net
1,427,769
1,329,489
Total liabilities
11,914,775
11,596,543
Commitments and contingencies (notes 4 and 9)
Stockholders' equity:
Series preferred stock, with or without par value, 50,000,000 shares authorized: Series A preferred stock, with no par value, 6,100,000 shares authorized; 6,100,000 shares issued and none outstanding
—
Series B preferred stock, with no par value, 100,000 shares authorized; none issued and outstanding
Serial common stock, with or without par value, 250,000,000 shares authorized: Serial common stock of $0.25 par value, 10,000,000 shares authorized; none issued and outstanding
Common stock, with $0.25 par value, 250,000,000 shares authorized: Common stock of $0.25 par value, 250,000,000 shares authorized; 41,985,700 issued and 19,607,788 outstanding
10,497
Series N Non-Voting Common Stock with $0.001 par value, 250,000,000 shares authorized Series N Non-Voting Common Stock, with $0.001 par value, 250,000,000 shares authorized; 176,470,092 shares issued and outstanding
176
Additional paid-in capital
453,643
Accumulated other comprehensive loss
(308,642
(285,623
Retained earnings
7,609,777
7,003,148
Cost of common stock in treasury, net (22,377,912 shares)
(525,653
Cost of preferred stock in treasury, net (6,100,000 shares)
(151,997
Total stockholders' equity
7,087,801
6,504,191
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED Statements of operations
Quarter ended December 31,
2022
(In thousands, except share and per share amounts)
Revenues:
Self-moving equipment rental revenues
839,801
898,819
Self-storage revenues
210,517
190,483
Self-moving and self-storage products and service sales
70,344
74,851
Property management fees
10,138
10,080
Life insurance premiums
22,574
24,399
Property and casualty insurance premiums
26,490
26,852
Net investment and interest income
57,457
52,294
Other revenue
102,193
97,558
Total revenues
1,339,514
1,375,336
Costs and expenses:
Operating expenses
770,405
733,469
Commission expenses
87,955
95,980
Cost of sales
51,536
54,616
Benefits and losses
42,495
41,764
Amortization of deferred policy acquisition costs
4,155
6,979
Lease expense
9,148
7,792
Depreciation, net of gains on disposal ($36,189 and $70,506, respectively)
173,648
113,866
Net losses on disposal of real estate
2,584
859
Total costs and expenses
1,141,926
1,055,325
Earnings from operations
197,588
320,011
Other components of net periodic benefit costs
(365
(304
Interest expense
(67,450
(59,041
Fees on early extinguishment of debt
(50
Pretax earnings
129,773
260,616
Income tax expense
(30,549
(61,764
Net earnings available to common stockholders
99,224
198,852
Basic and diluted earnings per share of Common Stock
0.46
0.98
Weighted average shares outstanding of Common Stock: Basic and diluted
19,607,788
Basic and diluted earnings per share of Series N Non-Voting Common Stock
0.51
1.02
Weighted average shares outstanding of Series N Non-Voting Common Stock: Basic and diluted
176,470,092
Related party revenues for the third quarter of fiscal 2024 and 2023, net of eliminations, were $10.1 million and $10.1 million, respectively.
Related party costs and expenses for the third quarter of fiscal 2024 and 2023, net of eliminations, were $20.4 million and $20.6 million, respectively.
Please see Note 10, Related Party Transactions, of the Notes to Consolidated Financial Statements for more information on the related party revenues and costs and expenses.
Nine months ended December 31,
(In thousands, except shareand per share amounts)
2,908,412
3,151,619
618,368
549,246
262,787
281,066
28,582
28,496
68,203
75,636
72,383
72,542
186,787
116,376
384,160
401,059
4,529,682
4,676,040
2,368,904
2,278,230
306,843
339,814
188,831
206,912
130,392
121,033
19,026
21,623
25,181
22,951
Depreciation, net of gains on disposal ($138,653 and $199,196, respectively)
465,584
344,980
5,320
5,038
3,510,081
3,340,581
1,019,601
1,335,459
(1,094
(912
(191,991
(166,033
(1,009
826,516
1,167,505
(196,946
(280,442
629,570
887,063
Basic and diluted earnings per common share
3.09
5.39
Weighted average common shares outstanding: Basic and diluted
3.22
4.43
Related party revenues for the first nine months of fiscal 2024 and 2023, net of eliminations, were $28.6 million and $28.5 million, respectively.
Related party costs and expenses for the first nine months of fiscal 2024 and 2023, net of eliminations, were $69.7 million and $73.1 million, respectively.
consolidatED statements of COMPREHENSIVE INCOME (loss)
Quarter ended December 31, 2023
Pre-tax
Tax
Net
(In thousands)
Comprehensive income:
Net earnings
Other comprehensive income (loss):
Foreign currency translation
5,268
Unrealized net loss on investments and future policy benefits discount rate remeasurement gains (losses)
(41,618
8,833
(32,785
Change in fair value of cash flow hedges
(5,769
1,417
(4,352
Amounts reclassified into earnings on hedging activities
(1,471
362
(1,109
Total other comprehensive income (loss)
(43,590
10,612
(32,978
Total comprehensive income (loss)
86,183
(19,937
66,246
Quarter ended December 31, 2022
(215
(75,876
16,082
(59,794
153
(38
115
(456
111
(345
(76,394
16,155
(60,239
184,222
(45,609
138,613
Nine months ended December 31, 2023
2,888
(32,942
7,204
(25,738
3,742
(919
2,823
(3,966
974
(2,992
(30,278
7,259
(23,019
796,238
(189,687
606,551
Nine months ended December 31, 2022
(757
(386,758
82,138
(304,620
8,659
(2,127
6,532
134
(33
101
(378,722
79,978
(298,744
788,783
(200,464
588,319
U-Haul Holding Company and consolidated subsidiaries
consolidated statements of changes in stockholders’ equity
Common Stock
Series N Non-Voting Common Stock
Additional Paid-In Capital
Accumulated Other ComprehensiveIncome (Loss)
Retained Earnings
Less: Treasury Common Stock
Less: Treasury Preferred Stock
Total Stockholders' Equity
Balance as of September 30, 2023
(275,664
7,519,376
7,030,378
Unrealized net loss on investments and future policy benefits discount rate remeasurement gains (losses), net of tax
Change in fair value of cash flow hedges, net of tax
Series N Non-Voting Common Stock dividends: ($0.05 per share)
(8,823
Net activity
90,401
57,423
Balance as of December 31, 2023
Balance as of September 30, 2022
453,819
(243,497
6,781,004
6,324,173
Common stock dividend
(176
Series N Non-Voting Common stock dividends: ($0.04 per share)
(7,059
191,793
131,554
Balance as of December 31, 2022
(303,736
6,972,797
6,455,727
Balance as of March 31, 2023
Series N Non-Voting Common Stock dividends: ($0.13)
(22,941
606,629
583,610
Balance as of March 31, 2022
(4,992
6,112,401
5,894,075
Common stock dividends: ($1.00 per share)
(19,608
860,396
561,652
U-Haul holding company AND CONSOLIDATED subsidiaries
consolidatED statements of cash flows
Cash flows from operating activities:
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation
604,237
544,176
Amortization of premiums and accretion of discounts related to investments, net
12,905
15,232
Amortization of debt issuance costs
5,295
5,694
Interest credited to policyholders
52,099
39,048
Provision for allowance (recoveries) for losses on trade receivables, net
1,155
(4,617
Non cash lease expense
11,338
16,417
Net gains on disposal of personal property
(138,653
(199,196
Net (gains) losses on sales of investments
(662
8,695
Net (gains) losses on equity securities
(174
10,906
Deferred income taxes
101,999
121,707
Net change in other operating assets and liabilities:
Trade receivables and reinsurance recoverables
(7,217
25,853
Inventories and parts, net
(3,698
8,673
1,509
7,867
7,629
1,217
(20,627
(13,734
(1,073
(26,775
Accounts payable and accrued expenses and operating lease liabilities
14,216
62,430
(29,719
1,688
866
1,767
(7,046
(2,168
Related party liabilities
774
(1,301
Net cash provided by operating activities
1,240,043
1,515,680
Cash flows from investing activities:
Escrow deposits
1,045
159
Purchases of:
Property, plant and equipment
(2,400,949
(2,076,424
Fixed maturity securities available-for-sale
(270,383
(491,431
Equity securities
(519
(4,828
(132,963
(205,672
Proceeds from sales and paydowns of:
598,170
533,595
447,489
148,290
1,187
46,800
223,354
Net cash used in investing activities
(1,709,893
(1,871,770
Cash flows from financing activities:
Borrowings from credit facilities
1,037,082
975,966
Principal repayments on credit facilities
(625,067
(695,321
Payment of debt issuance costs
(4,072
(4,962
Finance lease payments
(86,166
(95,290
Securitization deposits
236
137
Common Stock dividends paid
Series N Non-Voting Common Stock dividends paid
Investment contract deposits
214,312
258,157
Investment contract withdrawals
(302,150
(236,742
Net cash provided by financing activities
211,234
175,278
Effects of exchange rate on cash
4,068
(12,706
Decrease in cash and cash equivalents
(254,548
(193,518
Cash and cash equivalents at the beginning of period
2,704,137
Cash and cash equivalents at the end of period
2,510,619
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
U-Haul Holding Company, a Nevada corporation (“U-Haul Holding Company”), has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. We believe that consolidating their calendar year into our fiscal year financial statements does not materially affect the presentation of consolidated financial position or consolidated results of operations. We disclose material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2023 and 2022 correspond to fiscal 2024 and 2023 for U-Haul Holding Company.
Accounts denominated in non-U.S. currencies have been translated into U.S. dollars.
The accompanying interim consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with the accounting principles generally accepted in the United States of America (“GAAP”). Interim results are not necessarily indicative of full year performance. Except for balances affected by the adoption of Accounting Standards Update (“ASU”) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”) noted below, the year-end consolidated balance sheet data was derived from audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, which include all disclosures required by GAAP. Compared to the consolidated annual financial statements, certain footnotes within the accompanying interim consolidated financial statements have been condensed. Therefore, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
In our opinion, all adjustments necessary for the fair presentation of such consolidated financial statements have been included. Such adjustments consist only of normal recurring items.
Intercompany accounts and transactions have been eliminated.
The Company has reclassified certain prior period amounts to conform with the current period presentation on the Consolidated Balance Sheets related to equity securities, at estimated fair value and fixed maturity securities available-for-sale net of allowance for credit loss, at estimated fair market value and amortized cost which was previously reported in investments, fixed maturities and marketable equities. The Company has reclassified certain prior period amounts to conform with the current period presentation on the Consolidated Statements of Cash Flows related to (1) amortization of deferred policy acquisition costs which was previously reported separately and is now included in deferred policy acquisition costs, net, (2) provision for allowance for inventories and parts reserves which was previously reported separately and is now included in inventories and parts, net, (3) purchases of short term investments, real estate, and mortgage loans which were previously reported separately and are now included in investments, other, (4) non-cash lease expense which was previously reported in other assets.
Income Tax
Tax regulations may require items to be included in our tax return at different times than when those items are reflected in our financial statements. Some of the differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as the timing of depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deduction or credit in our tax return in future years, which we have already recorded in our financial statements. Deferred tax liabilities generally represent deductions taken on our tax return that have not yet been recognized as an expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is more likely than not to allow for the use of the deduction credit. Our effective tax rates for
the nine months ended December 31, 2023 and 2022 was a provision of 23.8% and 24.1%, respectively. Such rates differed from the federal statutory rate of 21.0% primarily due to state and local income taxes for both periods. Income taxes paid in cash was $51.6 million for the nine months ended December 31, 2023.
Description of Legal Entities
U-Haul Holding Company is the holding company for:
U-Haul International, Inc. (“U-Haul”);
Amerco Real Estate Company (“Real Estate”);
Repwest Insurance Company (“Repwest”); and
Oxford Life Insurance Company (“Oxford”).
Unless the context otherwise requires, the terms “Company,” “we,” “us” or “our” refer to U-Haul Holding Company and all of its legal subsidiaries.
Description of Operating Segments
U-Haul Holding Company has three (3) reportable segments. They are Moving and Storage, Property and Casualty Insurance and Life Insurance.
The Moving and Storage operating segment (“Moving and Storage”) includes U-Haul Holding Company, U-Haul and Real Estate and the wholly owned subsidiaries of U-Haul and Real Estate. Operations consist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane, and the rental of fixed and portable moving and storage units to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
The Property and Casualty Insurance operating segment (“Property and Casualty Insurance”) includes Repwest and its wholly owned subsidiaries and ARCOA Risk Retention Group (“ARCOA”). Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul® through regional offices in the United States and Canada. Property and Casualty Insurance also underwrites components of the Safemove®, Safetow®, Safemove Plus®, Safestor® and Safestor Mobile® protection packages to U-Haul customers. The business plan for Property and Casualty Insurance includes offering property and casualty insurance products in other U-Haul-related programs. ARCOA is a group captive insurer owned by us and our wholly owned subsidiaries whose purpose is to provide insurance products related to our moving and storage business.
The Life Insurance operating segment (“Life Insurance”) includes Oxford and its wholly owned subsidiaries. Life Insurance provides life and health insurance products primarily to the senior market through the direct writing and reinsuring of life insurance, Medicare supplement and annuity policies.
Accounting Policy Updates:
The following accounting policies were updated since the filing of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 due to the adoption of ASU 2018-12. Please refer to Note 17, Accounting Pronouncements for additional information on the financial statement impacts related to the adoption of this standard.
Deferred Policy Acquisition Costs
Certain costs of acquiring new insurance business are deferred and recorded as an asset. These costs are capitalized on a grouped contract basis and amortized over the expected term of the related contracts and are essential for the acquisition of new insurance business. These costs are not capitalized until they are incurred. Deferred acquisition costs (“DAC“) are directly related to the successful issuance of an insurance contract, and primarily include sales commissions, policy issue costs, direct to consumer advertising costs, and underwriting costs. Also recorded within DAC are sales inducements credited to policyholder account balances. Additionally, DAC includes the value of business acquired (“VOBA“), which are the costs of acquiring blocks of insurance from other companies or through the acquisition of other
9
companies. These costs represent the difference between the fair value of the contractual insurance assets acquired and liabilities assumed, compared against the assets and liabilities for insurance contracts that the Company issues or holds measured in accordance with GAAP.
DAC is amortized on a constant-level basis over the expected term of the grouped contracts, with the related expense included in amortization of deferred acquisition costs. The in-force metric used to compute the DAC amortization rate is premium deposit in-force for deferred annuities, policy count in-force for health insurance, and face amount in-force for life insurance. The assumptions used to amortize acquisition costs include mortality, morbidity, and persistency. These assumptions are reviewed at least annually and revised in conjunction with any change in the future policy benefit assumptions. The effect of changes in the assumptions are recognized over the remaining expected contract term as a revision of future amortization amounts.
Policy Benefits and Losses, Claims and Loss Expenses Payable
The liability for future policy benefits for traditional and limited-payment long duration life and health products comprises approximately $373.1 million of the total liability for future policy benefits of consolidated Policy Benefits and Losses, Claims and Loss Expenses Payable. The liability is determined each reporting period based on the net level premium method. This method requires the liability for future policy benefits be calculated as the present value of estimated future policyholder benefits and the related termination expenses, less the present value of estimated future net premiums to be collected from policyholders. Net level premiums reflect a recomputed net premium ratio using actual experience since the issue date or the Transition Date of April 1, 2021 and expected future experience. The liability is accrued as premium revenue and is recognized and adjusted for differences between actual and expected experience. Long-duration insurance contracts issued by the Company are grouped into cohorts based on the contract issue year, distribution channel, legal entity and product type.
Both the present value of expected future benefit payments and the present value of expected future net premiums are based primarily on assumptions of discount rates, mortality, morbidity, lapse, and persistency. Each quarter, the Company remeasures its liability for future policy benefits using current discount rates with the effect of the change recognized in Other Comprehensive Income, a component of stockholders’ equity. In addition, the Company recognizes a liability remeasurement gain or using original discount rates, and relating to actual experience under the net premium calculation, as compared to the prior reporting period expected cash flows.
The Company reviews, and updates as necessary, its cash flow assumptions (mortality, morbidity, lapses and persistency) used to calculate the change in the liability for future policy benefits at least annually. These cash flow assumptions are reviewed at the same time every year, or more frequently, if suggested by experience. If cash flow assumptions are changed, the net premium ratio is recalculated from the original issue date, or the Transition Date, using actual experience and projected future cash flows. When the expected future net premiums exceed the expected future gross premiums, or the present value of future policyholder benefits exceeds the present value of expected future gross premiums, the liability for future policy benefits is adjusted with changes recognized in policyholder benefits. The cash flow assumptions do not include an adjustment for adverse deviation. Mortality tables used for individual life insurance include various industry tables and reflect modifications based on Company experience. Morbidity assumptions for individual health are based on Company experience and industry data. Lapse and persistency assumptions are based on Company experience.
The liability for future policy benefits is discounted as noted above, using a current upper-medium grade fixed-income instrument yield that reflects the duration characteristics of the liability for future policy benefits. The methodology for determining current discount rates consists of constructing a discount rate curve intended to be reflective of the currency and tenor of the insurance liability cash flows. The methodology is designed to prioritize observable inputs based on market data available in the local debt markets denominated in the same currency as the policies. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company will
10
use estimation techniques consistent with the fair value guidance in Accounting Standards Codification (“ASC“) 820, Fair Value Measurement. We further accrete interest as a component of policyholder benefits using the original discount rate that is locked-in during the year of contract issuance. The original discount rates (or the locked-in discount rates) are used for interest accretion purposes and for the determination of net premiums, whereas the current discount rates are used for purposes of valuing the liability.
The liability for future policy benefits for annuity and interest sensitive life-type products is represented by policy account value. For limited-payment contracts, a deferred profit liability is also recorded, with changes recognized in income over the life of the contract in proportion to the amount of insurance in-force.
Liability from Investment Contracts
Liability from Investment Contracts represents the amount held by the Company on behalf of the policyholder at each reporting date. This amount includes deposits received from the policyholder, interest credited to the policyholder's account balance, net of charges assessed against the account balance and any policyholder withdrawals. This balance also includes liabilities for annuities and certain other contracts that do not contain significant insurance risk, as well as the estimated fair value of embedded derivatives associated with indexed annuity products.
2. Earnings per Share
We calculate earnings per share using the two-class method in accordance with ASC Topic 260, Earnings Per Share. The two-class method allocates the undistributed earnings available to common stockholders to the Company’s outstanding common stock, $0.25 par value (the “Voting Common Stock”), and the Series N Non-Voting Common Stock, $0.001 par value (the “Non-Voting Common Stock”), based on each share’s percentage of total weighted average shares outstanding. The Voting Common Stock and Non-Voting Common Stock are allocated 10% and 90%, respectively, of our undistributed earnings available to common stockholders. This represents earnings available to common stockholders less the dividends declared for both the Voting Common Stock and Non-Voting Common Stock.
Our undistributed earnings per share is calculated by taking the undistributed earnings available to common stockholders and dividing this number by the weighted average shares outstanding for the respective stock. If there was a dividend declared for that period, the dividend per share is added to the undistributed earnings per share to calculate the basic and diluted earnings per share. The process is used for both Voting Common Stock and Non-Voting Common Stock.
The calculation of basic and diluted earnings per share for the quarters ended December 31, 2023 and 2022 for our Voting Common Stock and Non-Voting Common Stock were as follows:
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For the Quarters Ended
Weighted average shares outstanding of Voting Common Stock
Total weighted average shares outstanding for Voting Common Stock and Non-Voting Common Stock
196,077,880
Percent of weighted average shares outstanding of Voting Common Stock
%
Voting Common Stock dividends declared and paid
Non-Voting Common Stock dividends declared and paid
Undistributed earnings available to common stockholders
Undistributed earnings available to common stockholders allocated to Voting Common Stock
9,040
19,179
Undistributed earnings per share of Voting Common Stock
Dividends declared per share of Voting Common Stock
Basic and diluted earnings per share of Voting Common Stock
Weighted average shares outstanding of Non-Voting Common Stock
Percent of weighted average shares outstanding of Non-Voting Common Stock
90
Undistributed earnings available to common stockholders allocated to Non-Voting Common Stock
81,361
172,614
Undistributed earnings per share of Non-Voting Common Stock
Dividends declared per share of Non-Voting Common Stock
0.05
0.04
Basic and diluted earnings per share of Non-Voting Common Stock
12
The calculation of basic and diluted earnings per share for the nine months ended December 31, 2023 and 2022 for our Voting Common Stock and Non-Voting Common Stock were as follows:
Nine months ended
60,663
86,040
4.39
1.00
545,966
774,356
0.13
3. Investments
We deposit bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $22.5 million and $23.4 million as of December 31, 2023 and March 31, 2023, respectively.
Available-for-Sale Investments
Available-for-sale investments as of December 31, 2023 were as follows:
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance for Expected Credit Losses
Fair Value
U.S. treasury securities and government obligations
319,497
2,471
(13,023
308,945
U.S. government agency mortgage-backed securities
68,501
149
(8,353
60,297
Obligations of states and political subdivisions
154,660
102
(16,060
138,702
Corporate securities
1,943,321
524
(247,483
(1,704
1,694,658
Mortgage-backed securities
330,502
(58,492
272,022
2,816,481
3,258
(343,411
13
Available-for-sale investments as of March 31, 2023 were as follows:
353,189
3,061
(11,574
344,676
34,126
40
(6,935
27,231
161,960
649
(12,104
150,505
2,086,432
1,491
(216,589
(2,101
1,869,233
370,880
(53,566
317,392
3,006,587
5,319
(300,768
A summary of available-for-sale investments with unrealized losses for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position as of December 31, 2023 and March 31, 2023 are as follows:
December 31, 2023
Less than or equal to 1 year
Greater than 1 year
Total
Unrealized Losses
6,825
(66
122,372
(12,957
129,197
6,009
(52
31,756
(8,301
37,765
59,216
(3,367
82,845
(12,693
142,061
213,617
(9,277
1,682,378
(238,206
1,895,995
16,987
(486
310,288
(58,006
327,275
302,654
(13,248
2,229,639
(330,163
2,532,293
March 31, 2023
79,846
(3,935
44,374
(7,639
124,220
2,246
(228
30,670
(6,707
32,916
108,192
(8,090
17,079
(4,014
125,271
1,697,611
(158,038
272,256
(58,551
1,969,867
201,962
(13,207
158,899
(40,359
360,861
2,089,857
(183,498
523,278
(117,270
2,613,135
Gross proceeds from matured or redeemed securities were $58.5 million and $448.9 million for the three and nine months ended December 31, 2023, respectively, and $42.1 million and $147.6 million for the three and nine months ended December 31, 2022. Included in the December 31, 2023 proceeds was $225.0 from the Moving and Storage Treasuries that matured. The gross realized gains on these sales totaled $1.5 million and $1.1 million during the first nine months of fiscal 2024 and 2023, respectively. The gross realized losses on these sales totaled $1.1 million and $0.5 million during the first nine months of fiscal 2024 and 2023, respectively.
For available-for-sale debt securities in an unrealized loss position, we first assess whether the security is below investment grade. For securities that are below investment grade, we evaluate whether the decline in fair value has resulted from credit losses or other factors such as the interest rate environment. Declines in value due to credit are recognized as an allowance. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse market conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, cumulative default rates based on ratings are used to
14
determine the potential cost of default, by year. The present value of these potential costs is then compared to the amortized cost of the security to determine the credit loss, limited by the amount that the fair value is less than the amortized cost basis.
Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through accumulated other comprehensive income, net of applicable taxes. If we intend to sell a security, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the security is written down to its fair value and the write down is charged against the allowance for credit losses, with any incremental impairment reported in earnings. Reversals of the allowance for credit losses are permitted and should not exceed the allowance amount initially recognized.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. There was a $0.4 million and $2.2 million net impairment charge recorded in the first nine months ended December 31, 2023 and 2022, respectively.
Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The adjusted cost and fair value of available-for-sale investments by contractual maturity were as follows:
Due in one year or less
323,343
323,638
354,875
354,184
Due after one year through five years
744,486
705,900
754,175
717,552
Due after five years through ten years
650,412
566,624
736,089
665,708
Due after ten years
767,738
606,440
790,568
654,201
2,485,979
2,202,602
2,635,707
2,391,645
Equity investments of common stock and non-redeemable preferred stock were as follows:
Common stocks
29,594
39,534
29,577
39,375
Non-redeemable preferred stocks
25,144
20,141
26,054
21,982
54,738
55,631
15
The carrying value of the other investments was as follows:
Mortgage loans, net
567,784
466,531
Short-term investments
993
15,921
Real estate
65,836
72,178
Policy loans
11,155
10,921
Other equity investments
14,485
9,989
4. Notes, Loans and Finance Leases Payable, net
Long Term Debt
Long term debt was as follows:
Fiscal Year 2024 Interest Rates
Maturities
Weighted Avg Interest Rates (c)
March 31,2023
Real estate loans (amortizing term) (a)
4.30
-
6.82
2027
2037
5.90
280,737
289,647
Senior mortgages
2.70
5.66
2024
2042
4.19
2,435,443
2,371,231
Real estate loans (revolving credit)
Fleet loans (amortizing term)
1.61
5.68
2029
3.79
79,874
111,856
Fleet loans (revolving credit) (b)
2.36
6.70
2026
2028
6.24
605,000
615,000
Finance leases (rental equipment)
2.49
5.01
4.06
137,039
223,205
Finance liabilities (rental equipment)
1.60
6.48
2031
4.60
1,660,443
1,255,763
Private placements
2.43
2.88
2035
2.65
1,200,000
Other obligations
1.50
8.00
2049
6.16
72,869
76,648
Notes, loans and finance leases payable
6,471,405
6,143,350
Less: Debt issuance costs
(34,096
(35,308
Total notes, loans and finance leases payable, net
(a) Certain loans have interest rate swaps fixing the rate for the relevant loans between 2.72% and 2.86% based on current margin. The weighted average interest rate calculation for these loans was 4.10% using the swap adjusted interest rate.
(b) A loan has an interest rate swap fixing the rate $100 million of the relevant loan at 4.71% based on current margin. The weighted average interest rate calculation for these loans was 6.13% using the swap adjusted interest rate.
(c) Weighted average rates as of December 31, 2023.
Annual Maturities of Notes, Loans and Finance Leases Payable
The annual maturities of our notes, loans and finance leases payable, before debt issuance costs, as of December 31, 2023 for the next five years and thereafter are as follows:
Year Ending December 31,
2025
Thereafter
666,155
546,192
941,575
955,008
500,139
2,862,336
16
Interest on Borrowings
Interest Expense
Components of interest expense included the following:
71,061
60,978
Capitalized interest
(4,006
(3,818
Amortization of transaction costs
1,868
2,336
Interest expense resulting from cash flow hedges
(1,473
(455
Total interest expense
67,450
59,041
202,985
168,987
(11,738
(8,684
4,711
5,596
(3,967
191,991
166,033
Interest paid in cash was $61.8 million and $51.3 million for the third quarter of fiscal 2024 and 2023, respectively, and $191.4 million and $156.8 million for the first nine months of fiscal 2024 and 2023, respectively. Interest paid (received) in cash on derivative contracts was ($1.5) million and $0.0 million for the third quarter of fiscal 2024 and 2023, respectively. Interest paid (received) in cash on derivative contracts was ($3.8) million and $0.6 million for the first nine months of fiscal 2024 and 2023, respectively.
Interest Rates
Interest rates and Company borrowings related to our revolving credit facilities were as follows:
Revolving Credit Activity
(In thousands, except interest rates)
Weighted average interest rate during the quarter
6.64
4.68
Interest rate at the end of the quarter
6.63
5.28
Maximum amount outstanding during the quarter
710,000
765,000
Average amount outstanding during the quarter
669,372
710,109
Facility fees
259
270
17
Weighted average interest rate during the period
6.47
3.34
Interest rate at the end of the period
Maximum amount outstanding during the period
715,000
1,105,000
Average amount outstanding during the period
641,941
892,680
830
439
5. Derivatives
Cash Flow Hedges
We manage exposure to changes in market interest rates. We use interest rate swap agreements and forward swaps to reduce our exposure to changes in interest rates. Our use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in secured overnight financing rate ("SOFR") swap rates with the designated benchmark interest rate being hedged on certain of our SOFR indexed variable rate debt. The interest rate swaps effectively fix our interest payments on certain SOFR indexed variable rate debt through July 2032. We monitor our positions and the credit ratings of our counterparties and do not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes. These fair 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 in the fair value hierarchy.
The derivative fair values reflected in prepaid expense in the consolidated balance sheet were as follows:
Derivatives Fair Values as of
Interest rate swaps designated as cash flow hedges:
Assets
5,086
5,311
Notional amount
299,987
206,347
(Gains) or losses recognized in income on interest rate derivatives are recorded as interest expense in the consolidated statements of operations. During the first nine months of fiscal 2024 and 2023, we recognized an increase in the fair value of our cash flow hedges of $2.8 million and $6.5 million, respectively, net of taxes. During the first nine months of fiscal 2024 and 2023, we reclassified ($3.0) million and $0.1 million, respectively, from accumulated other comprehensive income (loss) (“AOCI”) to interest expense, net of tax. As of December 31, 2023, we expect to reclassify $5.7 million of net gains on interest rate contracts from AOCI to earnings as interest expense over the next twelve months.
Economic Hedges
We use derivatives to economically hedge our equity market exposure to indexed annuity products sold by our Life Insurance company. These contracts earn a return for the contract holder based on the change in the value of the S&P 500 index between annual index point dates. We buy and sell listed equity and index call options and call option spreads. The credit risk is with the party in which the options are written. The net option price is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair value on our balance sheet. These derivative instruments are included in Investments, other on the consolidated balance sheets. The fair values of these call options are determined based on quoted market prices from the relevant exchange and are classified as Level 1 in the
18
fair value hierarchy. Net (gains) losses recognized in net investment and interest income for the first nine months of December 31, 2023 and 2022 were ($4.6) million and $9.2 million, respectively.
Equity market contracts as economic hedging instruments:
8,795
4,295
535,537
465,701
Although the call options are employed to be effective hedges against our policyholder obligations from an economic standpoint, they do not meet the requirements for hedge accounting under GAAP. Accordingly, the changes in fair value of the call options are recognized each reporting date as a component of net investment and interest income. The change in fair value of the call options include the gains or losses recognized at the expiration of the option term and the changes in fair value for open contracts.
6. Accumulated Other Comprehensive Loss
The following provides the details and changes in AOCI:
ForeignCurrencyTranslation
UnrealizedNet Gains(Losses) onInvestmentsand Impactof LFPBDiscountRates
FairValue ofCash FlowHedges
PostretirementBenefitObligationNet Loss
AccumulatedOtherComprehensiveLoss
(58,919
(225,693
9,299
(351
Unrealized net loss on investments and impact of LFBP discount rates
Other comprehensive income (loss)
(5,461
(53,651
(258,478
3,838
(56,539
(232,740
4,007
(169
19
(56,299
(191,175
6,419
(2,442
(230
(56,514
(250,969
6,189
(55,757
53,651
(444
6,633
7. Stockholders’ Equity
The following table lists the dividends that have been declared and issued for the first nine months of fiscal years 2024 and 2023:
Non-Voting Common Stock Dividends
Declared Date
Per Share Amount
Record Date
Dividend Date
December 6, 2023
December 18, 2023
December 29, 2023
August 17, 2023
September 19, 2023
September 29, 2023
June 7, 2023
June 20, 2023
June 30, 2023
December 7, 2022
December 19, 2022
December 30, 2022
Common Stock Dividends
August 18, 2022
0.50
September 6, 2022
September 20, 2022
April 6, 2022
April 18, 2022
April 29, 2022
As of December 31, 2023, no awards had been issued under the 2016 AMERCO Stock Option Plan.
20
8. Leases
The following tables show the components of our right-of-use (“ROU“) assets, net:
As of December 31, 2023
Finance
Operating
145,958
1,693
114,884
692,955
Right-of-use assets, gross
809,532
955,490
(483,288
(80,597
(563,885
Right-of-use assets, net
391,605
As of March 31, 2023
128,221
9,687
152,294
949,838
1,111,819
1,240,040
(637,054
(69,304
(706,358
533,682
As of December 31, 2023 and March 31, 2023, we had finance lease liabilities for the ROU assets, net of $137.0 million and $223.2 million, respectively, included in Notes, loans and finance leases payable, net in the consolidated balance sheets.
Finance leases
Weighted average remaining lease term (years)
Weighted average discount rate
4.1
3.8
Operating leases
19.1
19.2
4.6
4.7
For the nine months ended December 31, 2023 and 2022, cash paid for leases included in our operating cash flow activities were $17.5 million and $24.0 million, respectively, and our financing cash flow activities were $86.2 million and $95.3 million, respectively. Non-cash activities of ROU assets in exchange for lease liabilities were $17.9 million and $5.1 million for the first nine months of fiscal 2024 and 2023, respectively.
21
The components of lease costs, including leases of less than 12 months, were as follows:
December 31, 2022
Operating lease costs
24,483
Finance lease cost:
Amortization of right-of-use assets
44,220
62,782
Interest on lease liabilities
5,600
8,799
Total finance lease cost
49,820
71,581
The short-term lease costs for the first nine months of fiscal 2024 and 2023 were not material.
Maturities of lease liabilities were as follows:
Year ending March 31,
2024 (3 months)
20,502
6,880
76,714
16,232
46,107
9,527
7,455
6,501
66,126
Total lease payments
143,323
112,721
Less: imputed interest
(6,284
(48,179
Present value of lease liabilities
9. Contingencies
Cybersecurity Incident
On September 9, 2022, we announced that the Company was made aware of a data security incident involving U-Haul's information technology network. U-Haul detected a compromise of two unique passwords used to access U-Haul customers' information. U-Haul took immediate steps to contain the incident and promptly enhanced its security measures to prevent any further unauthorized access. U-Haul retained cybersecurity experts and incident response counsel to investigate the incident and implement additional security safeguards. The investigation determined that between November 5, 2021 and April 8, 2022, the threat actor accessed customer contracts containing customers’ names, dates of birth, and driver’s license or state identification numbers. None of U-Haul’s financial, payment processing or email systems were involved. U-Haul has notified impacted customers and relevant governmental authorities.
Several class action lawsuits related to the incident have been filed against U-Haul. The lawsuits have been consolidated into one action in the U.S. District Court for the District of Arizona. On October 27, 2023, the Court dismissed with prejudice all claims except those brought under the California Consumer Privacy Act. The remaining claims will be vigorously defended by the Company; however, the outcome of such lawsuits cannot be predicted or guaranteed with any certainty.
22
Environmental
Compliance with environmental requirements of federal, state, provincial and local governments may affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary.
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to result in a material adverse effect on the Company’s financial position, results of operations or cash flows.
Other
We are named as a defendant in various other litigation and claims arising out of the normal course of business. In our opinion, none of these other matters will have a material effect on our financial position and results of operations.
10. Related Party Transactions
U-Haul Holding Company has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below.
SAC Holding Corporation and SAC Holding II Corporation (collectively, “SAC Holdings”) were established in order to acquire and develop self-storage properties. These properties are being managed by us pursuant to management agreements. SAC Holdings, Four SAC Self-Storage Corporation, Five SAC Self-Storage Corporation, Galaxy Investments, L.P. and 2015 SAC-Self-Storage, LLC are substantially controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly owned by Willow Grove Holdings LP, which is owned by Mark V. Shoen (a significant stockholder), and various trusts associated with Edward J. Shoen (our Chairman of the Board, President and a significant stockholder) and Mark V. Shoen.
Related Party Revenue
U-Haul management fee revenue from Blackwater
7,135
7,170
U-Haul management fee revenue from Mercury
3,003
2,910
22,585
22,726
5,997
5,770
We currently manage the self-storage properties owned or leased by Blackwater and Mercury Partners, L.P. (“Mercury”), pursuant to a standard form of management agreement, under which we receive a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. We received management fees, exclusive of reimbursed expenses, of $25.0 million and $24.9 million from the above-mentioned entities during the first nine months of fiscal 2024 and 2023, respectively. This management fee is consistent with the fee received for other properties we previously managed for third parties. Mark V. Shoen controls the general partner of Mercury. The limited partner interests of Mercury are
23
owned indirectly by James P. Shoen and various trusts benefiting Edward J. Shoen and James P. Shoen or their descendants. Mercury holds the option to purchase a portfolio of properties currently leased by Mercury and a U-Haul subsidiary; Mercury has notified W.P. Carey, the lessor, of its intent to purchase the properties.
Related Party Costs and Expenses
U-Haul lease expenses to Blackwater
604
U-Haul printing expenses to Blackwater
877
U-Haul commission expenses to Blackwater
18,946
20,016
20,427
20,620
1,812
2,194
65,684
71,283
69,690
73,095
We lease space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of Blackwater. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to us.
On May 15, 2023, SAC Holdings began providing ancillary and specialty printing services to us. The financial and other terms of the transactions are substantially identical to the terms of additional specialty printing vendors.
As of December 31, 2023, subsidiaries of Blackwater acted as independent dealers. The financial and other terms of the dealership contracts are substantially identical to the terms of those with our other independent dealers whereby commissions are paid by us based upon equipment rental revenues.
These agreements with subsidiaries of Blackwater, excluding Dealer Agreements, provided revenues of $22.6 million and $22.7 million, expenses of $1.8 million and $1.8 million and cash flows of $20.9 million and $21.0 million, respectively, during the first nine months of fiscal 2024 and 2023. Revenues were $305.2 million and $339.5 million and commission expenses were $65.7 million and $71.3 million, respectively, related to the Dealer Agreements, during the first nine months of fiscal 2024 and 2023.
We determined that we do not have a variable interest pursuant to the variable interest entity model under ASC 810, Consolidation in the holding entities of Blackwater.
Related Party Assets
U-Haul receivable from Blackwater
41,674
42,141
U-Haul receivable from Mercury
13,711
8,402
Other (a)
(6,619
(2,235
24
11. Reportable Segment Information:
U-Haul Holding Company’s three reportable segments are:
We track revenues separately, but do not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments.The information includes elimination entries necessary to consolidate U-Haul Holding Company, the parent, with its subsidiaries. Depreciation, net of gains on disposals, and total expenditures for property and equipment are only recorded within the Moving and Storage segment.
Revenues and earnings from operations before equity in earnings of subsidiaries by operating segment for the quarter ended December 31, 2023 were as follows:
Moving &StorageConsolidated
Property &CasualtyInsurance
Life Insurance
Eliminations
U-Haul HoldingCompanyConsolidated
1,260,677
29,303
52,715
(3,181
Total earnings from operations before equity in earnings of subsidiaries
180,467
9,421
8,075
(375
Revenues and earnings from operations before equity in earnings of subsidiaries by operating segment for the quarter ended December 31, 2022 were as follows:
1,296,407
28,466
52,962
(2,499
304,717
10,846
4,821
(373
25
Revenues and earnings from operations before equity in earnings of subsidiaries by operating segment for the nine months ended December 31, 2023 were as follows:
4,285,768
88,994
163,918
(8,998
968,862
36,822
15,039
(1,122
Revenues and earnings from operations before equity in earnings of subsidiaries by operating segment for the nine months ended December 31, 2022 were as follows:
4,456,863
74,911
152,761
(8,495
1,301,277
24,883
10,440
(1,141
Total assets by operating segment as of December 31, 2023 were as follows:
16,193,912
480,429
2,806,247
(478,012
Total assets by operating segment as of March 31, 2023 were as follows:
15,211,493
459,897
2,891,574
(462,230
26
12. Geographic Area Data
United States
Canada
Consolidated
(All amounts are in thousands of U.S. $'s)
1,273,821
65,693
Depreciation and amortization, net of (gains) on disposals
176,864
3,523
180,387
66,772
678
125,531
4,242
29,172
1,377
30,549
Identifiable assets
18,225,204
777,372
1,311,117
64,219
119,864
1,840
121,704
58,367
674
253,386
7,230
59,774
1,990
61,764
17,447,581
642,543
18,090,124
Nine Months Ended December 31, 2023
4,294,310
235,372
486,262
3,668
489,930
189,900
2,091
801,045
25,471
189,802
7,144
196,946
Nine Months Ended December 31, 2022
4,431,570
244,470
365,585
6,056
371,641
163,792
2,241
1,129,487
38,018
270,641
9,801
280,442
27
13. Employee Benefit Plans
The components of the net periodic benefit costs with respect to postretirement benefits were as follows:
Service cost for benefits earned during the period
297
332
Other components of net periodic benefit costs:
Interest cost on accumulated postretirement benefit
367
287
Other components
(2
Total other components of net periodic benefit costs
365
304
Net periodic postretirement benefit cost
662
636
891
995
1,102
861
(8
51
1,094
912
1,985
1,907
14. Fair Value Measurements
Certain assets and liabilities are recorded at fair value on the consolidated balance sheets and are measured and classified based upon a three-tiered approach to valuation. Financial assets and liabilities are recorded at fair value and are classified and disclosed in one of the following three categories:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for identical or similar financial instruments in markets that are not considered to be active, or similar financial instruments for which all significant inputs are observable, either directly or indirectly, or inputs other than quoted prices that are observable, or inputs that are derived principally from or corroborated by observable market data through correlation or other means; and
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and are unobservable. These reflect management’s assumptions about the assumptions a market participant would use in pricing the asset or liability.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Fair values of investments available-for-sale are based on quoted market prices, dealer quotes or discounted cash flows.
Fair values of derivatives are based on using pricing valuation models which include broker quotes.
28
The following tables represent the financial assets and liabilities on the consolidated balance sheets as of December 31, 2023 and March 31, 2023, that are measured at fair value on a recurring basis and the level within the fair value hierarchy.
Level 1
Level 2
Level 3
Fixed maturities - available for sale
217,917
2,256,648
59
Preferred stock
Common stock
Derivatives
13,881
2,548,180
286,387
2,261,734
Liabilities
Embedded derivatives
9,645
251,832
2,457,146
9,606
2,780,000
317,484
2,462,457
We estimate the fair value for financial instruments not carried at fair value using the same methods and assumptions as those we carry at fair value. The financial instruments presented below are reported at carrying value on the consolidated balance sheets.
Cash equivalents include $1,520.0 million and $1,809.4 million as of December 31, 2023 and March 31, 2023, respectively. Fair values of cash equivalents approximate carrying value due to the short period of time to maturity.
Fair values of mortgage loans and notes on real estate 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, 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 financial institutions and limit the amount of credit exposure to any one financial institution.
We have mortgage loans, which potentially expose us to credit risk. The portfolio of loans is principally collateralized by self-storage facilities and commercial properties. We have not experienced any material losses related to the loans from individual or groups of loans 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.
Other investments are substantially current or bear reasonable interest rates. As a result, the carrying values of these financial instruments approximate fair value.
The following represents our financial instruments not carried at fair value on the consolidated balance sheets and corresponding placement in the fair value hierarchy.
29
Fair Value Hierarchy
Carrying
Value
Trade receivables, net
154,846
531,880
Other investments
83,674
806,304
770,400
6,051,219
146,736
444,957
109,009
722,276
700,702
5,710,735
15. Revenue Recognition
Revenue Recognized in Accordance with Topic 606
ASC Topic 606, Revenue from Contracts with Customers (Topic 606), outlines a five-step model for entities to use in accounting for revenue arising from contracts with customers. The standard applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The standard also requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments.
We enter into contracts that may include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of amounts collected from customers for taxes, such as sales tax, and remitted to the applicable taxing authorities. We account for a contract under Topic 606 when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For contracts scoped into this standard, revenue is recognized when (or as) the performance obligations are satisfied by means of transferring goods or services to the customer as applicable to each revenue stream as discussed below. There were no material contract assets as of December 31, 2023 and March 31, 2023.
Sales of self-moving and self-storage related products are recognized at the time that title passes and the customer accepts delivery. The performance obligations identified for this portfolio of contracts include moving and storage product sales, installation services and/or propane sales. Each of these performance obligations has an observable stand-alone selling price. We concluded that the performance obligations
30
identified are satisfied at a point in time. The basis for this conclusion is that the customer does not receive the product/propane or benefit from the installation services until the related performance obligation is satisfied. These products/services being provided have an alternative use as they are not customized and can be sold/provided to any customer. In addition, we only have the right to receive payment once the products have been transferred to the customer or the installation services have been completed. Although product sales have a right of return policy, our estimated obligation for future product returns is not material to the financial statements at this time.
Property management fees are recognized over the period that agreed-upon services are provided. The performance obligation for this portfolio of contracts is property management services, which represents a series of distinct days of service, each of which is comprised of activities that may vary from day to day. However, those tasks are activities to fulfill the property management services and are not separate promises in the contract. We determined that each increment of the promised service is distinct. This is because the customer can benefit from each increment of service on its own and each increment of service is separately identifiable because no day of service significantly modifies or customizes another and no day of service significantly affects either the entity’s ability to fulfill another day of service or the benefit to the customer of another day of service. As such, we concluded that the performance obligation is satisfied over time. Additionally, in certain contracts the Company has the ability to earn an incentive fee based on operational results. We measure and recognize the progress toward completion of the performance obligation on a quarterly basis using the most likely amount method to determine an accrual for the incentive fee portion of the compensation received in exchange for the property management service. The variable consideration recognized is subject to constraints due to a range of possible consideration amounts based on actual operational results. The amount accrued in the third quarter of fiscal 2024 did not have a material effect on our financial statements.
Other revenue consists of numerous services or rentals, of which U-Box contracts and service fees from Moving Help are the main components. The performance obligations identified for U-Box contracts are fees for rental, storage and shipping of U-Box containers to a specified location, each of which are distinct. A contract may be partially within the scope of Topic 606 and partially within the scope of other topics. The rental and storage obligations in U-Box contracts meet the definition of a lease in Topic 842, while the shipping obligation represents a contract with a customer accounted for under Topic 606. Therefore, we allocate the total transaction price between the performance obligations of storage fees and rental fees and the shipping fees on a standalone selling price basis. U-Box shipping fees are collected once the shipment is in transit. Shipping fees in U-Box contracts are set at the initiation of the contract based on the shipping origin and destination, and the performance obligation is satisfied over time. U-Box shipping contracts span over a relatively short period of time, and the majority of these contracts begin and end within the same fiscal year. Moving Help® services fees are recognized in accordance with Topic 606. Moving Help® services are generated as we provide a neutral venue for the connection between the service provider and the customer for agreed upon services. We do not control the specified services provided by the service provider before that service is transferred to the customer.
Deferred income primarily relates to payments received from customers prior to satisfaction of our performance obligations. Of the amounts recorded as unearned revenue as of March 31, 2023, $0.9 million and $50.6 million, respectively, was recognized as revenue for the quarter and nine months ended December 31, 2023.
Revenue Recognized in Accordance with Topic 842
ASC Topic 842, Leases (Topic 842), the Company’s self-moving rental revenues meet the definition of a lease pursuant to the guidance in Topic 842 because those substitution rights do not provide an economic benefit to the Company that would exceed the cost of exercising the right. Please see Note 8, Leases, of the Notes to Consolidated Financial Statements.
Self-moving equipment rentals are recognized over the contract period that trucks and moving equipment are rented. We offer two types of self-moving rental contracts, one-way rentals and in-town rentals, which have varying payment terms. Customer payment is received at the initiation of the contract for one-way rentals, which covers an allowable limit for equipment usage. An estimated fee in the form of a deposit is received at the initiation of the contract for in-town rentals, and final payment is received upon the return of the equipment based on actual fees incurred. The contract price is estimated at the initiation
31
of the contract, as there is variable consideration associated with ratable fees incurred based on the number of days the equipment is rented and the number of miles driven. Variable consideration is estimated using the most likely amount method which is based on the intended use of the rental equipment by the customer at the initiation of the contract. Historically, the variability in estimated transaction pricing compared to actual is not significant due to the relatively short duration of rental contracts. Each performance obligation has an observable stand-alone selling price. The input method of passage of time is appropriate as there is a direct relationship between our inputs and the transfer of benefit to the customer over the life of the contract. Self-moving rental contracts span a relatively short period of time, and the majority of these contracts began and ended within the same fiscal year.
Self-storage revenues are recognized as earned over the contract period based upon the number of paid storage contract days.
We lease portions of our operating properties to tenants under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Generally, under the terms of our leases, the majority of our rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from our customers.
The following table summarizes the minimum lease payments due from our customers and operating property tenants on leases for the next five years and thereafter:
5,674
Property lease revenues
21,494
15,040
12,112
8,653
5,666
33,059
27,168
The amounts above do not reflect future rental revenue from the renewal or replacement of existing leases.
Revenue Recognized in Accordance with Other Topics
Traditional life and Medicare supplement insurance premiums are recognized as revenue over the premium-paying periods of the contracts when due from the policyholders. For products where premiums are due over a significantly shorter duration than the period over which benefits are provided, such as our single premium whole life product, premiums are recognized when received and excess profits are deferred and recognized in relation to the insurance in-force.
Property and casualty insurance premiums are recognized as revenue over the policy periods. Interest and investment income are recognized as earned.
Net investment and interest income has multiple components. Interest income from bonds and mortgage notes are recognized when earned. Dividends on common and preferred stocks are recognized on the ex-dividend dates. Realized gains and losses on the sale or exchange of investments are recognized at the trade date.
32
In the following tables, revenue is disaggregated by timing of revenue recognition:
Revenues recognized over time:
73,785
69,797
Revenues recognized at a point in time:
85,732
92,698
Total revenues recognized under ASC 606
159,517
162,495
Revenues recognized under ASC 842
1,072,028
1,110,247
Revenues recognized under ASC 944
50,512
50,300
Revenues recognized under ASC 320
283,468
300,082
315,084
338,019
598,552
638,101
3,599,867
3,772,203
144,476
149,360
In the above tables, the revenues recognized over time include property management fees, the shipping fees associated with U-Box container rentals and a portion of other revenues. Revenues recognized at a point in time include self-moving equipment rentals, self-moving and self-storage products and service sales and a portion of other revenues.
We recognized liabilities resulting from contracts with customers for self-moving equipment rentals, self-storage revenues, U-Box revenues and tenant revenues, in which the length of the contract goes beyond the reported period end, although rental periods of the equipment, storage and U-Box contract are generally short-term in nature. The timing of revenue recognition results in liabilities that are reflected in deferred income on the balance sheet.
16. Allowance for Credit Losses
Trade Receivables
Moving and Storage has two (2) primary components of trade receivables, receivables from corporate customers and credit card receivables from customer sales and rental of equipment. For credit card receivables, the Company uses a trailing 13 month average historical chargeback percentage of total credit card receivables to estimate a credit loss reserve. The Company rents equipment to corporate customers in which payment terms are 30 days.
The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. In addition, the Company monitors collections and payments from its customers and maintains an allowance based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high-risk customers adjusted for current conditions, including any specific
33
customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote.
Management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables because the composition of trade receivables as of that date is consistent with that used in developing the historical credit loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed significantly over time). To adjust the historical loss rates to reflect the effects of these differences in current conditions and forecasted changes, management assigns a rating to each customer which varies depending on the assessment of risk. Management estimated the loss rate at approximately 4% as of December 31, 2023 and March 31, 2023, respectively. Management developed this estimate based on its knowledge of past experience for which there were similar improvements in the economy. As a result, management applied the applicable credit loss rates to determine the expected credit loss estimate for each aging category. Accordingly, the allowance for expected credit losses as of December 31, 2023 and March 31, 2023 was $4.3 million and $3.8 million, respectively.
Accrued Interest Receivable
Accrued interest receivables on available for sale securities totaled $30.8 million and $29.6 million as of December 31, 2023 and March 31, 2023, respectively, and are excluded from the estimate of credit losses.
We have elected not to measure an allowance on accrued interest receivables as our practice is to write off the uncollectible balance in a timely manner. Furthermore, we have elected to write off accrued interest receivables by reversing interest income.
Mortgage Loans, Net
Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at amortized cost. Modeling for the Company’s mortgage loans is based on inputs most highly correlated to defaults, including loan-to-value, occupancy, and payment history. Historical credit loss experience provides additional support for the estimation of expected credit losses. In assessing the credit losses, the portfolio is reviewed on a collective basis, using loan-specific cash flows to determine the fair value of the collateral in the event of default. Adjustments to this analysis are made to assess loans with a loan-to-value of 65% or greater. These loans are evaluated on an individual basis and loan specific risk characteristics such as occupancy levels, expense, income growth and other relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.
When management determines that credit losses are expected to occur, an allowance for expected credit losses based on the fair value of the collateral is recorded.
Reinsurance Recoverables
Reinsurance recoverables on paid and unpaid benefits was less than 1% of the total assets as of December 31, 2023 which is immaterial based on historical loss experience and high credit rating of the reinsurers.
Premium Receivables
Premium receivables were $7.2 million and $4.1 million as of December 31, 2023 and March 31, 2023, respectively, in which the credit loss allowance is immaterial based on our ability to cancel the policy if the policyholder does not pay premiums.
34
The following details the changes in the Company’s reserve allowance for credit losses for trade receivables, fixed maturities and investments, other:
Allowance for Credit Losses
Investments, Fixed Maturities
(in thousands)
8,649
60
501
9,210
Provision for (reversal of) credit losses
(4,860
2,041
(2,803
Write-offs against allowance
Recoveries
3,789
2,101
517
6,407
556
(397
300
459
4,345
1,704
817
6,866
17. Accounting Pronouncements
Adoption of new Accounting Pronouncements
On April 1, 2023, the Company adopted ASU 2018-12 which is applicable to Oxford. The Company adopted ASU 2018-12 effective April 1, 2023 and used the modified retrospective method with a transition date of April 1, 2021.
The updated accounting guidance required changes to the measurement and disclosure of long-duration contracts. For the Company, this includes all life insurance products, annuities, Medicare supplement products and our long-term care business. Entities were required to review, and update if there is a change to cash flow assumptions (including morbidity and persistency) at least annually, and to update discount rate assumptions quarterly using an upper-medium grade fixed-income instrument yield. The effect of changes in cash flow assumptions were recorded in the Company's results of operations and the effect of changes in discount rate assumptions were recorded in other comprehensive income.
The most significant impact will be the effect of updating the discount rate assumption quarterly to reflect an upper-medium grade fixed-income instrument yield, rather than Oxford Life’s expected investment portfolio yield. This will be partially offset by the de-recognition of cumulative adjustments to DAC associated with unrealized gains and losses associated with long-duration contracts. The Company uses a published spot rate curve constructed from “A”-rated U.S. dollar denominated corporate bonds matched to the duration of the corresponding insurance liabilities, to calculate discount rates. The Company groups its long-duration contracts into calendar year cohorts based on the contract issue date.
DAC and other capitalized costs such as unearned revenue are amortized on a constant level or straight-line basis over the expected term of the contracts. Under ASU 2018-12, the annual amortization of DAC in our Consolidated Statements of Operations will differ from previous trends due to: (1) the requirement to no longer defer renewal commissions until such year as the commissions are actually incurred, (2) the requirement to no longer accrue and amortize interest on our DAC balances, and (3) the modification of the method for amortizing DAC including the updating of assumptions. For business with deferrals of renewal commissions, as is the case with our final expense life insurance policies, the expected amortization rate, as a percentage of premium, for certain blocks of business will no longer be level but will increase over the period of time during which commissions are deferred. The decrease in amortization in the near term will primarily impact our life insurance line of business.
Upon adoption, the Company adjusted AOCI for the removal of cumulative adjustments to DAC associated with unrealized gains and losses previously recorded in AOCI. In total, we expect the impact on
35
net earnings, largely from the decrease in amortization, to be immaterial during fiscal 2024, but could become material with a large increase in sales.
Market risk benefits, which are contracts or contract features that provide protection to the policyholder from capital market risk and expose the Company to other-than-nominal capital market risk, are measured at fair value. Market risk benefits are contracts or contract features that guarantee benefits, such as guaranteed life withdrawal benefits, in addition to an account balance which expose insurance companies to other than nominal capital market risk and protect the contract holder from the same risk. Certain contracts or contract features to be identified as market risk benefits were accounted for as embedded derivatives and measured at fair value, while others transitioned to fair value measurement upon the adoption of ASU 2018-12.
Also in consideration of market risk benefits, upon adoption, there were impacts to (1) AOCI for the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date and (2) retained earnings for the difference between fair value and carrying value at the transition date, excluding the changes in the instrument-specific credit risk. The requirement to review, and update if there is a change, cash flow assumptions at least annually is expected to change the pattern of earnings being recognized. Adoption significantly expanded the Company’s disclosures and will impact systems, processes, and controls. While the requirements of the new guidance represent a material change from existing GAAP, the accounting adoption had no economic impact on the cash flows of our business nor influence on our business model of providing basic mortality and longevity protection-oriented products to the underserved senior market. In addition, it did not impact our statutory earnings, statutory capital, or capital management philosophies.
The following tables present the effect of the adoption of ASU 2018-12 on selected consolidated balance sheet data for the fiscal years ended March 31, 2023 and 2022.
Year ended March 31,
Total Assets
Prior to adoption
18,124,648
17,299,581
Effect of adoption:
Derecognition of shadow DAC
(25,141
26,131
Re-measurement due to discount rate
Other adjustments
1,227
1,471
Subtotal
(23,914
27,602
After adoption
17,327,183
Total Liabilities
11,596,313
11,347,089
Deferred income tax adjustment on Shadow removal
(5,280
5,488
(1,626
87,258
Deferred income tax adjustment on discount rate
342
(18,324
6,794
8,511
230
82,933
11,430,022
36
Accumulated other comprehensive income (loss)
(267,046
46,384
Derecognition on shadow DAC
(19,861
20,644
1,626
(87,258
Re-measurement due to discount rate (tax effect)
(342
18,324
(18,577
(48,290
(1,906
Total Stockholders' equity
6,528,335
5,952,492
1,284
(68,934
(5,567
(7,042
(24,144
(55,332
5,897,160
Year ended March 31, 2023
As previously reported
Adoption impact
As adjusted
152,377
875,034
5,168
1,334,427
(4,938
7,008,715
37
April 1, 2021
March 31, 2021
131,187
89,749
14,693,044
14,651,606
1,040,951
909,701
1,182,123
1,199,280
9,846,608
9,732,515
Accumulated other comprehensive income
42,319
106,857
5,017,451
5,025,568
4,846,436
4,919,091
The following tables present the balances of and changes in deferred acquisition costs, future policy benefits and market risk benefits and balances amortized on a basis consistent with DAC on April 1, 2021 due to the adoption of ASU 2018-12 by Oxford.
Payout Annuities
Health Insurance
Balance, end of year March 31, 2021
15,654
64,552
9,543
Adjustments for removal of related balances in accumulated other comprehensive income
41,438
Adjusted balance, beginning of year April 1, 2021
57,092
Future Policy Benefit
8,370
310,311
18,341
337,022
Change in discount rate assumptions
2,307
115,978
4,847
123,132
Change in cash flow assumptions, effect of net premiums exceeding gross premiums
1,747
Change in cash flow assumptions, effect of decrease of the deferred profit liability
2,580
10,677
430,616
23,188
464,481
Market Risk Benefits
Deferred Annuities
7,339
Adjustment for the difference between carrying amount and fair value, except for the difference due to instrument-specific credit risk
3,791
11,130
38
The following table presents the effect of transition adjustments on stockholders' equity as of April 1, 2021 due to the adoption of ASU 2018-12.
Accumulated Other Comprehensive Loss
Liability for future policy benefits
(4,327
(123,132
Market risk benefits
(3,791
Deferred acquisition costs and related asset balances
Tax effect
17,156
(8,118
(64,538
Recent Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842 – Common Control Arrangements (“ASU 2023-01”). ASU 2023-01, accounting for leasehold improvements, requires a lessee in a common-control lease arrangement to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. The amendment is effective for fiscal years beginning after December 15, 2023. We are currently in the process of evaluating the impact if any of the adoption of ASU 2023-01 on our financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU requires all annual disclosures currently required by Topic 280 to be included in interim periods and is applicable to entities with a single reportable segment. The amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendment is effective retrospectively to all prior periods presented in the financial statements. We are currently assessing the impact of adopting ASU 2023-07 on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income tax paid. Early adoption is permitted. The amendment is effective prospectively to all annual periods beginning after December 15, 2024. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
18. Deferred Policy Acquisition Costs, Net
The following tables present a rollforward of deferred policy acquisition costs related to long-duration contracts for the nine-month periods ended December 31, 2023 and 2022.
Balance, beginning of year
55,396
66,954
6,113
Capitalization
8,007
3,213
177
11,397
Amortization expense
(11,461
(6,586
(979
(19,026
Balance, end of period
51,942
63,581
39
55,261
67,573
8,596
131,430
14,403
5,667
336
20,406
(11,972
(4,722
(1,422
(18,116
57,692
68,518
7,510
133,720
19. Policy Benefits and Losses, Claims and Loss Expenses Payable
The following tables present the balances and changes in the policy benefits and a reconciliation of the net liability for future policy benefits to the liability for future policy benefits for Oxford.
Present value of expected net premiums
223,118
196,569
419,687
Beginning balance at original discount rate
225,071
212,454
437,525
Effect of changes in cash flow assumptions
Effect of actual variances from expected experience
(584
(9,565
(10,149
Adjusted beginning of year balance
224,487
202,889
427,376
Issuances
6,692
6,770
Interest accrual
8,367
6,072
14,439
Net premium collected
(29,812
(19,787
(49,599
Ending balance at original discount rate
209,734
189,252
398,986
Effect of changes in discount rate assumptions (AOCI)
(6,878
(19,722
(26,600
202,856
169,530
372,386
Present value of expected future policy benefits
530,983
210,054
741,037
533,688
226,510
760,198
Effect of actual variances from expected experiences
(1,621
(8,650
(10,271
532,067
217,860
749,927
6,746
6,824
19,830
6,520
26,350
Benefit payments
(39,544
(22,857
(62,401
519,099
201,601
720,700
(19,397
(20,450
(39,847
499,702
181,151
680,853
End of period, LFPB net
308,467
Payout annuities and market risk benefits
31,048
Life and annuity claims in course of settlement and claims incurred but not yet reported / Reinsurance losses payable
9,556
Life DPL / Other life and health
23,724
LFPB flooring effect
274
Oxford end of period balance
373,069
Moving and Storage balance
317,409
Property and Casualty balance
148,467
Policy benefit and losses, claims and loss expense balance, end of period
41
280,371
280,732
561,103
242,741
253,307
496,048
(1,259
1,257
241,482
254,564
496,046
14,101
2,455
16,556
9,036
7,637
16,673
(32,270
(22,466
(54,736
0
232,349
242,190
474,539
(3,811
(21,059
(24,870
228,538
221,131
449,669
672,254
299,628
971,882
552,109
269,177
821,286
(150
2,051
1,901
551,959
271,228
823,187
2,454
16,555
20,654
8,137
28,791
(43,602
(25,873
(69,475
543,112
255,946
799,058
(9,514
(21,872
(31,386
533,598
234,074
767,672
318,003
33,049
10,387
35,276
451
397,166
342,645
156,259
896,070
42
(In thousands, except for percentages and weighted average information)
Expected gross premiums
Undiscounted balance
377,068
319,922
696,990
Discounted balance at original discount rate
291,900
248,221
540,121
Discounted balance at current discount rate
281,927
224,406
506,333
Expected policy benefits
752,194
260,683
1,012,877
Mortality, lapses and morbidity
Mortality actual experience
4.57
0.00
Mortality expected experience
5.07
Lapses actual experience
2.18
Lapses expected experience
2.64
Morbidity actual experience
81.17
Morbidity expected experience
73.65
Premiums and interest expense
Gross premiums
39,979
27,397
67,376
Other premiums
Total premiums
11,463
448
11,911
Expected duration (persistency) of policies in-force (years)
6.9
6.5
Weighted average original interest rate of the liability for future policy benefits
5.00
4.01
Weighted average current interest rate of the liability for future policy benefits
4.80
43
413,315
423,366
836,681
318,749
325,605
644,354
313,083
300,463
613,546
793,511
334,704
1,128,215
543,111
255,947
533,597
234,075
4.85
2.08
2.52
77.94
71.41
42,977
32,108
75,085
11,618
500
12,118
7.0
6.7
5.02
4.02
1.52
1.51
44
The following tables present the balances and changes in Liabilities from investment contracts account balances:
(In thousands, except for the average credited rate)
Policyholder contract deposits account balance
Beginning of year
Deposits received
206,800
Surrenders and withdrawals
(265,999
(29,136
Interest credited
52,594
End of period
Weighted average credited rate
2.96
Cash surrender value
2,025,409
2,336,238
243,144
(195,801
(27,207
40,328
2,396,702
2.27
2,062,711
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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 U-Haul Holding Company, 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 estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. Next, we discuss our results of operations for the third quarter and first nine months of fiscal 2024, compared with the third quarter and first nine months of fiscal 2023, which is 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. We conclude this MD&A by discussing our current outlook for the remainder of fiscal 2024.
This MD&A should be read in conjunction with the other sections of this Quarterly Report, including the Notes to 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 risks described throughout this filing or in our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Many of these risks and uncertainties are beyond our control and our actual results may differ materially from these forward-looking statements.
U-Haul Holding Company, a Nevada corporation, has a third fiscal quarter that ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the presentation of financial position or results of operations. We disclose material events, if any, occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2023 and 2022 correspond to fiscal 2024 and 2023 for U-Haul Holding Company.
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 units and portable moving and storage units available for rent, expanding the number of independent dealers and company operated locations in our network.
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 and Reportable Segments
U-Haul Holding Company’s three operating and reportable segments are:
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 and center network, which provides added convenience for our customers, and expands the selection and availability of rental equipment to satisfy the needs of our customers.
U-Haul® branded 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 throughout 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.
U-Haul’s mobile app, Truck Share 24/7, Skip-the-Counter Self-Storage rentals and Self-checkout for moving supplies provide our customers methods for conducting business with us directly via their mobile devices and also limiting physical exposure.
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 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.
On September 9, 2022, we announced that the Company was made aware of a data security incident involving U-Haul's information technology network. U-Haul detected a compromise of two unique passwords used to access U-Haul customers' information. U-Haul took immediate steps to contain the incident and promptly enhanced its security measures to prevent any further unauthorized access. U-Haul retained cybersecurity experts and incident response counsel to investigate the incident and implement additional security safeguards. The investigation determined that between November 5, 2021 and April 8, 2022, the threat actor accessed customer contracts containing customers’ names, dates of birth, and
47
driver’s license or state identification numbers. None of U-Haul’s financial, payment processing or email systems were involved. U-Haul has notified impacted customers and relevant governmental authorities.
Critical Accounting Policies and Estimates
Please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
U-Haul Holding Company and Consolidated Entities
Quarter Ended December 31, 2023 compared with the Quarter Ended December 31, 2022
Listed below, on a consolidated basis, are revenues for our major product lines for the third quarter of fiscal 2024 and the third quarter of fiscal 2023:
Quarter Ended December 31,
Consolidated revenue
Self-moving equipment rental revenues decreased $59.0 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.
Self-storage revenues increased $20.0 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. The average monthly number of occupied units increased by 5.7%, or 30,542 units, during the third quarter of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 3.8% improvement in average revenue per occupied foot. During the quarter, we added approximately 1.0 million new net rentable square feet.
Sales of self-moving and self-storage products and services decreased $4.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.
Life insurance premiums decreased $1.8 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023 due primarily to decreased life and Medicare supplement premiums.
48
Property and casualty insurance premiums decreased $0.4 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023.
Net investment and interest income increased $5.2 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Moving and Storage accounted for $3.3 million of the improvement due to an increase in interest rates on short-term deposits. Changes in the market value of common stock investments held at our Property and Casualty Insurance subsidiary accounted for $0.4 million of the increase. Our Life Insurance subsidiaries investment income increased $1.5 million primarily from gains on derivatives used as hedges to fixed indexed annuities.
Other revenue increased $4.6 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, caused primarily by decreases in our U-Box® program.
Listed below are revenues and earnings from operations at each of our operating segments for the third quarter of fiscal 2024 and the third quarter of fiscal 2023. The insurance companies’ third quarters ended September 30, 2023 and 2022.
Moving and storage
Revenues
Earnings from operations before equity in earnings of subsidiaries
Property and casualty insurance
Life insurance
Earnings (losses) from operations
Consolidated results
Total costs and expenses increased $86.6 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Operating expenses for Moving and Storage increased $36.8 million. Repair expenses associated with the rental fleet experienced a $2.9 million decrease during the quarter while we experienced increases in personnel, property taxes and building maintenance.
Depreciation expense associated with our rental fleet increased $12.6 million for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $34.3 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same quarter last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $12.9 million. Net losses on the disposal or retirement of land and buildings increased $1.7 million. Additional details are available in the following Moving and Storage section.
As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased $122.4 million to $197.6 million for the third quarter of fiscal 2024, compared with $320.0 million for the third quarter of fiscal 2023.
Interest expense for the third quarter of fiscal 2024 was $67.5 million, compared with $59.0 million for the third quarter of fiscal 2023, due to an increase in our average cost of debt.
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Income tax expense was $30.5 million for the third quarter of fiscal 2024, compared with $61.8 million for the third quarter of fiscal 2023.
As a result of the above-mentioned items, earnings available to common stockholders were $99.2 million for the third quarter of fiscal 2024, compared with $198.9 million for the third quarter of fiscal 2023.
Listed below are revenues for our major product lines at Moving and Storage for the third quarter of fiscal 2024 and the third quarter of fiscal 2023:
841,136
900,209
27,723
24,450
100,819
96,334
Moving and Storage revenue
Self-moving equipment rental revenues decreased $59.1 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.
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:
(In thousands, except occupancy rate)
Unit count as of December 31
701
659
Square footage as of December 31
59,433
55,004
Average monthly number of units occupied
571
540
Average monthly occupancy rate based on unit count
81.8
82.9
End of December occupancy rate based on unit count
81.0
81.9
Average monthly square footage occupied
49,515
46,651
Over the last twelve months we added approximately 4.4 million net rentable square feet of new storage to the system. This was a mix of approximately 1.2 million square feet of existing storage locations we acquired and 3.2 million square feet of new development.
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Net investment and interest income increased $3.3 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, due to higher interest rates on short-term deposits.
Other revenue increased $4.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023, caused primarily by increases in our U-Box® program.
Total costs and expenses increased $88.5 million during the third quarter of fiscal 2024, compared with the third quarter of fiscal 2023. Operating expenses increased $36.8 million. Repair costs associated with the rental fleet experienced a $2.9 million decrease during the quarter. Other increases included personnel, property taxes and building maintenance.
The components of depreciation, net of gains on disposals were as follows:
Depreciation expense - rental equipment
143,757
131,144
Depreciation expense - non rental equipment
24,820
21,291
Depreciation expense - real estate
41,260
31,935
Total depreciation expense
209,837
184,370
Gains on disposals of rental equipment
(36,441
(70,641
Loss on disposals of non-rental equipment
252
Total gains on disposals equipment
(36,189
(70,504
Depreciation, net of gains on disposals
Losses on disposals of real estate
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, decreased $124.3 million to $180.5 million for the third quarter of fiscal 2024, compared with $304.7 million for the third quarter of fiscal 2023.
Equity in the earnings of U-Haul Holding Company’s insurance subsidiaries was $14.2 million for the third quarter of fiscal 2024, compared with $13.1 million for the third quarter of fiscal 2023.
As a result of the above-mentioned changes in revenues and expenses, consolidated earnings from operations for Moving and Storage decreased to $194.7 million for the third quarter of fiscal 2024, compared with $317.8 million for the third quarter of fiscal 2023.
Quarter Ended September 30, 2023 compared with the Quarter Ended September 30, 2022
Net premiums were $27.3 million and $26.9 million for the quarters ended September 30, 2023 and 2022, respectively. A significant portion of Repwest’s premiums were from policies sold in conjunction with U-Haul rental transactions. The premium written corresponded with improvements in storage and U-Box transactions at U-Haul during the same period.
Net investment and interest income was $2.0 million and $1.6 million for the quarters ended September 30, 2023 and 2022, respectively. The main driver of the change in net investment income was the increase in the market value of unaffiliated common stocks.
Operating expenses were $13.1 million and $11.8 million for the quarters ended September 30, 2023 and 2022, respectively. The change was due to an increase in commissions and personnel.
Benefits and losses incurred were $6.7 million and $5.7 million for the quarters ended September 30, 2023 and 2022, respectively. Benefits and losses incurred corresponded with the change in moving and storage transactions at U-Haul during the same period.
As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $9.4 million and $10.8 million for the quarters ended September 30, 2023 and 2022, respectively.
Net premiums were $22.6 million and $24.4 million for the quarters ended September 30, 2023 and 2022, respectively. Medicare Supplement premiums decreased $1.8 million from the policy decrements offset by premium rate increases. Life premiums decreased $0.4 million primarily from the decrease in sales of single premium life and final expense. Both decreases were due to policyholder lapses currently outweighing sales levels. Deferred annuity deposits were $81.6 million or $7.5 million above prior year and are accounted for on the balance sheet as deposits rather than premiums.
Net investment income was $28.7 million and $27.2 million for the quarters ended September 30, 2023 and 2022, respectively. Realized gain on derivatives used as hedges to fixed indexed annuities was $1.1 million. Net interest income and other realized gains increased $0.4 million.
Operating expenses were $4.7 million and $5.1 million for the quarters ended September 30, 2023 and 2022, respectively. As sales of new final expense life insurance policies have declined, the associated administrative costs have also decreased.
Benefits and losses incurred were $35.8 million and $36.0 million for the quarters ended September 30, 2023 and 2022, respectively.
Amortization of deferred acquisition costs (“DAC”), sales inducement asset ("SIA") and the value of business acquired (“VOBA”) was $4.2 million and $7.0 million for the quarters ended September 30, 2023 and 2022, respectively. The decrease in DAC amortization is primarily due to a lower amount of mortgage prepayment penalty gains, for which we offset gains with a corresponding level of amortization.
As a result of the above-mentioned changes in revenues and expenses, pretax earnings (losses) from operations were $8.0 million and $4.7 million for the quarters ended September 30, 2023 and 2022, respectively.
52
Nine Months Ended December 31, 2023 compared with the Nine Months Ended December 31, 2022
Listed below on a consolidated basis are revenues for our major product lines for the first nine months of fiscal 2024 and the first nine months of fiscal 2023:
Nine Months Ended December 31,
Self-moving equipment rental revenues decreased $243.2 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.
Self-storage revenues increased $69.1 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. The average monthly number of occupied units increased by 7.9%, or 41,501 units, during the first nine months of fiscal 2024 compared with the same period last year. The growth in revenues and square feet rented comes from a combination of occupancy gains, the addition of new capacity to the portfolio and a 4.7% improvement in average revenue per occupied foot. During the first nine months, we added approximately 3.1 million of new net rentable square feet.
Sales of self-moving and self-storage products and services decreased $18.3 million for the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. This was due to decreased sales of hitches, moving supplies and propane. The decrease in self-moving transactions has negatively impacted the sales of moving supplies.
Life insurance premiums decreased $7.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023 due primarily to decreased Medicare supplement premiums.
Property and casualty insurance premiums decreased $0.2 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023.
Net investment and interest income increased $70.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Moving and Storage accounted for $39.1 million of the improvement due to an increase in interest rates on short-term deposits. Changes in the market value of common stocks held at our Property and Casualty Insurance subsidiary accounted for $11.1 million of the increase. Our Life Insurance subsidiaries investment income increased $18.2 million primarily from gains on derivatives used as hedges to fixed indexed annuities.
Other revenue decreased $16.9 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, caused primarily by decreases in our U-Box® program.
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Listed below are revenues and earnings from operations at each of our operating segments for the first nine months of fiscal 2024 and the first nine months of fiscal 2023. The insurance companies’ first nine months ended September 30, 2023 and 2022.
Total costs and expenses increased $169.5 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Operating expenses for Moving and Storage increased $89.4 million. Repair costs associated with the rental fleet experienced a $44.0 million increase during the first nine months of fiscal 2024 due to the higher cost of preventative maintenance along with the costs associated with selling more retired trucks. Other increases included personnel, property taxes, utilities and building maintenance. Conversely, during the first nine months, we had $28.6 million of decreases for freight and payment processing costs.
Depreciation expense associated with our rental fleet increased $32.4 million for the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $60.5 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same period last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $27.7 million. Net losses on the disposal or retirement of land and buildings increased $0.3 million. Additional details are available in the following Moving and Storage section.
As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased $315.9 million to $1,019.6 million for the first nine months of fiscal 2024, as compared with $1,335.5 million for the first nine months of fiscal 2023.
Interest expense for the first nine months of fiscal 2024 was $192.0 million, compared with $166.0 million for the first nine months of fiscal 2023, due to an increase in our average cost of debt.
Income tax expense was $196.9 million for the first nine months of fiscal 2024, compared with $280.4 million for the first nine months of fiscal 2023.
As a result of the above-mentioned items, earnings available to common stockholders were $629.6 million for the first nine months of fiscal 2024, compared with $887.1 million for the first nine months of fiscal 2023.
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Listed below are revenues for the major product lines at our Moving and Storage operating segment for the first nine months of fiscal 2024 and the first nine months of fiscal 2023:
2,911,903
3,155,295
83,538
44,467
380,590
398,293
Self-moving equipment rental revenues decreased $243.4 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Transactions, revenue and average miles driven per transaction decreased. The declines were more pronounced for our one-way business. Compared to the same period last year, we increased the number of Company operated retail locations as well as the number of box trucks, and trailers in the rental fleet.
533
84.2
49,358
46,012
55
Net investment and interest income increased $39.1 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, due to higher interest rates on short-term deposits.
Other revenue decreased $17.7 million during the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023, caused primarily by decreases in our U-Box® program.
Total costs and expenses increased $161.3 million during the first nine months of fiscal 2024, compared with the nine months of fiscal 2023. Operating expenses increased $89.4 million. Repair costs associated with the rental fleet experienced a $44.0 million increase during the first nine months of fiscal 2024 due to the higher cost of preventative maintenance along with the costs associated with selling more retired trucks. Other increases included personnel, property taxes, utilities and building maintenance. Conversely, during the first nine months we had $28.6 million of decreases for freight and payment processing costs.
Depreciation expense associated with our rental fleet increased $32.4 million for the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to an increase in the pace of new additions to the fleet combined with their higher cost. Net gains from the disposal of rental equipment decreased $60.5 million as resale values have decreased while the average cost of units being sold has increased. We increased the number of retired trucks sold compared to the same quarter last year. Depreciation expense on all other assets, largely from buildings and improvements, increased $27.7 million. Net losses on the disposal or retirement of land and buildings increased $0.3 million. Additional details are available in the following Moving and Storage section.
The components of depreciation, net of gains on disposals for the first nine months of fiscal 2024 were as follows:
419,290
386,885
70,514
64,458
114,433
92,832
544,175
(139,176
(198,954
(Gain) loss on disposals of non-rental equipment
523
(241
(199,195
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 decreased to $968.9 million for the first nine months of fiscal 2024, compared with $1,301.3 million for the first nine months of fiscal 2023.
Equity in the earnings of U-Haul Holding Company’s insurance subsidiaries was $41.3 million for the first nine months of fiscal 2024, compared with $24.6 million for the first nine months of fiscal 2023.
As a result of the above-mentioned changes in revenues and expenses, earnings from operations decreased to $1,010.2 million for the first nine months of fiscal 2024, compared with $1,325.9 million for the first nine months of fiscal 2023.
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Nine Months Ended September 30, 2023 compared with the Nine Months Ended September 30, 2022
Net premiums were $74.7 million and $73.6 million for the nine months ended September 30, 2023 and 2022, respectively. A significant portion of Repwest’s premiums come from policies sold in conjunction with U-Haul rental transactions. The premium written corresponded with improvements in storage and U-Box transactions at U-Haul during the same period.
Net investment and interest income was $14.3 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The main driver of the change in net investment income was the increase in the market value of investments in common stock.
Operating expenses were $36.5 million and $33.6 million for the nine months ended September 30, 2023 and 2022, respectively. The change was due to an increase in commissions and personnel.
Benefits and losses incurred were $15.4 million and $16.2 million for the nine months ended September 30, 2023 and 2022, respectively. Benefits and losses incurred corresponded with the change in moving and storage transactions at U-Haul during the same period.
As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $36.8 million and $24.9 million for the nine months ended September 30, 2023 and 2022, respectively.
Net premiums were $68.2 million and $75.6 million for the nine months ended September 30, 2023 and 2022, respectively. Medicare Supplement premiums decreased $4.7 million. Life premiums decreased $2.6 million primarily from the decrease in sales of single premium life and final expense. Deferred annuity deposits were $206.8 million or $36.3 million below prior year and are accounted for on the balance sheet as deposits rather than premiums.
Net investment income was $91.8 million and $73.7 million for the nine months ended September 30, 2023 and 2022, respectively. Realized gain on derivatives used as hedges to fixed indexed annuities was $13.0 million current year-to-date. The change in the provision for expected credit losses resulted in a $2.1 million decrease to investment income. Net interest income and other realized gains increased $3.1 million.
Operating expenses were $14.8 million and $15.8 million for the nine months ended September 30, 2023 and 2022, respectively.
Benefits and losses incurred were $115.0 million and $104.8 million for the nine months ended September 30, 2023 and 2022, respectively. Interest credited to policyholders increased $15.1 million due to an increase in the interest credited rates on equity - indexed annuities. Life benefits decreased $2.9 million due to lower death claims related to COVID-19 and lower sales. Medicare supplement benefits decreased by $3.6 million from the declined policies in force.
Amortization of DAC, SIA and VOBA were $19.0 million and $21.6 million for the nine months ended September 30, 2023 and 2022, respectively.
As a result of the above-mentioned changes in revenues and expenses, pretax earnings from operations were $14.7 million and $10.3 million for the nine months ended September 30, 2023 and 2022, 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. There are many factors that 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.
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As of December 31, 2023, cash and cash equivalents totaled $1,806.0 million, compared with $2,060.5 million as of March 31, 2023. The assets of our insurance subsidiaries are generally unavailable to fulfill the obligations of non-insurance operations (Moving and Storage). As of December 31, 2023 (or as otherwise indicated), cash and cash equivalents, other financial assets (receivables, 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)
1,736,295
36,951
32,730
Other financial assets
386,384
401,829
2,627,129
Debt obligations (b)
(a) As of September 30, 2023
(b) Excludes ($34,096) of debt issuance costs
As of December 31, 2023, Moving and Storage had additional cash available under existing credit facilities of $475.0 million. The majority of invested cash at the Moving and Storage segment is held in government money market funds.
Net cash provided by operating activities decreased $275.6 million in the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to a decrease in operating profits combined with an increase in claim payments at Moving and Storage.
Net cash used in investing activities decreased $161.9 million in the first nine months of fiscal 2024, compared with the first nine months of fiscal 2023. Purchases of property, plant and equipment increased $321.5 million. Fleet related spending increased $334.4 million while investment spending on real estate and development decreased $34.6 million. Cash from the sales of property, plant and equipment increased $64.6 million largely due to fleet sales. For our insurance subsidiaries, net cash provided in investing activities increased $136.6 million due to a decrease in purchases in fixed maturity investments and net cash provided by investing activities for Moving and Storage increased $278.7 million on short-term Treasury notes.
Net cash provided by financing activities increased $36.0 million in the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2023. This was due to a combination of decreased debt payments of $70.3 million, decreased finance lease repayments of $9.1 million, an increase in cash from borrowings of $61.1 million, a decrease in dividend payments of $3.7 million and an increase in net annuity withdrawals from Life Insurance of $109.3 million.
Liquidity and Capital Resources and Requirements of Our Operating Segments
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. U-Haul estimates that during fiscal 2024, the Company will reinvest in its rental equipment fleet approximately $930 million, net of equipment sales and excluding any lease buyouts. Through the first nine months of fiscal 2024, the Company invested, net of sales, approximately $755 million before any lease buyouts in its rental equipment fleet. Fleet investments in fiscal 2024 and beyond will be dependent upon several factors including the availability of capital, the truck rental environment, the availability of equipment from our original equipment manufacturers and the used-truck sales market. We anticipate that the fiscal 2024 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
58
year to year based upon financial market conditions which may alter the cost or availability of financing options.
The Company has traditionally funded the acquisition of self-storage properties to support U-Haul's growth through debt financing and funds from operations. The Company’s 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. For the first nine months of fiscal 2024, the Company invested $969 million in real estate acquisitions, new construction and renovation and repair. For fiscal 2024, 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 and the availability of labor and materials. We are likely to maintain a high level of real estate capital expenditures in fiscal 2024. 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) at Moving and Storage were $1,802.8 million and $1,545.9 million for the first nine months of fiscal 2024 and 2023, respectively. The components of our net capital expenditures are provided in the following table:
Purchases of rental equipment
1,350,024
1,015,634
Purchases of real estate, construction and renovations
968,543
1,003,187
Other capital expenditures
82,382
60,669
Gross capital expenditures
2,400,949
2,079,490
Less: Sales of property, plant and equipment
(598,170
(533,595
Net capital expenditures
1,802,779
1,545,895
Moving and Storage continues to hold significant cash and we believe 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 marketplace, pay dividends, repurchase shares of common stock or reduce existing indebtedness where possible.
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 U-Haul Holding Company or its legal subsidiaries. We believe that stockholders’ equity at Property and Casualty Insurance remains sufficient, and we do not believe that its ability to pay ordinary dividends to U-Haul Holding Company will be restricted per state regulations.
Property and Casualty Insurance’s stockholder’s equity was $319.8 million and $294.5 million as of September 30, 2023 and December 31, 2022, respectively. The increase resulted from net earnings of $29.3 million and a decrease in other comprehensive income of $4.0 million due to the decrease in the market value of its investment portfolio. 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 manages its financial assets to meet policyholder and other obligations, including investment contract withdrawals and deposits. Life Insurance’s net withdrawals as of September 30, 2023 were $87.8 million. State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, Life Insurance’s assets are generally not available to satisfy the claims of U-Haul Holding Company or its legal subsidiaries.
Life Insurance’s stockholder’s equity was $122.5 million and $132.2 million as of September 30, 2023 and December 31, 2022, respectively. The decrease resulted from net earnings of $12.1 million and a decrease in other comprehensive income of $21.8 million primarily due to the effect of interest rate changes on the fixed maturity portion of the investment portfolio. Outside of its membership in the Federal Home Loan Bank (“FHLB”) system, Life Insurance has not historically used 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. As of September 30, 2023, Oxford had outstanding deposits of $60.0 million in the FHLB with an availability of $82.8 million, for which Oxford pays fixed interest rates between 0.49% and 4.30% with maturities between March 29, 2024 and September 30, 2027. As of September 30, 2023, available-for-sale-investments held with the FHLB totaled $93.5 million, of which $62.8 million were pledged as collateral to secure the outstanding advances. The balances of these advances are included within liabilities from investment contracts on the consolidated balance sheets.
Cash Flows by Operating Segments
Net cash provided from operating activities were $1,147.0 million and $1,419.0 million for the first nine months of fiscal 2024 and 2023, respectively, due to a decrease in operating profits combined with an increase in claim payments.
Net cash provided by operating activities were $27.4 million and $30.2 million for the first nine months ended September 30, 2023 and 2022, respectively. The decrease was due to the timing of payables activity within the normal course of business.
Property and Casualty Insurance’s cash and cash equivalents amounted to $37.0 million and $11.3 million as of September 30, 2023 and December 31, 2022, respectively. These balances 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 our future operating cash needs. Capital and operating budgets allow Property and Casualty Insurance to schedule cash needs in accordance with investment and underwriting proceeds.
Net cash provided by operating activities were $65.6 million and $66.5 million for the first nine months ended September 30, 2023 and 2022, respectively. The decrease in operating cash flows was primarily due to timing of settlement of receivables for securities. This was offset by the decrease in premiums net of benefits and commissions.
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. As of September 30, 2023 and December 31, 2022, cash and cash equivalents amounted to $32.7 million and $15.0 million, respectively. Management believes that the overall sources of liquidity are adequate to meet our future operating 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, rental equipment and storage acquisitions and build outs.
As a result of the federal income tax provisions of the Coronavirus Aid, Relief and Economic Security Act, we have filed applicable forms with the Internal Revenue Service to carryback net operating losses. These refund claims total approximately $366 million, of which we have received approximately $243 million with the remaining amount reflected in prepaid expense. These amounts are expected to provide us additional liquidity whenever received. It is possible future legislation could negatively impact our ability to receive these tax refunds.
Our borrowing strategy has primarily focused on asset-backed financing, rental equipment leases and private placement borrowings limited by the amount of unencumbered assets available. As part of this strategy, we seek to ladder maturities and fix interest rates. While each of these loans typically contains 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. As of December 31, 2023, we had available borrowing capacity under existing credit facilities of $475.0 million. While it is possible that circumstances beyond our control could alter the ability of the financial institutions to lend us the unused lines of credit, we 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, Notes, Loans and Finance Lease Payable, net, of the Notes to Consolidated Financial Statements.
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, 2023.
Fiscal 2024 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 and is likely to increase in fiscal 2024. Revenue in the U-Move® program could be adversely impacted should we fail to execute in any of these areas. Should we be unable to acquire enough new rental equipment to properly rotate our fleet, repair and maintenance costs will continue to increase. 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.
With respect to our storage business, we have added new locations and expanded existing locations. In fiscal 2024, we are actively looking to complete current projects, increase occupancy in our existing portfolio of locations and acquire new locations. New projects and acquisitions will be considered and pursued if they fit our long-term plans and meet our financial objectives. It is likely spending on acquisitions and new development will increase in fiscal 2024. We will continue to invest capital and resources in the U-Box® program throughout fiscal 2024.
Inflationary pressures may challenge our ability to maintain or improve upon our operating margin.
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.
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Consolidating Schedules by Operating and Reporting Segment (Unaudited)
This information includes elimination entries necessary to consolidate U-Haul Holding Company, the parent with its subsidiaries.
Consolidating balance sheets as of December 31, 2023 are as follows:
Moving & StorageConsolidated
Property &CasualtyInsurance (a)
Assets:
118,805
49,951
27,174
Fixed maturity securities available-for-sale, net, at estimated fair value
173,601
233,863
2,067,160
40,254
19,421
22,058
117,204
520,991
46,132
675
6,000
64,508
720
133
71,920
811
11,804
(35,769
(c)
2,955,249
Investment in subsidiaries
442,243
(442,243
(b)
(a) Balances as of September 30, 2023
(b) Eliminate investment in subsidiaries
(c) Eliminate intercompany receivables and payables
62
Consolidating balance sheets as of December 31, 2023 continued:
715,532
4,243
9,569
63,673
736
545
7,467
1,508,199
2,098
(82,528
24,555
4,568
12,923
(42,046
9,112,388
160,657
2,683,776
Series preferred stock:
Series A preferred stock
Series B preferred stock
Series A common stock
Voting Common stock
3,301
2,500
(5,801
Non-Voting Common stock
453,853
91,120
26,271
(117,601
(314,919
(18,736
(247,742
272,755
7,609,567
244,087
341,442
(585,319
Cost of common stock in treasury, net
Cost of preferred stock in treasury, net
7,081,524
319,772
122,471
(435,966
63
Consolidating balance sheets as of March 31, 2023 are as follows:
2,034,242
11,276
15,006
107,823
48,344
33,331
227,737
230,182
2,251,118
40,974
20,383
23,314
125,130
427,096
46,438
730
3,884
57,978
914
69,144
2,347
12,268
(35,451
3,434,626
426,779
(426,779
(a) Balances as of December 31, 2022
64
Consolidating balance sheets as of March 31, 2023 continued:
729,679
4,470
26,890
57,418
928
335,227
153,007
391,968
2,702
5,530
1,405,391
1,713
(77,615
25,082
2,544
13,644
(41,270
8,713,121
165,364
2,759,328
Non-Voting Common Stock
(291,442
(14,720
(225,904
246,443
7,002,938
214,832
329,379
(544,001
Cost of common shares in treasury, net
Cost of preferred shares in treasury, net
6,498,372
294,533
132,246
(420,960
65
Consolidating statement of operations by operating segment for the quarter ended December 31, 2023 are as follows:
(1,335
27,290
(800
2,013
28,693
(972
1,448
(74
754,859
13,117
4,633
(2,204
(b,c)
6,673
35,822
9,628
92
(602
1,080,210
19,882
44,640
(2,806
Equity in earnings of subsidiaries
14,226
(14,226
(d)
194,693
(14,601
(67,705
(120
375
126,623
7,955
(27,399
(1,914
(1,236
7,507
6,719
(a) Balances for the quarter ended September 30, 2023
(b) Eliminate intercompany lease / interest income
(c) Eliminate intercompany premiums
(d) Eliminate equity in earnings of subsidiaries
66
Consolidating statement of operations by operating segment for the quarter ended December 31, 2022 are as follows:
(1,390
1,614
27,230
(1,000
1,333
(109
718,067
11,790
5,109
(1,497
5,737
36,027
8,302
93
(629
991,690
17,620
48,141
(2,126
13,091
(13,091
317,808
(13,464
(59,294
373
258,160
4,701
(58,524
(2,167
199,636
8,679
3,628
(a) Balances for the quarter ended September 30, 2022
67
Consolidating statement of operations by operating segment for the nine months ended December 31, 2023 are as follows:
(3,491
74,708
(2,325
14,286
91,825
(2,862
3,890
(320
2,323,759
36,537
14,730
(6,122
15,360
115,032
26,569
275
91
(1,754
3,316,906
52,172
148,879
(7,876
41,318
(41,318
1,010,180
(42,440
(192,753
(360
1,122
816,333
14,679
(186,763
(7,567
(2,616
29,255
12,063
(a) Balances for the nine months ended September 30, 2023
68
Consolidating statement of operations by operating segment for the nine months ended December 31, 2022 are as follows:
(3,676
73,642
(1,100
1,269
73,659
(3,019
3,466
(700
2,234,359
33,560
15,776
(5,465
16,191
104,842
277
80
(1,889
Net gains on disposal of real estate
3,155,586
50,028
142,321
(7,354
24,618
(24,618
1,325,895
(25,759
(166,814
1,141
1,157,160
(273,701
(5,089
(1,652
883,459
19,794
8,428
(a) Balances for the nine months ended September 30, 2022
69
Consolidating cash flow statements by operating segment for the nine months ended December 31, 2023 are as follows:
Moving &Storage Consolidated
Property &Casualty Insurance (a)
Elimination
Earnings from consolidated entities
Adjustments to reconcile net earnings to the cash provided by operations:
11,718
1,241
(86
Net gains on sales of investments
(664
Net gains on equity securities
102,974
(983
(12,171
(1,203
6,157
(18,764
360
(2,223
(2,609
1,536
28,117
1,219
(15,120
(18,250
(4,540
(6,929
(2,157
3,023
(6,629
(417
(529
2,024
(721
1,146,980
27,431
65,632
(171,317
(22,144
(76,922
(518
(1
(16
(9,276
(123,671
225,000
12,173
210,316
1,413
16,596
30,204
Net cash used by investing activities
(1,748,067
(1,756
39,930
(page 1 of 2)
(a) Balance for the period ended September 30, 2023
70
Consolidating cash flow statements by operating segment for the nine months ended December 31, 2023 continued:
Payments of debt issuance costs
299,072
(87,838
Increase (decrease) in cash and cash equivalents
(297,947
25,675
17,724
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(page 2 of 2)
71
Consolidating cash flow statements by operating segment for the nine months ended December 31, 2022 are as follows:
(28,222
28,222
1,285
13,947
(4,470
(147
(75
8,770
Net losses on equity securities
125,717
(1,594
(2,416
23,092
(752
3,513
(13,126
122
(730
(29,478
2,703
61,253
2,096
13,299
(4,120
(7,491
633
1,134
(4,013
1,845
(799
(617
1,418,985
30,234
66,461
(2,079,490
3,066
(224,999
(42,039
(224,393
(3,177
(1,651
(2,677
(77,686
(125,309
17,938
130,352
1,181
83,254
143,166
(3,066
(1,773,412
(20,529
(77,829
(a) Balance for the period ended September 30, 2022
72
Consolidating cash flow statements by operating segment for the nine months ended December 31, 2022 continued:
Voting Common Stock dividends paid
Non-Voting Common Stock dividends paid
153,863
21,415
(213,270
9,705
10,047
2,643,213
10,800
50,124
2,429,943
20,505
60,171
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Item 3. Quantitative and Qualitative Disclosures About 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 their obligations. Following is a summary of our interest rate swap agreements as of December 31, 2023:
Notional Amount
Effective Date
Expiration Date
Fixed Rate
Floating Rate
58,487
2,234
7/15/2022
7/15/2032
2.86
1 Month SOFR
71,000
1,905
8/1/2022
8/1/2026
2.72
70,500
1,770
8/31/2026
2.75
100,000
(823
8/31/2023
8/31/2025
4.71
As of December 31, 2023, we had $749.4 million of variable rate debt obligations, of this amount, $449.4 million is not fixed through interest rate swaps. If Secured Overnight Funding Rate (“SOFR”) were to increase 100 basis points, the increase in interest expense on the variable rate debt would decrease future earnings and cash flows by $4.5 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 to determine their duration. These outcomes are compared to the characteristics of the assets that are currently supporting these liabilities assisting management in determining an asset allocation strategy for future investments that management believes will mitigate the overall effect of interest rates.
We use derivatives to hedge our equity market exposure to indexed annuity products sold by our Life Insurance company. These contracts earn a return for the contract holder based on the change in the value of the S&P 500 index between annual index point dates. We buy and sell listed equity and index call options and call option spreads. The credit risk is with the party in which the options are written. The net option price is paid up front and there are no additional cash requirements or additional contingent liabilities. These contracts are held at fair market value on our balance sheet. As of December 31, 2023 and March 31, 2023, these derivative hedges had a net market value of $8.8 million and $4.3 million, with notional amounts of $535.5 million and $465.7 million, respectively. These derivative instruments are included in Investments, other, on the consolidated balance sheets.
Although the call options are employed to be effective hedges against our policyholder obligations from an economic standpoint, they do not meet the requirements for hedge accounting under GAAP. Accordingly, the call options are marked to fair value on each reporting date with the change in fair value, plus or minus, included as a component of net investment and interest income. The change in fair value of the call options includes the gains or losses recognized at the expiration of the option term and the changes in fair value for open contracts.
Foreign Currency Exchange Rate Risk
The exposure to market risk for changes in foreign currency exchange rates relates primarily to our Canadian business. Approximately 5.2% of our revenue was generated in Canada during both the first nine months of fiscal 2024 and 2023. The result of a 10% 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, the risk associated with COVID-19 or similar events on system members or customers; the impact of the economic environment on demand for our products and the cost and availability of debt and capital; estimates of capital expenditures; plans for future operations, products or services, financing needs, and strategies; our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us; liquidity and the availability of financial resources to meet our needs, 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 beliefs regarding our sustainability practices; 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; the availability and economics of electric vehicles for our rental fleet; 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; the sufficiency of capital of our insurance subsidiaries; inflationary pressures that may challenge our ability to maintain or improve upon our operating margin; and expectations regarding the potential impact to our information technology infrastructure and on our financial performance and business operations of technology, cybersecurity or data security breaches, including any related costs, fines or lawsuits, and our ability to continue ongoing operations and safeguard the integrity of our information technology infrastructure, data, and employee, customer and vendor information, 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; fluctuations in quarterly results and seasonality; changes in, and our compliance with, government regulations, particularly environmental regulations and regulations relating to motor carrier operations; outcomes of litigation; 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 Report and in the Notes to 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.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2023. Based upon that evaluation, our CEO and CFO have concluded that as of December 31, 2023, our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below.
Previously Disclosed Material Weaknesses and Remediation Plan
Two-Class Method of Earnings per Share. As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, we implemented a plan to address the material weakness related to the accounting for the two-class method of earnings per share associated with the recently issued UHAL.B common stock, including:
These actions were completed in advance of our year end close process as of March 31, 2023, and the redesigned control operated as planned as part of our March 31, 2023, year-end close process.
In conjunction with our interim period close process as of September 30, 2023, the redesigned control again operated as designed. Therefore, based upon our testing of the redesigned control over these instances, we have concluded that the material weakness related to the calculation of earnings per share using the two-class method associated with the recently issued UHAL.B common stock, has been remediated.
General Information Technology Controls. As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, we determined a material weakness existed as management did not fully design, implement and monitor general information technology controls in the areas of program change management, user access, segregation of duties, and cyber security for systems supporting substantially all of the Company’s internal control processes. A substantial portion of the Company’s controls are dependent upon the information derived from the information technology systems and therefore the dependent controls were concluded to be ineffective. Our management, under the oversight of our Audit Committee, has begun evaluating and implementing new controls or redesigning controls to remediate the control deficiencies giving rise to this material weakness. These remediations measures have included:
We are committed to maintaining a strong internal control environment, and believe that these remediation actions represent significant improvements in our controls under the Internal Control – Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission. As we continue to evaluate and work to improve our internal control over financial reporting, additional remediation measures may be required, which may require additional implementation time, or we may modify certain of our remediation measures. The material weakness related to the general information technology controls will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Other than the material weakness described above, there have not been any changes in our internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II Other information
Item 1. Legal Proceedings
The information regarding our legal proceedings in Note 9, Contingencies, of the Notes to Consolidated Financial Statements is incorporated by reference herein.
Item 1A. Risk Factors
The following discussion of potential risks under the caption ‘We are highly dependent upon our automated systems and the Internet for managing our business’ contains material updates to the risk factor described under the same heading in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Other than the following updated risk factor, we are not aware of any material updates to the risk factors described in that Annual Report.
We are highly dependent upon our automated systems and the Internet for managing our business.
Our information systems are largely Internet-based, including our point-of-sale reservation system, payment processing and telephone systems. While our reliance on this technology lowers our cost of providing service and expands our abilities to better serve customers, it exposes us to various risks, including natural and man-made disasters, terrorist attacks and cyber-attacks. We have put into place extensive security protocols, backup systems and alternative procedures to mitigate these risks. However, disruptions or breaches, detected or undetected by us, for any period of time in any portion of these systems could adversely affect our results of operations and financial condition and inflict reputational damage.
In addition, the provision of service to our customers and the operation of our networks and systems involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of customers, system members and others. Our information technology systems may be susceptible to computer viruses, attacks by computer hackers, malicious insiders or catastrophic events. Hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or ransom or other coordinated attacks that may cause service outages or other interruptions in our business and access to our data. In addition, breaches in security could expose us, our customers, or the individuals affected, to a risk of loss or misuse of proprietary information and sensitive or confidential data.
In 2022 and 2021, we experienced a cybersecurity incident, which is described in this Form 10-Q under the heading “Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operation – Cybersecurity Incident”. We have also experienced and continue to experience a significant increase in the number of attempted attacks on our technology systems, which could increase the likelihood that any of the risks described in this risk factor may be realized. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a
long time and often are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative or remedial measures.
Any of these occurrences could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, and litigation and potential liability for the Company. In addition, the cost and operational consequences of implementing further data or system protection measures could be significant, and our efforts to deter, identify, mitigate and/or eliminate any security breaches may not be successful.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
During the quarter ended December 31, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as those terms are defined in Item 408 of Regulation S-K.
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 U-Haul Holding Company
Incorporated by reference to U-Haul Holding Company’s Current Report on Form 8-K, filed on June 9, 2016, file no. 1-11255
3.2
U-Haul Holding Company Certificate of Designation of Series N Non-Voting Common Stock
Incorporated by reference to U-Haul Holding Company’s Current Report on Form 8-A, filed on October 24, 2022, file no. 1-11255
3.3
Restated Bylaws of U-Haul Holding Company
Incorporated by reference to U-Haul Holding Company’s Current Report on Form 8-K filed on December 19, 2022, file no. 1-11255
3.4
Articles of Conversion/Exchange/Merger
31.1
Rule 13a-14(a)/15d-14(a) Certificate of Edward J. Shoen, President and Chairman of the Board of U-Haul Holding Company
Filed herewith
31.2
Rule 13a-14(a)/15d-14(a) Certificate of Jason A. Berg, Chief Financial Officer of U-Haul Holding Company
32.1
Certificate of Edward J. Shoen, President and Chairman of the Board of U-Haul Holding Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished herewith
32.2
Certificate of Jason A. Berg, Chief Financial Officer of U-Haul Holding Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL Document
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents
104
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)
79
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 7, 2024
/s/ Edward J. Shoen
Edward J. Shoen
President and Chairman of the Board
(Principal Executive Officer)
/s/ Jason A. Berg
Jason A. Berg
Chief Financial Officer
(Principal Financial Officer)
/s/ Maria L. Bell
Maria L. Bell
Chief Accounting Officer
(Principal Accounting Officer)