U-Haul pany(UHAL_B) - 2024 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of U-Haul Holding Company, including balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for the periods ended December 31, 2023, and March 31, 2023, along with comparative data for 2022. It also includes detailed notes explaining the basis of presentation, accounting policies, and specific financial line items Consolidated Balance Sheets%29%20Consolidated%20Balance%20Sheets%20as%20of%20December%2031%2C%202023%20and%20March%2031%2C%202023%20%28unaudited%29) Consolidated Balance Sheet Highlights (In thousands) | Metric | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Total assets | $19,002,576 | $18,100,734 | | Total liabilities | $11,914,775 | $11,596,543 | | Total stockholders' equity | $7,087,801 | $6,504,191 | - Total assets increased by $901.8 million from March 31, 2023, to December 31, 2023, primarily driven by an increase in property, plant and equipment, net[9] - Total stockholders' equity increased by $583.6 million, reflecting an increase in retained earnings[9] Consolidated Statements of Operations (Quarterly)%29%20Consolidated%20Statements%20of%20Operations%20for%20the%20Quarters%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Quarterly Consolidated Statements of Operations Highlights (In thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Total revenues | $1,339,514 | $1,375,336 | -$35,822 | | Earnings from operations | $197,588 | $320,011 | -$122,423 | | Pretax earnings | $129,773 | $260,616 | -$130,843 | | Net earnings available to common stockholders | $99,224 | $198,852 | -$99,628 | | Basic and diluted EPS (Common Stock) | $0.46 | $0.98 | -$0.52 | | Basic and diluted EPS (Series N Non-Voting Common Stock) | $0.51 | $1.02 | -$0.51 | - Total revenues decreased by $35.8 million, primarily due to a $59.0 million decrease in self-moving equipment rental revenues, partially offset by a $20.0 million increase in self-storage revenues[10][216][217] - Net earnings available to common stockholders decreased by $99.6 million, or 50.1%, year-over-year[10] Consolidated Statements of Operations (Nine Months)%29%20Consolidated%20Statements%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Nine Months Consolidated Statements of Operations Highlights (In thousands, except per share amounts) | Metric | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Total revenues | $4,529,682 | $4,676,040 | -$146,358 | | Earnings from operations | $1,019,601 | $1,335,459 | -$315,858 | | Pretax earnings | $826,516 | $1,167,505 | -$340,989 | | Net earnings available to common stockholders | $629,570 | $887,063 | -$257,493 | | Basic and diluted EPS (Common Stock) | $3.09 | $5.39 | -$2.30 | | Basic and diluted EPS (Series N Non-Voting Common Stock) | $3.22 | $4.43 | -$1.21 | - Total revenues for the nine months decreased by $146.4 million, primarily due to a $243.2 million decrease in self-moving equipment rental revenues, partially offset by a $69.1 million increase in self-storage revenues[13][245][246] - Net earnings available to common stockholders decreased by $257.5 million, or 29.0%, for the nine months ended December 31, 2023[13] Consolidated Statements of Comprehensive Income (Loss)%29%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29%20for%20the%20Quarters%20and%20Nine%20Months%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Comprehensive Income (Loss) Highlights (In thousands) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net earnings | $99,224 | $198,852 | $629,570 | $887,063 | | Total other comprehensive income (loss) | -$32,978 | -$60,239 | -$23,019 | -$298,744 | | Total comprehensive income (loss) | $66,246 | $138,613 | $606,551 | $588,319 | - Total other comprehensive income (loss) for the nine months ended December 31, 2023, improved significantly to a loss of $23.0 million compared to a loss of $298.7 million in the prior year, primarily due to a smaller unrealized net loss on investments[15] Consolidated Statements of Changes in Stockholders' Equity (Quarterly)%29%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20for%20the%20Quarters%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Quarterly Stockholders' Equity Changes (In thousands) | Metric | Dec 31, 2023 | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total stockholders' equity (End of Period) | $7,087,801 | $7,030,378 | $6,455,727 | $6,324,173 | | Net earnings | $99,224 | N/A | $198,852 | N/A | | Series N Non-Voting Common Stock dividends | -$8,823 | N/A | -$7,059 | N/A | | Net activity (Quarter) | $57,423 | N/A | $131,554 | N/A | - Total stockholders' equity increased from $7,030.4 million at September 30, 2023, to $7,087.8 million at December 31, 2023, driven by net earnings partially offset by other comprehensive losses and dividends[17] Consolidated Statements of Changes in Stockholders' Equity (Nine Months)%29%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20for%20the%20Nine%20Months%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Nine Months Stockholders' Equity Changes (In thousands) | Metric | Dec 31, 2023 | Mar 31, 2023 | Dec 31, 2022 | Mar 31, 2022 | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total stockholders' equity (End of Period) | $7,087,801 | $6,504,191 | $6,455,727 | $5,894,075 | | Net earnings | $629,570 | N/A | $887,063 | N/A | | Series N Non-Voting Common Stock dividends | -$22,941 | N/A | -$7,059 | N/A | | Common stock dividends | N/A | N/A | -$19,608 | N/A | | Net activity (Nine Months) | $583,610 | N/A | $561,652 | N/A | - Total stockholders' equity increased by $583.6 million for the nine months ended December 31, 2023, primarily due to net earnings of $629.6 million, partially offset by other comprehensive losses and dividends[19] Consolidated Statements of Cash Flows%29%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Nine%20Months%20Ended%20December%2031%2C%202023%20and%202022%20%28unaudited%29) Nine Months Consolidated Cash Flow Highlights (In thousands) | Metric | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Net cash provided by operating activities | $1,240,043 | $1,515,680 | -$275,637 | | Net cash used in investing activities | -$1,709,893 | -$1,871,770 | +$161,877 | | Net cash provided by financing activities | $211,234 | $175,278 | +$35,956 | | Decrease in cash and cash equivalents | -$254,548 | -$193,518 | -$61,030 | | Cash and cash equivalents at end of period | $1,805,976 | $2,510,619 | -$704,643 | - Net cash provided by operating activities decreased by $275.6 million, primarily due to lower operating profits and increased claim payments at Moving and Storage[20][276] - Net cash used in investing activities decreased by $161.9 million, driven by a decrease in purchases of fixed maturity investments and an increase in cash from short-term Treasury notes for insurance subsidiaries, despite increased property, plant, and equipment purchases[20][277] Notes to Consolidated Financial Statements%29%20Notes%20to%20Consolidated%20Financial%20Statements%20%28unaudited%29) Note 1. Basis of Presentation - The interim consolidated financial statements are unaudited and prepared in conformity with GAAP, reflecting all necessary recurring adjustments. They should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[24] - The Company has three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance[31] - The Company adopted ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, effective April 1, 2023, using a modified retrospective method[24][35][159] Note 2. Earnings per Share - Earnings per share are calculated using the two-class method, allocating undistributed earnings to Voting Common Stock (10%) and Series N Non-Voting Common Stock (90%) based on weighted average shares outstanding[48] Basic and Diluted EPS (Quarterly, in thousands, except per share amounts) | Stock Type | Q3 2023 EPS | Q3 2022 EPS | | :----------------------------------- | :---------- | :---------- | | Voting Common Stock | $0.46 | $0.98 | | Series N Non-Voting Common Stock | $0.51 | $1.02 | Basic and Diluted EPS (Nine Months, in thousands, except per share amounts) | Stock Type | 9M 2023 EPS | 9M 2022 EPS | | :----------------------------------- | :---------- | :---------- | | Voting Common Stock | $3.09 | $5.39 | | Series N Non-Voting Common Stock | $3.22 | $4.43 | Note 3. Investments Available-for-Sale Investments Fair Value (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | U.S. treasury securities and government obligations | $308,945 | $344,676 | | Corporate securities | $1,694,658 | $1,869,233 | | Mortgage-backed securities | $272,022 | $317,392 | | Total available-for-sale investments | $2,474,624 | $2,709,037 | - The Company recorded a net impairment charge of $0.4 million for the nine months ended December 31, 2023, compared to $2.2 million in the prior year, related to credit losses on available-for-sale debt securities[62] Other Investments Carrying Value (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Mortgage loans, net | $567,784 | $466,531 | | Short-term investments | $993 | $15,921 | | Real estate | $65,836 | $72,178 | | Total other investments | $660,253 | $575,540 | Note 4. Notes, Loans and Finance Leases Payable, net Long Term Debt (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Senior mortgages | $2,435,443 | $2,371,231 | | Finance liabilities (rental equipment) | $1,660,443 | $1,255,763 | | Private placements | $1,200,000 | $1,200,000 | | Total notes, loans and finance leases payable, net | $6,437,309 | $6,108,042 | - Total notes, loans and finance leases payable, net, increased by $329.3 million from March 31, 2023, to December 31, 2023[66] Interest Expense (In thousands) | Period | 2023 | 2022 | | :----------------------------------- | :------ | :------ | | Quarter ended Dec 31 | $67,450 | $59,041 | | Nine months ended Dec 31 | $191,991 | $166,033 | - Interest expense increased due to a higher average cost of debt, with the weighted average interest rate during the quarter ended December 31, 2023, at 6.64% compared to 4.68% in the prior year[70][71] Note 5. Derivatives - The Company uses interest rate swap agreements as cash flow hedges to manage exposure to changes in market interest rates, effectively fixing interest payments on certain SOFR indexed variable rate debt through July 2032[74] Derivative Fair Values (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Interest rate swaps (Assets) | $5,086 | $5,311 | | Equity market contracts (Assets) | $8,795 | $4,295 | - Economic hedges are used for equity market exposure to indexed annuity products, with changes in fair value recognized in net investment and interest income[76][78][320] Note 6. Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss (AOCI) (In thousands) | Component | Dec 31, 2023 | Sep 30, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | :----------- | | Foreign currency translation | -$53,651 | -$58,919 | -$56,539 | | Unrealized net gains (losses) on investments and impact of LFPB discount rates | -$258,478 | -$225,693 | -$232,740 | | Fair value of cash flow hedges | $3,838 | $9,299 | $4,007 | | Total AOCI | -$308,642 | -$275,664 | -$285,623 | - AOCI increased to a loss of $308.6 million as of December 31, 2023, from $285.6 million at March 31, 2023, primarily due to increased unrealized net losses on investments and the impact of LFPB discount rates[80] Note 7. Stockholders' Equity Non-Voting Common Stock Dividends Declared | Declared Date | Per Share Amount | | :----------------------------------- | :--------------- | | December 6, 2023 | $0.05 | | August 17, 2023 | $0.04 | | June 7, 2023 | $0.04 | | December 7, 2022 | $0.04 | Common Stock Dividends Declared | Declared Date | Per Share Amount | | :----------------------------------- | :--------------- | | August 18, 2022 | $0.50 | | April 6, 2022 | $0.50 | - No awards were issued under the 2016 AMERCO Stock Option Plan as of December 31, 2023[83] Note 8. Leases Right-of-Use (ROU) Assets, Net (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Finance ROU assets, net | $326,244 | $474,765 | | Operating ROU assets, net | $65,361 | $58,917 | | Total ROU assets, net | $391,605 | $533,682 | - Finance lease liabilities decreased to $137.0 million as of December 31, 2023, from $223.2 million at March 31, 2023[85] Weighted Average Lease Terms and Discount Rates | Lease Type | Dec 31, 2023 (Years) | Mar 31, 2023 (Years) | Dec 31, 2023 (Rate) | Mar 31, 2023 (Rate) | | :----------------------------------- | :------------------- | :------------------- | :------------------ | :------------------ | | Finance leases | 1 | 2 | 4.1% | 3.8% | | Operating leases | 19.1 | 19.2 | 4.6% | 4.7% | Note 9. Contingencies - A cybersecurity incident occurred between November 5, 2021, and April 8, 2022, where customer contracts containing names, dates of birth, and driver's license numbers were accessed. Class action lawsuits have been consolidated, with most claims dismissed except those under the California Consumer Privacy Act[89][90] - The Company is subject to environmental regulations and has remedial plans in place for hazardous substances on some properties, not expecting a material adverse effect on financial position[92][93] - Other litigation and claims arising from normal business operations are not expected to have a material effect on the Company's financial position or results of operations[94] Note 10. Related Party Transactions - The Company engages in related party transactions with entities substantially controlled by Blackwater Investments, Inc., which is owned by significant stockholders and trusts associated with the Chairman of the Board[95][96] Related Party Revenue (In thousands) | Source | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | :------ | :------ | | U-Haul management fee revenue from Blackwater | $7,135 | $7,170 | $22,585 | $22,726 | | U-Haul management fee revenue from Mercury | $3,003 | $2,910 | $5,997 | $5,770 | | Total | $10,138 | $10,080 | $28,582 | $28,496 | Related Party Costs and Expenses (In thousands) | Category | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | :------ | :------ | | U-Haul lease expenses to Blackwater | $604 | $604 | $1,812 | $1,812 | | U-Haul printing expenses to Blackwater | $877 | — | $2,194 | — | | U-Haul commission expenses to Blackwater | $18,946 | $20,016 | $65,684 | $71,283 | | Total | $20,427 | $20,620 | $69,690 | $73,095 | Note 11. Reportable Segment Information - The Company operates through three reportable segments: Moving and Storage, Property and Casualty Insurance, and Life Insurance[109] Quarterly Segment Revenues and Earnings from Operations (In thousands) | Segment | Q3 2023 Revenues | Q3 2023 Earnings | Q3 2022 Revenues | Q3 2022 Earnings | | :----------------------------------- | :--------------- | :--------------- | :--------------- | :--------------- | | Moving & Storage | $1,260,677 | $180,467 | $1,296,407 | $304,717 | | Property & Casualty Insurance | $29,303 | $9,421 | $28,466 | $10,846 | | Life Insurance | $52,715 | $8,075 | $52,962 | $4,821 | | Consolidated Total | $1,339,514 | $197,588 | $1,375,336 | $320,011 | Nine Months Segment Revenues and Earnings from Operations (In thousands) | Segment | 9M 2023 Revenues | 9M 2023 Earnings | 9M 2022 Revenues | 9M 2022 Earnings | | :----------------------------------- | :--------------- | :--------------- | :--------------- | :--------------- | | Moving & Storage | $4,285,768 | $968,862 | $4,456,863 | $1,301,277 | | Property & Casualty Insurance | $88,994 | $36,822 | $74,911 | $24,883 | | Life Insurance | $163,918 | $15,039 | $152,761 | $10,440 | | Consolidated Total | $4,529,682 | $1,019,601 | $4,676,040 | $1,335,459 | Note 12. Geographic Area Data Geographic Revenue and Pretax Earnings (Quarterly, in thousands) | Region | Q3 2023 Revenues | Q3 2023 Pretax Earnings | Q3 2022 Revenues | Q3 2022 Pretax Earnings | | :----------------------------------- | :--------------- | :---------------------- | :--------------- | :---------------------- | | United States | $1,273,821 | $125,531 | $1,311,117 | $253,386 | | Canada | $65,693 | $4,242 | $64,219 | $7,230 | | Consolidated Total | $1,339,514 | $129,773 | $1,375,336 | $260,616 | Geographic Revenue and Pretax Earnings (Nine Months, in thousands) | Region | 9M 2023 Revenues | 9M 2023 Pretax Earnings | 9M 2022 Revenues | 9M 2022 Pretax Earnings | | :----------------------------------- | :--------------- | :---------------------- | :--------------- | :---------------------- | | United States | $4,294,310 | $801,045 | $4,431,570 | $1,129,487 | | Canada | $235,372 | $25,471 | $244,470 | $38,018 | | Consolidated Total | $4,529,682 | $826,516 | $4,676,040 | $1,167,505 | - Canada accounted for approximately 5.2% of total revenues for both the first nine months of fiscal 2024 and 2023, and a 10% change in the U.S. dollar relative to the Canadian dollar is not expected to be material to net income[113][322] Note 13. Employee Benefit Plans Net Periodic Postretirement Benefit Cost (In thousands) | Component | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Service cost for benefits earned | $297 | $332 | $891 | $995 | | Total other components of net periodic benefit costs | $365 | $304 | $1,094 | $912 | | Net periodic postretirement benefit cost | $662 | $636 | $1,985 | $1,907 | - Net periodic postretirement benefit cost increased slightly for both the quarter and nine months ended December 31, 2023, compared to the prior year, primarily due to higher interest costs on accumulated postretirement benefits[115] Note 14. Fair Value Measurements - Financial assets and liabilities measured at fair value are classified into a three-tiered hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable significant inputs)[116] Financial Assets Measured at Fair Value (In thousands) | Category | Dec 31, 2023 Total | Dec 31, 2023 Level 1 | Dec 31, 2023 Level 2 | Dec 31, 2023 Level 3 | | :----------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Fixed maturities - available for sale | $2,474,624 | $217,917 | $2,256,648 | $59 | | Preferred stock | $20,141 | $20,141 | — | — | | Common stock | $39,534 | $39,534 | — | — | | Derivatives | $13,881 | $8,795 | $5,086 | — | | Total | $2,548,180 | $286,387 | $2,261,734 | $59 | - The fair values of cash equivalents, mortgage loans, and trade receivables approximate their recorded values due to short maturity periods or consistent lending practices[121][123][124] Note 15. Revenue Recognition - Revenue is recognized based on a five-step model under ASC Topic 606 for contracts with customers, excluding leases, insurance, and financial instruments[127] - Self-moving equipment rentals and self-storage revenues are recognized over the contract period under ASC Topic 842 (Leases)[135][136][139] Disaggregated Revenues by Timing of Recognition (Nine Months, in thousands) | Recognition Method | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | | Revenues recognized over time (ASC 606) | $283,468 | $300,082 | | Revenues recognized at a point in time (ASC 606) | $315,084 | $338,019 | | Revenues recognized under ASC 842 (Leases) | $3,599,867 | $3,772,203 | | Revenues recognized under ASC 944 (Insurance) | $144,476 | $149,360 | | Revenues recognized under ASC 320 (Investments) | $186,787 | $116,376 | | Total revenues | $4,529,682 | $4,676,040 | Note 16. Allowance for Credit Losses - The allowance for expected credit losses for trade receivables was estimated at approximately 4% as of December 31, 2023, and March 31, 2023, based on historical loss rates adjusted for current economic conditions[151] Allowance for Credit Losses (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Trade Receivables | $4,345 | $3,789 | | Fixed Maturities | $1,704 | $2,101 | | Investments, other | $817 | $517 | | Total | $6,866 | $6,407 | - Accrued interest receivables and premium receivables are generally excluded from credit loss estimates due to timely write-off practices or policy cancellation rights[152][156] Note 17. Accounting Pronouncements - The Company adopted ASU 2018-12, 'Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts,' effective April 1, 2023, using a modified retrospective method with a transition date of April 1, 2021[159] - The adoption of ASU 2018-12 required quarterly updates to discount rate assumptions (affecting OCI) and annual reviews of cash flow assumptions (affecting results of operations) for long-duration contracts[160] - New ASUs include 2023-01 (Leases - Common Control Arrangements), 2023-07 (Segment Reporting), and 2023-09 (Income Taxes), which the Company is currently evaluating for potential impacts[178][179][180] Note 18. Deferred Policy Acquisition Costs, Net Deferred Policy Acquisition Costs (DAC) Rollforward (Nine Months, in thousands) | Category | Dec 31, 2023 | Dec 31, 2022 | | :----------------------------------- | :----------- | :----------- | | Balance, beginning of year | $128,463 | $131,430 | | Capitalization | $11,397 | $20,406 | | Amortization expense | -$19,026 | -$18,116 | | Balance, end of period | $120,834 | $133,720 | - DAC amortization expense increased to $19.0 million for the nine months ended December 31, 2023, from $18.1 million in the prior year, influenced by changes due to ASU 2018-12 adoption[182][184] Note 19. Policy Benefits and Losses, Claims and Loss Expenses Payable Policy Benefits and Losses, Claims and Loss Expenses Payable (In thousands) | Category | Dec 31, 2023 | Mar 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Policy benefits and losses, claims and loss expenses payable | $838,945 | $880,202 | | Liabilities from investment contracts | $2,363,143 | $2,398,884 | - The liability for future policy benefits for traditional and limited-payment long-duration life and health products is determined using the net level premium method, with quarterly remeasurement using current discount rates affecting Other Comprehensive Income[40][41] Liabilities from Investment Contracts Account Balances (Nine Months, in thousands) | Metric | 9M 2023 | 9M 2022 | | :----------------------------------- | :------ | :------ | | Beginning of year | $2,398,884 | $2,336,238 | | Deposits received | $206,800 | $243,144 | | Surrenders and withdrawals | -$265,999 | -$195,801 | | Interest credited | $52,594 | $40,328 | | End of period | $2,363,143 | $2,396,702 | | Weighted average credited rate | 2.96% | 2.27% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and future outlook, covering overall strategy, segment descriptions, critical accounting policies, detailed results of operations for the quarter and nine months, liquidity and capital resources, and the fiscal 2024 outlook, highlighting a decrease in self-moving equipment rental revenues and an increase in self-storage revenues, alongside higher operating expenses and interest costs General - The MD&A provides an overview of U-Haul Holding Company's strategy, operating segments, critical accounting estimates, results of operations, liquidity, and financial commitments[195] - The Company's fiscal quarter ends on December 31st, while insurance subsidiaries' third quarter ends on September 30th, with consolidation based on this difference[197] Overall Strategy - The Company's overall strategy is to maintain leadership in the 'do-it-yourself' moving and storage industry in the U.S. and Canada by providing a seamless and integrated supply chain[198] - Primary focus areas include expanding the selection and availability of moving rental equipment, convenient self-storage facilities, and related products and services[199] - Property and Casualty Insurance focuses on providing and administering insurance to U-Haul and its customers, while Life Insurance aims for long-term capital growth through life, Medicare supplement, and annuity policies in the senior market[200] Description of Operating and Reportable Segments - The three operating and reportable segments are Moving and Storage, Property and Casualty Insurance, and Life Insurance[201][212] - Moving and Storage includes rental of trucks, trailers, portable units, self-storage, and sales of moving supplies, operating under the U-Haul® trade name[202] - Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul and underwrites protection packages for U-Haul customers[208] - Life Insurance offers life and health insurance products, primarily to the senior market, through direct writing and reinsuring policies[209] Cybersecurity Incident - A data security incident occurred between November 2021 and April 2022, where customer names, dates of birth, and driver's license numbers were accessed due to compromised passwords[210][213] - U-Haul took immediate steps to contain the incident, enhanced security, and notified impacted customers and authorities. Financial, payment processing, or email systems were not involved[210][213] - Several class action lawsuits related to the incident have been consolidated, with all claims dismissed except those under the California Consumer Privacy Act, which the Company intends to vigorously defend[214] Critical Accounting Policies and Estimates - For critical accounting policies and estimates, refer to the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[215] Results of Operations Consolidated Results (Quarterly) Consolidated Revenue Breakdown (Quarterly, in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Self-moving equipment rental revenues | $839,801 | $898,819 | -$59,018 | | Self-storage revenues | $210,517 | $190,483 | +$20,034 | | Net investment and interest income | $57,457 | $52,294 | +$5,163 | | Total revenues | $1,339,514 | $1,375,336 | -$35,822 | - Self-moving equipment rental revenues decreased by $59.0 million due to declines in transactions, revenue, and average miles driven, particularly in one-way business[216] - Self-storage revenues increased by $20.0 million, driven by a 5.7% increase in average monthly occupied units and a 3.8% improvement in average revenue per occupied foot, with 1.0 million new net rentable square feet added[217] - Earnings from operations decreased by $122.4 million to $197.6 million, primarily due to increased total costs and expenses ($86.6 million increase), including higher operating expenses and depreciation[223][224][225] Moving and Storage Segment Results (Quarterly) Moving and Storage Revenue Breakdown (Quarterly, in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Self-moving equipment rental revenues | $841,136 | $900,209 | -$59,073 | | Self-storage revenues | $210,517 | $190,483 | +$20,034 | | Total Moving and Storage revenue | $1,260,677 | $1,296,407 | -$35,730 | - Self-storage average monthly occupancy rate decreased to 81.8% from 82.9% year-over-year, despite an increase in total square footage and occupied square footage[229] - Earnings from operations for Moving and Storage decreased by $124.3 million to $180.5 million, driven by increased operating expenses and depreciation, and decreased net gains from rental equipment disposal[232][233][234] Property and Casualty Insurance Segment Results (Quarterly) Property and Casualty Insurance Highlights (Quarterly, in thousands) | Metric | Q3 2023 | Q3 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Net premiums | $27,300 | $26,900 | +$400 | | Net investment and interest income | $2,000 | $1,600 | +$400 | | Pretax earnings from operations | $9,400 | $10,800 | -$1,400 | - Net premiums increased slightly, corresponding with improvements in U-Haul's storage and U-Box transactions[237] - Pretax earnings from operations decreased by $1.4 million due to increased operating expenses (commissions and personnel) and higher benefits and losses incurred[238][239] Life Insurance Segment Results (Quarterly) Life Insurance Highlights (Quarterly, in thousands) | Metric | Q3 2023 | Q3 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Net premiums | $22,600 | $24,400 | -$1,800 | | Net investment income | $28,700 | $27,200 | +$1,500 | | Pretax earnings (losses) from operations | $8,000 | $4,700 | +$3,300 | - Net premiums decreased by $1.8 million, primarily due to decreased life and Medicare supplement premiums from policy decrements outweighing sales[240] - Pretax earnings from operations increased by $3.3 million, driven by higher net investment income, including realized gains on derivatives, and decreased amortization of deferred acquisition costs[241][243][244] Consolidated Results (Nine Months) Consolidated Revenue Breakdown (Nine Months, in thousands) | Revenue Type | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Self-moving equipment rental revenues | $2,908,412 | $3,151,619 | -$243,207 | | Self-storage revenues | $618,368 | $549,246 | +$69,122 | | Net investment and interest income | $186,787 | $116,376 | +$70,411 | | Total revenues | $4,529,682 | $4,676,040 | -$146,358 | - Self-moving equipment rental revenues decreased by $243.2 million, while self-storage revenues increased by $69.1 million, driven by a 7.9% increase in occupied units and new capacity additions[245][246] - Net investment and interest income increased by $70.4 million, with Moving and Storage contributing $39.1 million due to higher interest rates on short-term deposits, and Life Insurance contributing $18.2 million from derivative gains[249] - Earnings from operations decreased by $315.9 million to $1,019.6 million, primarily due to a $169.5 million increase in total costs and expenses, including higher repair costs for the rental fleet and increased depreciation[252][253][254] Moving and Storage Segment Results (Nine Months) Moving and Storage Revenue Breakdown (Nine Months, in thousands) | Revenue Type | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Self-moving equipment rental revenues | $2,911,903 | $3,155,295 | -$243,392 | | Self-storage revenues | $618,368 | $549,246 | +$69,122 | | Total Moving and Storage revenue | $4,285,768 | $4,456,863 | -$171,095 | - Self-storage average monthly occupancy rate decreased to 82.9% from 84.2% year-over-year, despite adding 4.4 million net rentable square feet of new storage capacity[258] - Earnings from operations for Moving and Storage decreased by $332.4 million to $968.9 million, primarily due to a $161.3 million increase in total costs and expenses, including higher repair costs and depreciation, and decreased net gains from rental equipment disposal[261][262][263] Property and Casualty Insurance Segment Results (Nine Months) Property and Casualty Insurance Highlights (Nine Months, in thousands) | Metric | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Net premiums | $74,700 | $73,600 | +$1,100 | | Net investment and interest income | $14,300 | $1,300 | +$13,000 | | Pretax earnings from operations | $36,800 | $24,900 | +$11,900 | - Net investment and interest income significantly increased by $13.0 million, primarily due to an increase in the market value of common stock investments[266] - Pretax earnings from operations increased by $11.9 million, despite higher operating expenses, due to the substantial increase in net investment income[266][267] Life Insurance Segment Results (Nine Months) Life Insurance Highlights (Nine Months, in thousands) | Metric | 9M 2023 | 9M 2022 | Change (YoY) | | :----------------------------------- | :------ | :------ | :----------- | | Net premiums | $68,200 | $75,600 | -$7,400 | | Net investment income | $91,800 | $73,700 | +$18,100 | | Pretax earnings from operations | $14,700 | $10,300 | +$4,400 | - Net premiums decreased by $7.4 million, primarily due to decreased Medicare Supplement and life premiums, as policyholder lapses outweighed sales[268] - Net investment income increased by $18.1 million, driven by realized gains on derivatives used as hedges to fixed indexed annuities[269] - Pretax earnings from operations increased by $4.4 million, despite higher benefits and losses incurred due to increased interest credited to policyholders, offset by lower death claims and decreased amortization of DAC[271][272] Liquidity and Capital Resources Liquidity and Capital Resources by Segment Segment Financial Assets and Debt Obligations (As of Dec 31, 2023, in thousands) | Segment | Cash and cash equivalents | Other financial assets | Debt obligations | | :----------------------------------- | :---------------------- | :--------------------- | :--------------- | | Moving & Storage | $1,736,295 | $386,384 | $6,471,405 | | Property & Casualty Insurance (Sep 30, 2023) | $36,951 | $401,829 | — | | Life Insurance (Sep 30, 2023) | $32,730 | $2,627,129 | — | - Moving and Storage had $475.0 million in additional cash available under existing credit facilities as of December 31, 2023[275] - Moving and Storage invested $755 million (net of sales, excluding lease buyouts) in its rental equipment fleet and $969 million in real estate acquisitions, new construction, and renovation for the first nine months of fiscal 2024[279][281] - Property and Casualty Insurance's assets are generally restricted from non-insurance operations, with stockholders' equity at $319.8 million as of September 30, 2023[283][284] - Life Insurance's assets are also generally restricted, with stockholders' equity at $122.5 million as of September 30, 2023. It has $60.0 million in outstanding deposits with the FHLB and $82.8 million in availability[285][287] Cash Flows by Operating Segments Net Cash Provided by Operating Activities (Nine Months, in thousands) | Segment | 9M 2024 | 9M 2023 | | :----------------------------------- | :------ | :------ | | Moving and Storage | $1,147,000 | $1,419,000 | | Property and Casualty Insurance | $27,400 | $30,200 | | Life Insurance | $65,600 | $66,500 | - Moving and Storage's operating cash flow decreased due to lower operating profits and increased claim payments[288] - Insurance segments' operating cash flows decreased slightly due to timing of payables and settlement of receivables[289][291] Liquidity and Capital Resources - Summary - The Company believes it has sufficient financial resources, including significant cash, access to existing credit facilities, and additional liquidity, to meet business plans and capital expenditure requirements[293][296] - Refund claims from net operating loss carrybacks under the CARES Act total approximately $366 million, with $243 million already received, providing additional liquidity[294] - The borrowing strategy focuses on asset-backed financing, rental equipment leases, and private placement borrowings, aiming to ladder maturities and fix interest rates[296] Disclosures about Contractual Obligations and Commercial Commitments - Estimates for future contractual obligations have not materially changed from those disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[297] Fiscal 2024 Outlook - The Company will continue to focus on increasing transaction volume, improving pricing, product, and utilization for self-moving equipment rentals, with new investment in the truck fleet expected to increase[298] - For the storage business, plans include completing current projects, increasing occupancy, and acquiring new locations, with spending on acquisitions and new development likely to increase[299] - Inflationary pressures may challenge the ability to maintain or improve operating margins[300] - Life Insurance aims to expand its presence in the senior market by growing its agency force, expanding product offerings, and pursuing business acquisition opportunities[301] Consolidating Schedules by Operating and Reporting Segment - This section provides detailed consolidating balance sheets, statements of operations, and cash flow statements by operating segment, including elimination entries for U-Haul Holding Company and its subsidiaries[303][305][308][309][310][311][312][313][314][315] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to financial market risks, primarily interest rate risk and foreign currency exchange rate risk, and the strategies employed to mitigate them, highlighting the use of derivative financial instruments, such as interest rate swaps and equity market hedges, and provides a cautionary statement regarding forward-looking information Interest Rate Risk - The Company is exposed to interest rate risk primarily from variable rate debt obligations and one variable rate operating lease. Interest rate swap agreements are used to fix interest payments on certain SOFR indexed variable rate debt[317] Interest Rate Swap Agreements (As of Dec 31, 2023, in thousands) | Notional Amount | Fair Value | Fixed Rate | Floating Rate | | :----------------------------------- | :----------- | :--------- | :------------ | | $58,487 | $2,234 | 2.86% | 1 Month SOFR | | $71,000 | $1,905 | 2.72% | 1 Month SOFR | | $70,500 | $1,770 | 2.75% | 1 Month SOFR | | $100,000 | -$823 | 4.71% | 1 Month SOFR | - A 100 basis point increase in SOFR on the $449.4 million of unfixed variable rate debt would decrease future earnings and cash flows by $4.5 million annually[317] - Equity market exposure to indexed annuity products is hedged using listed equity and index call options, which are marked to fair value with changes recognized in net investment and interest income[319][320] Foreign Currency Exchange Rate Risk - The Company's exposure to foreign currency exchange rate risk primarily relates to its Canadian business, which generated approximately 5.2% of total revenues in both the first nine months of fiscal 2024 and 2023[322] - A 10% change in the value of the U.S. dollar relative to the Canadian dollar is not considered material to net income, and the Company typically does not hedge this risk[322] Cautionary Statements Regarding Forward-Looking Statements - The report contains forward-looking statements subject to risks and uncertainties, including economic conditions, competition, regulatory changes, litigation, and cybersecurity breaches[323][324] - Factors that could significantly affect results include fleet maintenance costs, reliance on manufacturers, ability to hedge debt, control by a small contingent of stockholders, and outcomes of litigation[324] - The Company assumes no obligation to update or revise any forward-looking statements, except as required by law[324] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting, detailing the remediation of a previously disclosed material weakness related to earnings per share calculation and ongoing efforts to address a material weakness in general information technology controls Evaluation of Disclosure Controls and Procedures - As of December 31, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to general information technology controls[326] Previously Disclosed Material Weaknesses and Remediation Plan - The material weakness related to the two-class method of earnings per share calculation for UHAL.B common stock has been remediated through redesigned controls, training, and enhanced documentation[327][328] - A material weakness in general information technology controls (program change management, user access, segregation of duties, cybersecurity) persists, with ongoing remediation efforts including formalizing policies, implementing new controls, and strengthening password policies[329][331] - The IT control material weakness will not be considered remediated until controls operate effectively for a sufficient period and are tested by management[332] Changes in Internal Control Over Financial Reporting - Other than the material weakness in general information technology controls, there have been no other material changes in internal control over financial reporting during the quarter ended December 31, 2023[333] PART II OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the information regarding legal proceedings from Note 9, Contingencies, in the Notes to Consolidated Financial Statements - Information on legal proceedings, including the cybersecurity incident and related class action lawsuits, is detailed in Note 9, Contingencies[335] Item 1A. Risk Factors This section updates the Company's risk factors, specifically highlighting the high dependency on automated systems and the Internet for business management, and the associated risks of disruptions, breaches, and cyber-attacks, including the impact of a previously experienced cybersecurity incident - The Company is highly dependent on its Internet-based automated systems for operations, exposing it to risks from natural disasters, terrorist attacks, and cyber-attacks[337] - Security breaches could lead to operational disruptions, loss of customers, reputational damage, litigation, and significant costs for protection measures[338][342] - The Company experienced a cybersecurity incident in 2022 and 2021 and continues to face a significant increase in attempted attacks, making it challenging to anticipate and prevent new techniques[339][341] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period Item 4. Mine Safety Disclosures This item is not applicable for the reporting period Item 5. Other Information This section states that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended December 31, 2023 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended December 31, 2023[346] Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including articles of incorporation, certificates of designation, bylaws, and certifications from executive officers - Exhibits include organizational documents (Amended and Restated Articles of Incorporation, Certificate of Designation of Series N Non-Voting Common Stock, Restated Bylaws) and certifications from the President, Chairman of the Board, and Chief Financial Officer[347][348]