dec10-q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2008

or

 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________ to __________________

     
Commission
File Number
Registrant, State of Incorporation,
Address and Telephone Number
I.R.S. Employer
Identification No.
 
 
amerco logo
 
     
1-11255
AMERCO
88-0106815
 
(A Nevada Corporation)
 
 
1325 Airmotive Way, Ste. 100
 
 
Reno, Nevada 89502-3239
 
 
Telephone (775) 688-6300
 
     


 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R  No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of a “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £          Accelerated filer R          Non-accelerated filer £          Smaller reporting company £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes £ No R
 
19,607,996 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 2009.

 
 

 

TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5
 
6 – 34
Item 2.
35 – 52
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                
52 – 53
Item 4.
Controls and Procedures                                                                                                                
53 – 54
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                
55
Item 1A.
Risk Factors                                                                                                                
55
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                
55 – 56
Item 3.
Defaults Upon Senior Securities                                                                                                                
56
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                
56
Item 5.
Other Information                                                                                                                
56
Item 6.
Exhibits                                                                                                                 
56


 
 

 

PART I FINANCIAL INFORMATION
 
ITEM 1.     Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
CONDENSED CONSOLIDATED BALANCE SHEETS

         
         
           
     
           
  $ 311,517     $ 206,622  
    208,193       201,116  
    3,133       2,088  
    75,434       65,349  
    49,435       56,159  
    538,323       633,784  
    200,126       185,591  
    48,047       35,578  
    135,134       131,138  
    304,624       303,886  
      1,873,966       1,821,311  
               
    207,148       208,164  
    914,585       859,882  
    326,422       309,960  
    211,155       205,572  
    1,683,369       1,734,425  
      3,342,679       3,318,003  
    (1,320,285 )     (1,306,827 )
    2,022,394       2,011,176  
  $ 3,896,360     $ 3,832,487  
               
               
  $ 325,059     $ 292,526  
    1,560,557       1,504,677  
    783,419       789,374  
    313,792       339,198  
    7,869       10,467  
    22,268       11,781  
    129,772       126,033  
    3,142,736       3,074,056  
               
               
               
               
    -       -  
               
    -       -  
               
               
    -       -  
               
    10,497       10,497  
    420,423       419,370  
    (100,102 )     (55,279 )
    954,390       915,415  
               
    (525,640 )     (524,677 )
    (5,944 )     (6,895 )
    753,624       758,431  
  $ 3,896,360     $ 3,832,487  
 

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


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
     
         
     
     
           
  $ 311,657     $ 326,937  
    27,397       29,630  
    38,663       43,211  
    6,059       6,925  
    27,509       27,757  
    8,029       7,738  
    14,913       16,008  
    8,357       7,254  
    442,584       465,460  
                 
               
    259,242       268,974  
    36,664       38,563  
    23,229       26,677  
    27,313       25,290  
    2,743       2,687  
    38,719       33,931  
    68,675       61,015  
    456,585       457,137  
                 
    (14,001 )     8,323  
    (26,000 )     (25,191 )
    (40,001 )     (16,868 )
    15,049       6,474  
    (24,952 )     (10,394 )
    (3,241 )     (3,241 )
  $ (28,193 )   $ (13,635 )
  $ (1.46 )   $ (0.69 )
    19,347,660       19,746,237  
 

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



 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
     
         
     
     
           
  $ 1,140,930     $ 1,155,240  
    82,849       94,754  
    159,515       174,420  
    15,496       14,865  
    81,525       84,881  
    21,512       20,986  
    44,492       46,695  
    30,554       24,236  
    1,576,873       1,616,077  
                 
               
    792,801       827,032  
    138,711       132,348  
    90,856       95,268  
    82,303       80,159  
    7,169       9,870  
    111,803       100,967  
    200,047       161,026  
    1,423,690       1,406,670  
                 
    153,183       209,407  
    (74,774 )     (76,356 )
    78,409       133,051  
    (29,711 )     (51,219 )
    48,698       81,832  
    (9,723 )     (9,723 )
  $ 38,975     $ 72,109  
  $ 2.01     $ 3.64  
    19,347,302       19,820,107  
 

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

 


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

 
     
         
     
     
           
  $ (24,952 )   $ (10,394 )
               
    (11,178 )     551  
    (6,444 )     2,106  
    (32,661 )     (10,846 )
  $ (75,235 )   $ (18,583 )

 

     
         
     
     
           
  $ 48,698     $ 81,832  
               
    (13,471 )     12,430  
    (10,118 )     819  
    (21,234 )     (12,287 )
  $ 3,875     $ 82,794  


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


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
     
         
     
     
           
  $ 48,698     $ 81,832  
               
    185,027       170,184  
    7,169       9,870  
    (138 )     75  
    (308 )     (29 )
    1,488       2,371  
    15,020       (9,158 )
    153       375  
    22,108       17,332  
               
    (6,947 )     4,816  
    (11,573 )     1,586  
    6,726       12,196  
    (7,509 )     (3,894 )
    (3,684 )     1,040  
    3,786       35,003  
    (6,924 )     (2,206 )
    (3,770 )     (3,038 )
    (2,599 )     (88 )
    10,675       (6,246 )
    (4,493 )     (9,131 )
    252,905       302,890  
                 
               
               
    (316,970 )     (440,328 )
    (253,786 )     (171,918 )
    (126,375 )     (56,505 )
    -       (27 )
    (2,000 )     -  
    (412 )     (3,404 )
    (12,146 )     (12,522 )
               
    106,435       134,099  
    244,399       192,974  
    195,451       77,773  
    28       46  
    -       5,625  
    704       784  
    5,165       6,394  
    816       89  
    (158,691 )     (266,920 )
                 
               
    165,330       487,626  
    (117,207 )     (244,108 )
    (360 )     (11,876 )
    (561 )     -  
    951       923  
    (963 )     (33,966 )
    -       (60,764 )
    (9,723 )     (9,723 )
    14,460       13,864  
    (39,867 )     (49,806 )
    12,060       92,170  
                 
    (1,379 )     311  
                 
    104,895       128,451  
    206,622       75,272  
  $ 311,517     $ 203,723  

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


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
1.      Basis of Presentation
 
The third fiscal quarter for AMERCO ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2008 and 2007 correspond to fiscal 2009 and 2008 for AMERCO.
 
Accounts denominated in non-U.S. currencies have been translated into U.S. dollars. Certain amounts reported in previous years have been reclassified to conform to the current presentation.
 
The condensed consolidated balance sheets as of December 31, 2008 and March 31, 2008 include the accounts of AMERCO and its wholly-owned subsidiaries. The December 31, 2008 condensed consolidated statements of operations and cash flows include the accounts of AMERCO and its wholly-owned subsidiaries. The December 31, 2007 condensed consolidated statements of operations and cash flows include the accounts of AMERCO and its wholly-owned subsidiaries and for SAC Holding II Corporation and its subsidiaries (“SAC Holding II”) through October 2007.
 
The condensed consolidated balance sheet as of December 31, 2008 and the related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2009 and 2008 are unaudited.
 
In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this 10-Q should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the AMERCO 2008 Form 10-K.
 
Intercompany accounts and transactions have been eliminated.
 
Description of Legal Entities
 
AMERCO, a Nevada corporation (“AMERCO”), is the holding company for:
 
U-Haul International, Inc. (“U-Haul”),
 
Amerco Real Estate Company (“Real Estate”),
 
Republic Western Insurance Company (“RepWest”), and
 
Oxford Life Insurance Company (“Oxford”).
 
Unless the context otherwise requires, the term “Company,” “we,” “us” or “our” refers to AMERCO and all of its legal subsidiaries.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Description of Operating Segments
 
AMERCO has (or had) four reportable segments. They are (or were) Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II (through October 2007).
 
Moving and Storage operations include AMERCO, U-Haul and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate and consist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane, the rental of self-storage spaces to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
Property and Casualty Insurance includes RepWest and its wholly-owned subsidiaries. RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. RepWest also underwrites components of the Safemove, Safetow and Safestor protection packages to U-Haul customers.
 
Life Insurance includes Oxford and its wholly-owned subsidiaries. Oxford provides life and health insurance products primarily to the senior market through the direct writing or reinsuring of life insurance, Medicare supplement and annuity policies. Additionally, Oxford administered the self-insured employee health and dental plans for Arizona employees of the Company until December 31, 2008.
 
SAC Holding II owns self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain SAC Holding II properties entitling AMERCO to potential future income based on the financial performance of these properties. Prior to November 2007, AMERCO was considered the primary beneficiary of these contractual interests. Consequently, for those reporting periods prior to November 2007, we included the results of SAC Holding II in the consolidated financial statements of AMERCO, as required by Financial Accounting Standards Board Interpretation No. 46 (R), Consolidation of Variable Interest Entities (“FIN 46(R)”).
 
2. Earnings (loss) per Share
 
Net earnings (loss) for purposes of computing earnings (loss) per common share are net earnings (loss) less preferred stock dividends. Preferred stock dividends include accrued dividends of AMERCO.
 
The weighted average common shares outstanding listed above exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares net of shares committed to be released were 256,962 and 306,846 as of December 31, 2008 and December 31, 2007, respectively.
 
6,100,000 shares of preferred stock have been excluded from the weighted average shares outstanding calculation because they are not common stock and they are not convertible into common stock.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
3. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
 
                     
                 
                       
                 
                         
    6.93 %       $ 277,500     $ 285,000  
    3.33 %         170,000       100,000  
    5.19% - 5.75 %     2009 - 2015       501,683       511,818  
    3.41 %         37,280       30,783  
    -           -       -  
    5.25% - 7.42 %     2012 - 2015       302,250       288,806  
    5.40% - 5.56 %     2010 - 2014       260,152       288,270  
    -       2009 - 2015       11,692       -  
            $ 1,560,557     $ 1,504,677  
                                 
         
 
 
Real Estate Backed Loans
 
Real Estate Loan
 
Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. The loan has a final maturity date of August 2018. The loan is comprised of a term loan facility with initial availability of $300.0 million and a revolving credit facility with an availability of $200.0 million. As of December 31, 2008, the outstanding balance on the Real Estate Loan was $277.5 million and $170.0 million had been drawn down on the revolving credit facility. U-Haul International, Inc. is a guarantor of this loan.
 
The amortizing term portion of the Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The revolving credit portion of the Real Estate Loan requires monthly interest payments when drawn, with the unpaid loan balance and any accrued and unpaid interest due at maturity.  The Real Estate Loan is secured by various properties owned by the borrowers.
 
The interest rate for the amortizing term portion, per the provisions of the amended Loan Agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At December 31, 2008, the applicable LIBOR was 1.83% and the applicable margin was 1.50%, the sum of which was 3.33%. The rate on the term facility portion of the loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin.
 
The interest rate for the revolving credit facility, per the provision of the amended Loan Agreement, is the applicable LIBOR plus the applicable margin. The margin ranges from 1.50% to 2.00%. At December 31, 2008, the applicable LIBOR was 1.83% and the applicable margin was 1.50%, the sum of which was 3.33%.
 
The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Senior Mortgages
 
Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. These senior mortgages loan balances as of December 31, 2008 were in the aggregate amount of $445.9 million and are due July 2015. The Senior Mortgages require average monthly principal and interest payments of $3.0 million with the unpaid loan balance and accrued and unpaid interest due at maturity. These senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of these senior mortgages, are 5.68% and 5.52% per annum. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarantees of these senior mortgages. The default provisions of these senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
Various subsidiaries of the Company are borrowers under the mortgage backed loans that we also classify as senior mortgages. These loans are secured by certain properties owned by the borrowers. The loan balance of these notes totals $55.8 million as of December 31, 2008. Maturity dates begin in 2009 with the majority maturing in 2015. Rates for these loans range from 5.19% to 5.75%. The loans require monthly principal and interest payments with the balances due upon maturity. The default provisions of the loans include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
Construction / Working Capital Loans
 
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan effective June 29, 2006. The maximum amount that can be drawn at any one time is $40.0 million.  The final maturity is June 2009. As of December 31, 2008, the outstanding balance was $37.3 million.
 
The Construction Loan requires monthly interest only payments with the principal and any accrued and unpaid interest due at maturity. The loan can be used to develop new or existing storage properties. The loan is secured by the properties being constructed. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. At December 31, 2008, the applicable LIBOR was 1.91% and the margin was 1.50%, the sum of which was 3.41%. U-Haul International, Inc. is a guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $35.0 million. The loan is secured by certain properties owned by the borrower. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. The loan agreement provides for revolving loans, subject to the terms of the loan agreement with final maturity in November 2009. The loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. At December 31, 2008, the Company had utilized $25.0 million of availability as collateral for a letter of credit, leaving the Company with $10.0 million of available credit.
 
Fleet Loans
 
Rental Truck Amortizing Loans
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The loans balances as of December 31, 2008 were $302.3 million with the final maturities between April 2012 and July 2015.
 
The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus a margin between 0.90% and 1.75%. At December 31, 2008, the applicable LIBOR was 1.20% to 1.83% and applicable margins were between 1.125% and 1.75%. The interest rates are hedged with interest rate swaps fixing the rates between 5.25% and 7.42% based on current margins.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
AMERCO and U-Haul International, Inc. are guarantors of these loans. The default provisions of these loans include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Rental Truck Securitizations
 
U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“Box Truck Note”) and an $86.6 million asset-backed note (“Cargo Van/Pickup Note”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from these securitized transactions were used to finance new box truck, cargo van and pickup truck purchases throughout fiscal 2008. U.S. Bank, NA acts as the trustee for this securitization.
 
The Box Truck Note has a fixed interest rate of 5.56% with an estimated final maturity of February 2014. At December 31, 2008, the outstanding balance was $173.6 million. The note is secured by the box trucks that were purchased and operating cash flows associated with their operation.
 
The Cargo Van/Pickup Note has a fixed interest rate of 5.40% with an estimated final maturity of May 2010. At December 31, 2008, the outstanding balance was $86.6 million. The note is secured by the cargo vans and pickup trucks that were purchased and the operating cash flows associated with their operation.
 
The Box Truck Note and Cargo Van/Pickup Note have the benefit of financial guaranty insurance policies that guarantee the timely payment of interest on and the ultimate payment of the principal of the notes.
 
The Box Truck Note and the Cargo Van/Pickup Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of the notes include non-payment of principal or interest and other standard reporting and change in control covenants.
 
Other Obligations
 
In April 2008, the Company entered into a $10.0 million capital lease for new rental equipment. The term of the lease is seven years and the Company has the option to purchase the equipment at a predetermined amount after the fifth year of the lease. At December 31, 2008, the balance on the lease was $9.4 million.
 
The Company entered into $7.9 million of premium financing arrangements for one year expiring in March and April 2009 at rates between 3.64% and 5.10%. At December 31, 2008, the outstanding balance of these arrangements was $2.3 million.
 
Annual Maturities of AMERCO Consolidated Notes, Loans and Leases Payable
 
The annual maturities of AMERCO consolidated long-term debt as of December 31, 2008 for the next five years and thereafter is as follows:
 
 
           
 
 
                       
$135,185   $167,937   $83,000   $149,041   $56,298   $969,096
 



AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
4. Interest on Borrowings
 
Interest Expense
 
Expenses associated with loans outstanding were as follows:
 
     
         
     
     
             
  $ 20,641     $ 23,495  
    (292 )     (227 )
    1,207       1,451  
    4,444       (14 )
    26,000       24,705  
    -       1,070  
    -       584  
    -       486  
  $ 26,000     $ 25,191  
 

     
         
     
     
             
  $ 60,230     $ 70,890  
    (537 )     (832 )
    3,717       3,846  
    11,364       (1,035 )
    74,774       72,869  
    -       7,537  
    -       4,050  
    -       3,487  
  $ 74,774     $ 76,356  
 

 
Interest paid in cash by AMERCO amounted to $19.8 million and $22.6 million for the third quarter of fiscal 2009 and 2008, respectively.
 
Interest paid in cash by AMERCO amounted to $57.5 million and $68.6 million for the first nine months of fiscal 2009 and 2008, respectively.
 
The Company manages exposure to changes in market interest rates. The Company’s use of derivative instruments is limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments) attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on certain of our LIBOR-indexed variable-rate debt. The interest rate swaps effectively fix the Company’s interest payments on certain LIBOR-indexed variable-rate debt. The Company monitors its positions and the credit ratings of its counterparties and does not currently anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
On May 13, 2004, the Company entered into an interest rate cap agreement for $50.0 million of our variable rate debt over a three year term; however, this agreement was dedesignated as a cash flow hedge effective July 11, 2005 when the Real Estate Loan was paid down by $222.4 million. The $50.0 million interest rate cap agreement expired on May 17, 2007. Subsequent to July 11, 2005, all changes in the interest rate caps fair value (including changes in the option’s time value) were charged to earnings as the original forecasted transaction was cancelled. Prior to July 11, 2005, the change in each caplets’ respective allocated fair value amount was reclassified out of accumulated other comprehensive income (loss) into earnings when each of the hedged forecasted transactions (the quarterly interest payments) impacted earnings and when interest payments were either made or received.
 
On June 8, 2005, the Company entered into separate interest rate swap agreements for $100.0 million of our variable-rate debt over a three year term and for $100.0 million of our variable-rate debt over a five-year term that were designated as cash flow hedges effective July 1, 2005. These swap agreements were cancelled on August 18, 2006 in conjunction with our amendment of the Real Estate Loan, and we entered into a new interest rate swap agreement for $300.0 million of our variable-rate debt over a twelve-year term effective on August 18, 2006. As of August 18, 2006, a net gain of approximately $6.0 million related to the two cancelled swaps was included in other comprehensive income (loss). As the variable-rate debt is replaced, it is probable that the original forecasted transaction (future interest payments) will continue to occur. Therefore, the net derivative gain related to the two cancelled swaps shall continue to be reported in other comprehensive income (loss) and be reclassified into earnings when the original forecasted transaction affects earnings consistent with the term of the original designated hedging relationship. For the first nine months ended December 31, 2008, the Company reclassified $1.0 million of the net derivative gain to interest income. The Company estimates that $1.0 million of the existing net gains will be reclassified into earnings within the next 12 months.
 
On November 15, 2005, the Company entered into a forward starting interest rate swap agreement for $142.3 million of our variable-rate debt over a six-year term that became effective on May 10, 2006. This swap was designated as a cash flow hedge effective May 31, 2006.
 
On June 21, 2006, the Company entered into an interest rate swap agreement for $50.0 million of our variable-rate debt over a seven-year term that became effective on July 10, 2006. On June 9, 2006, the Company entered into a forward starting interest rate swap agreement for $144.9 million of our variable-rate debt over a six-year term that became effective on October 10, 2006. On February 9, 2007, the Company entered into an interest rate swap agreement for $30.0 million of our variable-rate debt over a seven-year term that became effective on February 12, 2007. On March 8, 2007, the Company entered into two separate interest rate swap agreements each for $20.0 million of our variable-rate debt over seven-year terms that became effective on March 10, 2007.
 
On April 8, 2008, the Company entered into a forward starting interest rate swap agreement for $19.3 million of our variable-rate debt over a seven year term that became effective on August 15, 2008. On August 27, 2008, the Company entered into an interest rate swap agreement for $19.0 million of our variable-rate debt over a seven year term that became effective on August 29, 2008. On September 24, 2008, the Company entered into an interest rate swap agreement for $30.0 million of our variable-rate debt over a seven year term that became effective on September 30, 2008. These interest rate swap agreements were designated as cash flow hedges on their inception (trade dates).
 
For the first nine months ended December 31, 2008, the Company recognized net losses of $11.7 million from highly effective cash flow hedges, which are attributable to the portion of the change in the fair value of the hedges. The hedging relationship of certain interest rate swap agreements is not considered to be perfectly effective in which an effectiveness test is performed for each reporting period. The net loss attributable to the portion of the change in the fair value representing the amount of the hedges’ ineffectiveness recognized in earnings during the first nine months was $0.7 million included in interest expense. All forecasted transactions currently being hedged are expected to occur by 2018.
 



AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
 
     
     
         
     
     
    4.19 %     6.47 %
    3.34 %     6.75 %
  $ 212,280     $ 41,700  
  $ 204,672     $ 35,830  
  $ 225     $ 192  
 

     
     
         
     
     
    4.15 %     6.58 %
    3.34 %     6.75 %
  $ 212,280     $ 138,700  
  $ 167,672     $ 78,576  
  $ 397     $ 326  
 



AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
5. Stockholders Equity
 
On December 5, 2007, we announced that the Board of Directors (the “Board”) had authorized us to repurchase up to $50.0 million of our common stock. The stock was repurchased by the Company from time to time on the open market through December 31, 2008. The extent to which the Company repurchased its shares and the timing of such purchases were dependent upon market conditions and other corporate considerations. The purchases were funded from available working capital. During the third quarter of fiscal 2009, no shares of our common stock were repurchased, with the exception of the shares repurchased under our Odd Lot Repurchase Program detailed below. This program terminated on December 31, 2008.
 
 

 
On August 8, 2008, we announced the Board had authorized us to initiate a no-fee Odd Lot Repurchase Program (the “Program”) to purchase AMERCO common stock held by persons who own less than 100 shares of AMERCO common stock. The Program offer expired at 5:00 p.m. Eastern Standard Time on December 31, 2008. The following table details the shares purchased as part of the Program.
 

           
     
                   
    15,679     $ 42.04     $ 659,205  
                         
    4,786     $ 42.37     $ 202,804  
    2,147       38.26       82,141  
    519       35.68       18,517  
    7,452     $ 40.72     $ 303,462  
                         
    23,131     $ 41.62     $ 962,667  
                         
                       

 
 
On December 3, 2008, the Board authorized and directed us to amend the Employee Stock Ownership Plan (“ESOP”) to provide that distributions under the Plan with respect to accounts valued at no more than $1,000 shall be in the form of cash at the sole discretion of the advisory committee, subject to a participant’s or beneficiary’s right to elect a distribution of AMERCO common stock. The Board also authorized us, using management’s discretion, to buy back shares of former employee ESOP participants whose respective ESOP account balances are valued at more than $1,000 but who own less than 100 shares, at the then-prevailing market prices. During the third quarter of fiscal 2009, no such shares were purchased.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
6. Contingent Liabilities and Commitments
 
The Company leases a portion of its rental equipment and certain of its facilities under operating leases with terms that expire at various dates substantially through 2016, with the exception of one land lease expiring in 2034. At December 31, 2008, AMERCO has guaranteed $181.7 million of residual values for rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of each lease, the Company has the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. AMERCO has been leasing equipment since 1987 and has experienced no material losses relating to these types of residual value guarantees.
 
Lease commitments for leases having terms of more than one year were as follows:
 
             
     
                 
                 
  $ 12,965     $ 133,218     $ 146,183  
    12,620       116,234       128,854  
    12,489       99,412       111,901  
    12,238       84,846       97,084  
    11,364       66,962       78,326  
    10,578       63,762       74,340  
  $ 72,254     $ 564,434     $ 636,688  
 

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


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
In November 2006, the Plaintiffs filed an amended complaint. In December 2006, the Defendants filed motions to dismiss, based on various legal theories. In March 2007, the Court denied AMERCO’s motion to dismiss regarding the issue of demand futility, stating that “Plaintiffs have satisfied the heightened pleading requirements of demand futility by showing a majority of the members of the AMERCO Board of Directors were interested parties in the SAC transactions.” The Court heard oral argument on the remainder of the Defendants’ motions to dismiss, including the motion (“Goldwasser Motion”) based on the fact that the subject matter of the lawsuit had been settled and dismissed in earlier litigation known as Goldwasser v. Shoen, C.V.N.-94-00810-ECR (D.Nev), Washoe County, Nevada. In addition, in September and October 2007, the Defendants filed Motions for Judgment on the Pleadings or in the Alternative Summary Judgment, based on the fact that the stockholders of the Company had ratified the underlying transactions at the 2007 annual meeting of stockholders of AMERCO. In December 2007, the Court denied this motion. This ruling does not preclude a renewed motion for summary judgment after discovery and further proceedings on these issues. On April 7, 2008, the litigation was dismissed, on the basis of the Goldwasser Motion. On May 8, 2008, the Plaintiffs filed a notice of appeal of such dismissal to the Nevada Supreme Court. On May 20, 2008, AMERCO filed a cross appeal relating to the denial of its Motion to Dismiss in regard to demand futility. The appeals are currently pending.
 
Environmental
 
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management, that none of these suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material adverse effect on AMERCO’s financial position or results of operations.
 
Compliance with environmental requirements of federal, state and local governments may significantly affect Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
 
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to result in a material adverse effect on AMERCO’s financial position or results of operations. Real Estate expects to spend approximately $2.8 million in total through 2011 to remediate these properties.
 
Other
 
The Company is named as a defendant in various other litigation and claims arising out of the normal course of business. In management’s opinion, none of these other matters will have a material effect on the Company’s financial position and results of operations.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
8. Related Party Transactions
 
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were consummated on terms equivalent to those that would prevail in arm’s-length transactions.
 
SAC Holding Corporation and its subsidiaries and SAC Holding II Corporation and its subsidiaries, collectively referred to as “SAC Holdings” were established in order to acquire self-storage properties. These properties are being managed by the Company pursuant to management agreements. The sale of self-storage properties by the Company to SAC Holdings has in the past provided significant cash flows to the Company.
 
Management believes that its sales of self-storage properties to SAC Holdings has provided a unique structure for the Company to earn moving equipment rental revenues and property management fee revenues from the SAC Holdings self-storage properties that the Company manages.
 
During the first nine months of fiscal 2009, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments, Inc. (“Blackwater”). Blackwater is wholly-owned by Mark V. Shoen, a significant shareholder and executive officer of AMERCO. The Company does not have an equity ownership interest in SAC Holdings. The Company recorded interest income of $13.8 million and $14.0 million, and received cash interest payments of $11.6 million and $14.9 million from SAC Holdings during the first nine months of fiscal 2009 and 2008, respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2009 was $198.1 million and the aggregate notes receivable balance at December 31, 2008 was $197.7 million. In accordance with the terms of these notes, SAC Holdings may repay the notes without penalty or premium at any time.
 
Interest accrues on the outstanding principal balance of junior notes of SAC Holdings that the Company holds at a 9.0% rate per annum. A fixed portion of that basic interest is paid on a monthly basis. Additional interest can be earned on notes totaling $122.2 million of principal depending upon the amount of remaining basic interest and the cash flow generated by the underlying property. This amount is referred to as the “cash flow-based calculation.”
 
To the extent that this cash flow-based calculation exceeds the amount of remaining basic interest, contingent interest would be paid on the same monthly date as the fixed portion of basic interest. To the extent that the cash flow-based calculation is less than the amount of remaining basic interest, the additional interest payable on the applicable monthly date is limited to the amount of that cash flow-based calculation. In such a case, the excess of the remaining basic interest over the cash flow-based calculation is deferred. In addition, subject to certain contingencies, the junior notes provide that the holder of the note is entitled to receive a portion of the appreciation realized upon, among other things, the sale of such property by SAC Holdings. To date, no excess cash flows related to these arrangements have been earned or paid.
 
During the first nine months of fiscal 2009, AMERCO and U-Haul held various junior notes with Private Mini Storage Realty L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater.  The Company recorded interest income of $4.0 million and $3.8 million during the first nine months of fiscal 2009 and 2008, and received cash interest payments of $4.0 million and $3.7 million, from Private Mini during the first nine months of fiscal 2009 and 2008, respectively. The balance of notes receivable from Private Mini at December 31, 2008 was $68.5 million. The largest aggregate amount outstanding during fiscal 2009 was $69.1 million.


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The Company currently manages the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini pursuant to a standard form of management agreement, under which the Company receives a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. The Company received management fees, exclusive of reimbursed expenses, of $20.1 million and $19.4 million from the above mentioned entities during the first nine months of fiscal 2009 and 2008, respectively. This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant shareholder and director of AMERCO, has an interest in Mercury.
 
The Company leases space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. Total lease payments pursuant to such leases were $1.8 million and $1.5 million for the first nine months of fiscal 2009 and 2008, respectively. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to the Company.
 
At December 31, 2008, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with the Company’s other independent dealers whereby commissions are paid by the Company based upon equipment rental revenues. The Company paid the above mentioned entities $27.5 million and $28.7 million in commissions pursuant to such dealership contracts during the first nine months of fiscal 2009 and 2008, respectively.
 
These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenue of $30.2 million, expenses of $1.8 million and cash flows of $30.9 million during the first nine months of fiscal 2009. Revenues and commission expenses related to the Dealer Agreements were $130.1 million and $27.5 million, respectively.
 
In prior years, U-Haul sold various properties to SAC Holdings at prices in excess of U-Haul’s carrying values resulting in gains which U-Haul deferred and treated as additional paid-in capital. The transferred properties have historically been stated at the original cost basis as the gains were eliminated in consolidation. In March 2004, a portion of these deferred gains were recognized and treated as contributions from a related party in the amount of $111.0 million as a result of the deconsolidation of SAC Holding Corporation. In November 2007, the remaining portion of these deferred gains were recognized and treated as contributions from a related party in the amount of $46.1 million as a result of the deconsolidation of SAC Holding II Corporation.
 
Related Party Assets
 

         
         
           
     
  $ 74,297     $ 71,038  
    197,723       198,144  
    6,786       4,498  
    19,746       20,617  
    6,077       6,791  
    (5 )     2,798  
    $ 304,624     $ 303,886  
 



AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
9. Consolidating Financial Information by Industry Segment
 
AMERCO has (or had) four reportable segments. They are (or were) Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II. Management tracks revenues separately, but does not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.
 
The consolidated balance sheets as of December 31, 2008 and March 31, 2008 include the accounts of AMERCO and its wholly-owned subsidiaries. The December 31, 2008 consolidated statements of operations and cash flows include the accounts of AMERCO and its wholly-owned subsidiaries. The December 31, 2007 consolidated statements of operations and cash flows include the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holding II and its subsidiaries through October 2007.
 
AMERCO’s four reportable segments are (or were):
 
 
 
 
 
The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries and SAC Holding II and its subsidiaries.
 
Investments in subsidiaries are accounted for by the parent using the equity method of accounting.
 



AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
9. Financial Information by Consolidating Industry Segment:
 
Consolidating balance sheets by industry segment as of December 31, 2008 are as follows:
 
         
                                         
     
     
     
  $ 30     $ 272,458     $ -     $ -       $ 272,488     $ 33,224     $ 5,805     $ -       $ 311,517  
    -       16,304       26       -         16,330       181,526       10,337       -         208,193  
    -       2,008       1,125       -         3,133       -       -       -         3,133  
    -       75,434       -       -         75,434       -       -       -         75,434  
    20       48,978       437       -         49,435       -       -       -         49,435  
    -       -       -       -         -       91,954       446,369       -         538,323  
    -       846       12,811       -         13,657       93,966       92,503       -         200,126  
    -       -       -       -         -       -       48,047       -         48,047  
    9       103,808       29,234       -         133,051       1,696       387       -         135,134  
    1,208,643       249,237       81,104       (1,231,699 )     307,285       2,387       -       (5,048 )     304,624  
      1,208,702       769,073       124,737       (1,231,699 )       870,813       404,753       603,448       (5,048 )       1,873,966  
                                                                             
    (274,025 )     -       -       574,432       300,407       -       -       (300,407 )     -  
                                                                             
                                                                           
    -       40,195       166,953       -         207,148       -       -       -         207,148  
    -       148,197       766,388       -         914,585       -       -       -         914,585  
    301       307,959       18,162       -         326,422       -       -       -         326,422  
    -       211,155       -       -         211,155       -       -       -         211,155  
    -       1,683,369       -       -         1,683,369       -       -       -         1,683,369  
      301       2,390,875       951,503       -         3,342,679       -       -       -         3,342,679  
    (252 )     (1,003,900 )     (316,133 )     -         (1,320,285 )     -       -       -         (1,320,285 )
    49       1,386,975       635,370       -         2,022,394       -       -       -         2,022,394  
  $ 934,726     $ 2,156,048     $ 760,107     $ (657,267 )     $ 3,193,614     $ 404,753     $ 603,448     $ (305,455 )     $ 3,896,360  
                                                                             
                                                                           
                                                                           
                                                                           
 



 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of December 31, 2008 are as follows: