dec09q.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, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  £ 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
 
19,607,788 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 2010.

 
 

 

TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5
 
6 – 36
Item 2.
37 – 54
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                
55
Item 4.
Controls and Procedures                                                                                                                
56
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                
57
Item 1A.
Risk Factors                                                                                                                
57
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                
57
Item 3.
Defaults Upon Senior Securities                                                                                                                
57
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                
57
Item 5.
Other Information                                                                                                                
57
Item 6.
Exhibits                                                                                                                
57


 
 

 

PART I FINANCIAL INFORMATION
 
ITEM 1. Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
March 31,
 
   
2009
   
2009
 
   
(Unaudited)
       
   
(In thousands)
 
ASSETS
           
Cash and cash equivalents
  $ 411,701     $ 240,587  
Reinsurance recoverables and trade receivables, net
    203,230       213,853  
Notes and mortgage receivables, net
    3,590       2,931  
Inventories, net
    57,683       70,749  
Prepaid expenses
    52,823       54,201  
Investments, fixed maturities and marketable equities
    552,672       519,631  
Investments, other
    213,871       227,022  
Deferred policy acquisition costs, net
    36,544       44,993  
Other assets
    174,453       133,644  
Related party assets
    294,767       303,534  
      2,001,334       1,811,145  
Property, plant and equipment, at cost:
               
Land
    224,154       212,744  
Buildings and improvements
    957,212       920,294  
Furniture and equipment
    327,787       333,314  
Rental trailers and other rental equipment
    242,008       214,988  
Rental trucks
    1,555,880       1,666,151  
      3,307,041       3,347,491  
Less: Accumulated depreciation
    (1,338,686 )     (1,333,563 )
Total property, plant and equipment
    1,968,355       2,013,928  
Total assets
  $ 3,969,689     $ 3,825,073  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
  $ 280,704     $ 329,227  
Notes, loans and leases payable
    1,537,903       1,546,490  
Policy benefits and losses, claims and loss expenses payable
    808,782       779,309  
Liabilities from investment contracts
    272,654       303,332  
Other policyholders' funds and liabilities
    10,631       11,961  
Deferred income
    25,210       24,612  
Deferred income taxes
    212,692       112,513  
Total liabilities
    3,148,576       3,107,444  
                 
Commitments and contingencies (notes 4, 8, 9 and 10)
               
Stockholders' equity:
               
Series preferred stock, with or without par value, 50,000,000 shares authorized:
               
Series A preferred stock, with no par value, 6,100,000 shares authorized;
               
6,020,000 and 6,100,000 shares issued and outstanding as of December 31 and March 31, 2009
    -       -  
Series B preferred stock, with no par value, 100,000 shares authorized; none
               
issued and outstanding as of December 31 and March 31, 2009
    -       -  
Series common stock, with or without par value, 150,000,000 shares authorized:
               
Series A common stock of $0.25 par value, 10,000,000 shares authorized;
               
none issued and outstanding as of December 31 and March 31, 2009
    -       -  
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
               
issued as of December 31 and March 31, 2009
    10,497       10,497  
Additional paid-in capital
    420,082       420,588  
Accumulated other comprehensive loss
    (56,188 )     (98,000 )
Retained earnings
    977,228       915,862  
Cost of common shares in treasury, net (22,377,912 shares as of December 31 and March 31, 2009)
    (525,653 )     (525,653 )
Unearned employee stock ownership plan shares
    (4,853 )     (5,665 )
Total stockholders' equity
    821,113       717,629  
Total liabilities and stockholders' equity
  $ 3,969,689     $ 3,825,073  
 

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

 
1

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Quarter Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 321,275     $ 311,557  
Self-storage revenues
    27,931       27,397  
Self-moving and self-storage products and service sales
    41,077       38,663  
Property management fees
    5,504       6,059  
Life insurance premiums
    39,011       27,509  
Property and casualty insurance premiums
    7,810       8,129  
Net investment and interest income
    12,689       14,913  
Other revenue
    8,331       8,357  
Total revenues
    463,628       442,584  
                 
Costs and expenses:
               
Operating expenses
    244,713       261,724  
Commission expenses
    37,974       36,664  
Cost of sales
    20,797       23,229  
Benefits and losses
    33,959       24,831  
Amortization of deferred policy acquisition costs
    2,154       2,743  
Lease expense
    38,447       38,719  
Depreciation, net of (gains) losses on disposals
    57,026       68,675  
Total costs and expenses
    435,070       456,585  
                 
Earnings (loss) from operations
    28,558       (14,001 )
Interest expense
    (23,517 )     (26,000 )
Pretax earnings (loss)
    5,041       (40,001 )
Income tax benefit (expense)
    (1,521 )     15,049  
Net earnings (loss)
    3,520       (24,952 )
Excess carrying amount of preferred stock over consideration paid
    10       -  
Less: Preferred stock dividends
    (3,205 )     (3,241 )
Earnings (loss) available to common shareholders
  $ 325     $ (28,193 )
Basic and diluted earnings (loss) per common share
  $ 0.02     $ (1.46 )
Weighted average common shares outstanding: Basic and diluted
    19,393,306       19,347,660  
 

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

 
2

 


 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Nine Months Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 1,121,419     $ 1,140,830  
Self-storage revenues
    82,347       82,849  
Self-moving and self-storage products and service sales
    154,421       159,515  
Property management fees
    14,432       15,496  
Life insurance premiums
    95,353       81,525  
Property and casualty insurance premiums
    21,071       21,612  
Net investment and interest income
    38,908       44,492  
Other revenue
    30,260       30,554  
Total revenues
    1,558,211       1,576,873  
                 
Costs and expenses:
               
Operating expenses
    776,944       800,527  
Commission expenses
    133,483       138,711  
Cost of sales
    79,606       90,856  
Benefits and losses
    87,460       74,577  
Amortization of deferred policy acquisition costs
    6,367       7,169  
Lease expense
    117,746       111,803  
Depreciation, net of (gains) losses on disposals
    173,033       200,047  
Total costs and expenses
    1,374,639       1,423,690  
                 
Earnings from operations
    183,572       153,183  
Interest expense
    (70,676 )     (74,774 )
Pretax earnings
    112,896       78,409  
Income tax expense
    (42,253 )     (29,711 )
Net earnings
    70,643       48,698  
Excess carrying amount of preferred stock over consideration paid
    381       -  
Less: Preferred stock dividends
    (9,658 )     (9,723 )
Earnings available to common shareholders
  $ 61,366     $ 38,975  
Basic and diluted earnings per common share
  $ 3.17     $ 2.01  
Weighted average common shares outstanding: Basic and diluted
    19,381,579       19,347,302  
 

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

 

 
3

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

 
   
Quarter Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income (loss):
           
Net earnings (loss)
  $ 3,520     $ (24,952 )
Other comprehensive income (loss), net of tax:
               
Foreign currency translation
    1,830       (11,178 )
Unrealized gain (loss) on investments
    8,506       (6,444 )
Change in fair value of cash flow hedges
    6,103       (32,661 )
Total comprehensive income (loss)
  $ 19,959     $ (75,235 )

 

   
Nine Months Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
           
Net earnings
  $ 70,643     $ 48,698  
Other comprehensive income (loss), net of tax:
               
Foreign currency translation
    11,733       (13,471 )
Unrealized gain (loss) on investments
    13,452       (10,118 )
Change in fair value of cash flow hedges
    16,627       (21,234 )
Total comprehensive income
  $ 112,455     $ 3,875  


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

 
4

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Nine Months Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands)
 
 Cash flow from operating activities:
           
 Net earnings
  $ 70,643     $ 48,698  
 Adjustments to reconcile net earnings to cash provided by operations:
               
 Depreciation
    174,539       185,027  
 Amortization of deferred policy acquisition costs
    6,367       7,169  
 Change in allowance for losses on trade receivables
    139       (138 )
 Change in allowance for losses on mortgage notes
    (6 )     (308 )
 Change in allowance for inventory reserves
    2,422       1,488  
 Net (gain) loss on sale of real and personal property
    (1,506 )     15,020  
 Net (gain) loss on sale of investments
    (850 )     153  
 Deferred income taxes
    39,767       22,108  
 Net change in other operating assets and liabilities:
               
Reinsurance recoverables and trade receivables
    10,478       (6,351 )
Inventories
    10,644       (11,573 )
Prepaid expenses
    1,378       6,726  
Capitalization of deferred policy acquisition costs
    (10,383 )     (7,509 )
Other assets
    4,535       (4,280 )
Related party assets
    2,152       3,786  
Accounts payable and accrued expenses
    (22,754 )     (6,924 )
Policy benefits and losses, claims and loss expenses payable
    27,010       (3,770 )
Other policyholders' funds and liabilities
    (1,329 )     (2,599 )
Deferred income
    418       10,675  
Related party liabilities
    (976 )     (4,493 )
 Net cash provided by operating activities
    312,688       252,905  
                 
 Cash flows from investing activities:
               
 Purchases of:
               
Property, plant and equipment
    (212,859 )     (316,970 )
Short term investments
    (206,681 )     (253,786 )
Fixed maturities investments
    (129,401 )     (126,375 )
Preferred stock
    (1,539 )     (2,000 )
Real estate
    (457 )     (412 )
Mortgage loans
    (2,213 )     (12,146 )
 Proceeds from sale of:
               
Property, plant and equipment
    130,789       106,435  
Short term investments
    216,932       244,399  
Fixed maturities investments
    127,244       195,451  
Equity securities
    -       28  
Preferred stock
    2,236       -  
Real estate
    53       704  
Mortgage loans
    4,728       5,165  
Payments from notes and mortgage receivables
    131       816  
 Net cash used by investing activities
    (71,037 )     (158,691 )
                 
 Cash flows from financing activities:
               
Borrowings from credit facilities
    63,093       165,330  
Principal repayments on credit facilities
    (98,877 )     (117,207 )
Debt issuance costs
    (2,325 )     (360 )
Capital lease payments
    (2,519 )     (561 )
Leveraged Employee Stock Ownership Plan - repayments from loan
    812       951  
Repurchase of stock
    -       (963 )
Preferred stock dividends paid
    (9,658 )     (9,723 )
Dividend from related party
    7,764       -  
Investment contract deposits
    8,230       14,460  
Investment contract withdrawals
    (38,908 )     (39,867 )
 Net cash provided (used) by financing activities
    (72,388 )     12,060  
                 
 Effects of exchange rate on cash
    1,851       (1,379 )
                 
 Increase in cash and cash equivalents
    171,114       104,895  
 Cash and cash equivalents at the beginning of period
    240,587       206,622  
 Cash and cash equivalents at the end of period
  $ 411,701     $ 311,517  
 

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

 
5

 

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 2009 and 2008 correspond to fiscal 2010 and 2009 for AMERCO.
 
Accounts denominated in non-U.S. currencies have been translated into U.S. dollars. Certain amounts reported in previous years have been reclassified to conform to the current presentation.
 
The condensed consolidated balance sheet as of December 31, 2009 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 of fiscal 2010 and 2009 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 2009 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.

 
6

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Description of Operating Segments
 
AMERCO has three reportable segments. They are Moving and Storage, Property and Casualty Insurance and Life Insurance.
 
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 and ARCOA risk retention group (“ARCOA”). Property and Casualty Insurance provides loss adjusting and claims handling for U-Haul through regional offices across North America. Property and Casualty Insurance also underwrites components of the Safemove, Safetow and Safestor protection packages to U-Haul customers. We continue to focus on increasing market penetration of these products. The business plan for Property and Casualty Insurance includes offering property and casualty products in other U-Haul related programs. ARCOA is a captive insurer owned by the Company whose purpose is to provide insurance products related to the moving and storage business.
 
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.
 
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 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 212,143 and 256,962 as of December 31, 2009 and 2008, respectively.
 
6,020,000 and 6,100,000 shares of preferred stock have been excluded from the weighted average shares outstanding calculation as of December 31, 2009 and 2008, respectively because they are not common stock and they are not convertible into common stock.
 
Between January 1, 2009 and September 30, 2009, RepWest purchased 80,000 shares of our AMERCO Series A 8 ½% Preferred Stock (NYSE-AO-PA) (“Series A Preferred”) on the open market at an average price of $19.24 per share. Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 - Earnings Per Share, for earnings per share purposes, the excess of the carrying amount of the Series A Preferred over the fair value of the consideration paid of $0.4 million, net of a prorated portion of original issue costs, was added to net earnings available to common shareholders for the first nine months of fiscal 2010.
 
In the future, should RepWest sell these shares of Series A Preferred to an unaffiliated entity, a proportionate share of this gain would be reversed at that time for earnings per share purposes.

 
7

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
3. Investments
 
Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
The Company deposits bonds with insurance regulatory authorities to meet statutory requirements. The adjusted cost of bonds on deposit with insurance regulatory authorities was $15.2 million at September 30, 2009.
 
Available-for-Sale Investments
 
Available-for-sale investments at September 30, 2009 were as follows:
 

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses More than 12 Months
   
Gross
Unrealized
Losses Less than 12 Months
   
Estimated
Market
Value
 
   
(Unaudited)
 
   
(In thousands)
 
U.S. treasury securities and government obligations
  $ 55,208     $ 2,543     $ (13 )   $ (51 )   $ 57,687  
U.S. government agency mortgage-backed securities
    92,611       5,814       -       -       98,425  
Obligations of states and political subdivisions
    16,141       325       (253 )     (655 )     15,558  
Corporate securities
    344,814       15,421       (4,470 )     (542 )     355,223  
Mortgage-backed securities
    10,323       166       (911 )     (13 )     9,565  
Redeemable preferred stocks
    20,658       864       (3,447 )     -       18,075  
Common stocks
    70       -       -       (57 )     13  
Less: Preferred stock of AMERCO held by RepWest
    (1,539 )     (335 )     -       -       (1,874 )
    $ 538,286     $ 24,798     $ (9,094 )   $ (1,318 )   $ 552,672  
 

 
The above table includes gross unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
 
The Company sold available-for-sale securities with a fair value of $129.4 million during the first nine months of fiscal 2010. The gross realized gains on these sales totaled $2.0 million. The Company realized gross losses on these sales of $0.5 million.
 
The unrealized losses of more than twelve months in the available-for-sale table are considered temporary declines. The Company tracks each investment with an unrealized loss and evaluates them on an individual basis for other-than-temporary impairments including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s future plans. Certain of these investments had declines determined by management to be other-than-temporary and the Company recognized these write-downs through earnings in the amount of $0.2 million for the third quarter of fiscal 2010 and 2009 and $0.7 million and $0.4 million for the first nine months of fiscal 2010 and 2009, respectively. In the fourth quarter of fiscal 2010, the Company will recognize approximately $1.5 million in additional impairments determined to be other-than-temporary.
 
The investment portfolio primarily consists of corporate securities and U.S. government securities. The Company believes it monitors its investments as appropriate. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity, the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. Nothing has come to management’s attention that would lead to the belief that each issuer would not have the ability to meet the remaining contractual obligations of the security, including payment at maturity. The Company has the ability and intent to hold its fixed maturity investments for a period of time sufficient to allow the Company to recover its costs.

 
8

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The portion of other-than-temporary impairment related to a credit loss is recognized in earnings. The significant inputs utilized in the evaluation of mortgage backed securities credit losses include ratings, delinquency rates, and prepayment activity. The significant inputs utilized in the evaluation of asset backed securities credit losses include the time frame for principal recovery and the subordination and value of the underlying collateral.
 
Below is a rollforward of credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.
 

   
Credit Loss
 
   
(Unaudited)
 
   
(In thousands)
 
Balance at March 31, 2009
  $ -  
Additions:
       
Other-than-temporary impairment not previously recognized
    322  
Balance at June 30, 2009
    322  
Additions:
       
Other-than-temporary impairment not previously recognized
    230  
Balance at September 30, 2009
  $ 552  
         
 

 
The adjusted cost and estimated market value of available-for-sale investments at September 30, 2009, by contractual maturity, were as follows:
 

   
Amortized
Cost
   
Estimated
Market
Value
 
   
(Unaudited)
 
   
(In thousands)
 
Due in one year or less
  $ 36,389     $ 36,348  
Due after one year through five years
    158,054       164,237  
Due after five years through ten years
    100,481       105,618  
After ten years
    213,850       220,690  
      508,774       526,893  
                 
Mortgage backed securities
    10,323       9,565  
Redeemable preferred stocks
    20,658       18,075  
Equity securities
    70       13  
Less: Preferred stock of AMERCO held by RepWest
    (1,539 )     (1,874 )
    $ 538,286     $ 552,672  
 


 
9

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
4. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
 

               
December 31,
   
March 31,
 
   
2010 Rate (a)
   
Maturities
   
2009
   
2009
 
               
(Unaudited)
       
               
(In thousands)
 
                         
Real estate loan (amortizing term)
    6.93 %     2018     $ 267,500     $ 275,000  
Real estate loan (revolving credit)
    1.74 %     2018       170,000       170,000  
Real estate loan (amortizing term) (b)
    5.00 %     2010       32,047       37,280  
Senior mortgages
    5.47% - 6.13 %     2015-2016       492,075       496,156  
Working capital loan (revolving credit)
    1.78 %     2011       25,000       -  
Fleet loans (amortizing term)
    4.87% - 7.95 %     2012-2016       279,889       299,505  
Fleet loans (securitization)
    5.40% - 5.56 %     2010-2014       232,651       256,690  
Other obligations
    5.64% - 9.50 %     2010-2016       38,741       11,859  
Total notes, loans and leases payable
                  $ 1,537,903     $ 1,546,490  
   
(a) Interest rate as of December 31, 2009, including the effect of applicable hedging instruments.
 
(b) Revolving credit loan for March 31, 2009 was modified to an amortizing term loan in June 2009.
 
 

 
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, 2009, the outstanding balance on the Real Estate Loan was $267.5 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, 2009, the applicable LIBOR was 0.24% and the applicable margin was 1.50%, the sum of which was 1.74%. 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, 2009, the applicable LIBOR was 0.24% and the applicable margin was 1.50%, the sum of which was 1.74%.
 
The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan effective June 29, 2006. This loan was modified and extended on June 25, 2009 into a term loan with a final maturity of June 2010. As of December 31, 2009, the outstanding balance was $32.0 million.

 
10

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
This Real Estate Loan requires monthly principal and interest payments with the unpaid principal and any accrued and unpaid interest due at maturity. The loan was used to develop new or existing storage properties. The loan is secured by these properties. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 3.00%. At December 31, 2009, the applicable LIBOR floor was 2.00% and the margin was 3.00%, the sum of which was 5.00%. U-Haul International, Inc. and AMERCO are guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
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, 2009 were in the aggregate amount of $435.2 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 $56.9 million as of December 31, 2009. These loans mature in 2015 and 2016. Rates for these loans range from 5.47% to 6.13%. 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.
 
Working Capital Loans
 
Amerco Real Estate Company is a borrower under an asset backed working capital loan. The maximum amount that can be drawn at any one time is $25.0 million. At December 31, 2009, the Company had drawn down $25.0 million on the revolving loan. The loan is secured by certain properties owned by the borrower. The loan agreement provides for revolving loans, subject to the terms of the loan agreement with final maturity in November 2011. 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. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. At December 31, 2009, the applicable LIBOR was 0.28% and the applicable margin was 1.50%, the sum of which was 1.78%.
 
Fleet Loans
 
Rental Truck Amortizing Loans
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of these loans as of December 31, 2009 was $279.9 million with the final maturities between April 2012 and April 2016.
 
The Amortizing Loans require monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. These loans were used to purchase new trucks. The interest rates, per the provision of the Loan Agreements, are the applicable LIBOR plus a margin between 0.90% and 2.63%. At December 31, 2009, the applicable LIBOR was 0.23% to 0.24% and the applicable margins were between 1.125% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 4.87% and 7.42% based on current margins. Additionally, $23.6 million of these loans are carried at a fixed rate of 7.95%.
 
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.

 
11

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
On December 31, 2009 a subsidiary of U-Haul International, Inc. entered into an $85.0 million term note that will be used to fund cargo van and pickup acquisitions for the next three years.  The Company will make draws on the facility to fund new cargo van and pickup truck purchases.  The loan matures thirty-six months after the last draw.  The agreement contains options to extend the maturity. The note will be secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  The interest rate is the applicable LIBOR plus a margin.  At December 31, 2009 the Company had not drawn on this loan.
 
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, 2009, the outstanding balance was $146.1 million. The note is secured by the box trucks that were purchased and the corresponding 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, 2009, the outstanding balance was $86.6 million. The note is secured by the cargo vans and pickup trucks that were purchased and the corresponding operating cash flows associated with their operation.
 
The Box Truck Note and the 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.
 
On January 28, 2010 the Company notified the trustee of its intent to fully repay the $86.6 million Cargo Van/Pickup Note on February 25, 2010. There are no prepayment penalties associated with this transaction.
 
Other Obligations
 
The Company entered into capital leases for new equipment between April 2008 and December 2009, with terms of the leases between 9 months and 7 years. At December 31, 2009, the balance of these leases was $37.3 million.
 
In April 2009, the Company entered into a $7.0 million premium financing arrangement for one year expiring in March 2010 with a fixed rate of 5.85%. At December 31, 2009, the outstanding balance was $1.5 million.
 
Annual Maturities of Notes, Loans and Leases Payable
 
The annual maturities of long-term debt and capital leases as of December 31, 2009 for the next five years and thereafter is as follows:
 



   
Year Ending December 31,
 
   
2010
   
2011
   
2012
   
2013
   
2014
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
   
Notes, loans and leases payable, secured
  $ 202,463     $ 115,513     $ 158,670     $ 56,409     $ 153,284     $ 851,564  
   



 
12

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
5. Interest on Borrowings
 
Interest Expense
 
Components of interest expense include the following:
 

   
Quarter Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands)
 
             
Interest expense
  $ 16,135     $ 20,641  
Capitalized interest
    (166 )     (292 )
Amortization of transaction costs
    1,269       1,207  
Interest expense resulting from derivatives
    6,279       4,444  
Total interest expense
  $ 23,517     $ 26,000  
 

   
Nine Months Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands)
 
             
Interest expense
  $ 48,411     $ 60,230  
Capitalized interest
    (459 )     (537 )
Amortization of transaction costs
    3,678       3,717  
Interest expense resulting from derivatives
    19,046       11,364  
Total interest expense
  $ 70,676     $ 74,774  
 

 
Interest paid in cash amounted to $14.6 million and $19.8 million for the third quarter of fiscal 2010 and 2009, respectively.
 
Interest paid in cash amounted to $44.1 million and $57.5 million for the first nine months of fiscal 2010 and 2009, respectively.

 
13

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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.


 
Original variable rate debt amount
 
Agreement Date
 
Effective Date
 
Expiration Date
 
Designated cash flow hedge date
(Unaudited)
(In millions)
$ 100.0  
(a), (c)
 
6/2/2005
 
6/8/2005
 
6/8/2010
 
7/1/2005
  142.3  
(a), (b)
 
11/15/2005
 
5/10/2006
 
4/10/2012
 
5/31/2006
  50.0  
(a)
 
6/21/2006
 
7/10/2006
 
7/10/2013
 
6/9/2006
  144.9  
(a), (b)
 
6/9/2006
 
10/10/2006
 
10/10/2012
 
6/9/2006
  300.0  
(a)
 
8/16/2006
 
8/18/2006
 
8/10/2018
 
8/4/2006
  30.0  
(a)
 
2/9/2007
 
2/12/2007
 
2/10/2014
 
2/9/2007
  20.0  
(a)
 
3/8/2007
 
3/12/2007
 
3/10/2014
 
3/8/2007
  20.0  
(a)
 
3/8/2007
 
3/12/2007
 
3/10/2014
 
3/8/2007
  19.3  
(a), (b)
 
4/8/2008
 
8/15/2008
 
6/15/2015
 
3/31/2008
  19.0  
(a)
 
8/27/2008
 
8/29/2008
 
7/10/2015
 
4/10/2008
  30.0  
(a)
 
9/24/2008
 
9/30/2008
 
9/10/2015
 
9/24/2008
  15.0  
(a), (b)
 
3/24/2009
 
3/30/2009
 
4/15/2016
 
3/25/2009
 
(a) interest rate swap agreement
           
(b) forward swap
           
(c) terminated swap 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 nine months ended December 31, 2009, the Company reclassified $0.7 million of the net derivative gain to interest income. The Company estimates that the remaining $0.5 million of the existing net gains will be reclassified into earnings within the next six months.
 
As of December 31, 2009, the total notional amount of the Company’s variable interest rate swaps was $530.2 million.
 


 
14

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The derivative fair values located in Accounts payable and accrued expenses in the balance sheets were as follows:
 

 
   
Liability Derivatives
 
   
Fair Value as of
 
   
December 31, 2009
   
March 31, 2009
 
   
(Unaudited)
       
   
(In thousands)
 
Interest rate contracts designated as hedging instruments
  $ 51,028     $ 79,118  

 

The Effect of Interest Rate Contracts on the Statement of Operations
 
December 31, 2009
 
   
(Unaudited)
 
   
(In thousands)
 
       
Loss recognized in income on interest rate contracts
  $ 19,046  
Gain recognized in AOCI on interest rate contracts (effective portion)
  $ 26,816  
Loss reclassified from AOCI into income (effective portion)
  $ 20,320  
Gain recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing)
  $ 1,274  
 

 
Amounts of gains or (losses) recognized in income on derivatives are recorded as interest expense in the statement of operations.
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
 

   
Revolving Credit Activity
 
   
Quarter Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
             
Weighted average interest rate during the quarter
    1.75 %     4.19 %
Interest rate at the end of the quarter
    1.75 %     3.34 %
Maximum amount outstanding during the quarter
  $ 195,000     $ 212,280  
Average amount outstanding during the quarter
  $ 195,000     $ 204,672  
Facility fees
  $ 229     $ 225  
 


 
15

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 

   
Revolving Credit Activity
 
   
Nine Months Ended December 31,
 
   
2009
   
2008
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
             
Weighted average interest rate during the first nine months
    1.81 %     4.15 %
Interest rate at the end of the first nine months
    1.75 %     3.34 %
Maximum amount outstanding during the first nine months
  $ 207,280     $ 212,280  
Average amount outstanding during the first nine months
  $ 195,386     $ 167,672  
Facility fees
  $ 709     $ 397  
 

 
6. Stockholders Equity
 
On December 3, 2008, the AMERCO Board of Directors (the “Board”) 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. No such shares have been purchased.
 
From January 1, 2009 through September 30, 2009, RepWest purchased 80,000 shares of Series A Preferred on the open market for $1.5 million. RepWest purchased an additional 27,200 shares on the open market for $0.6 million in the third quarter of fiscal 2010. RepWest and Oxford may make additional investments in shares of the Series A Preferred in the future.
 
7. Comprehensive Income (Loss)
 
A summary of accumulated other comprehensive income (loss) components, net of taxes, were as follows:
 

   
Foreign Currency Translation
   
Unrealized Gain (Loss) on Investments
   
Fair Market Value of Cash Flow Hedges
   
Postretirement Benefit Obligation Gain
   
Accumulated Other Comprehensive Income (Loss)
 
   
(Unaudited)
 
   
(In thousands)
 
                               
Balance at March 31, 2009
  $ (43,613 )   $ (7,323 )   $ (48,411 )   $ 1,347     $ (98,000 )
Foreign currency translation
    11,733       -       -       -       11,733  
Unrealized gain on investments
    -       13,452       -       -       13,452  
Change in fair value of cash flow hedges
    -       -       16,627       -       16,627  
Balance at December 31, 2009
  $ (31,880 )   $ 6,129     $ (31,784 )   $ 1,347     $ (56,188 )
 


 

 
16

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
8. 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 through 2017, with the exception of one land lease expiring in 2034. As of December 31, 2009, AMERCO had guaranteed $177.1 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, 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:
 

   
Property,
Plant and
Equipment
   
Rental
Equipment
   
Total
 
   
(Unaudited)
 
         
(In thousands)
       
Year-ended December 31:
                 
2010
  $ 15,533     $ 125,143     $ 140,676  
2011
    14,324       108,599       122,923  
2012
    13,988       93,930       107,918  
2013
    13,020       76,120       89,140  
2014
    5,768       52,388       58,156  
Thereafter
    6,136       32,340       38,476  
Total
  $ 68,769     $ 488,520     $ 557,289  
 

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

 
17

 

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 and the issues were fully briefed by October 19, 2009.
 
Environmental
 
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 $5.2 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 or results of operations.
 
10. Related Party Transactions
 
As set forth in the Audit Committee Charter and consistent with NASDAQ rules and regulations, the Audit Committee reviews and maintains oversight over related-party transactions which are required to be disclosed under the Securities and Exchange Commissions (the “SEC”) rules and regulations. Accordingly, all such related-party transactions are submitted to the Audit Committee for ongoing review and oversight. The Company’s internal processes ensure that the Company’s legal and/or finance departments identify and monitor potential related-party transactions which may require disclosure and Audit Committee oversight.
 
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were consummated on terms equivalent to those that would prevail in arm’s-length transactions.
 
SAC Holding Corporation and its subsidiaries (“SAC Holding Corporation”) and SAC Holding II Corporation and its subsidiaries (“SAC Holding II”), 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.

 
18

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
During the first nine months of fiscal 2010, 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 $14.2 million and $13.8 million, and received cash interest payments of $10.2 million and $11.6 million from SAC Holdings during the first nine months of fiscal 2010 and 2009, respectively. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2010 was $197.6 million and the aggregate notes receivable balance at December 31, 2009 was $197.1 million. In accordance with the terms of these notes, SAC Holdings may prepay 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 2010, 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 received cash interest payments of $4.0 million from Private Mini during the first nine months of fiscal 2010 and 2009, respectively. The balance of notes receivable from Private Mini at December 31, 2009 was $67.5 million. The largest aggregate amount outstanding during the first nine months of fiscal 2010 was $68.2 million.
 
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 $18.5 million and $20.1 million from the above mentioned entities during the first nine months of fiscal 2010 and 2009, 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 for the first nine months of fiscal 2010 and 2009. 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, 2009, 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 in commissions pursuant to such dealership contracts during the first nine months of fiscal 2010 and 2009.

 
19

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenue of $30.0 million, expenses of $1.8 million and cash flows of $28.9 million during the first nine months of fiscal 2010. Revenues and commission expenses related to the Dealer Agreements were $130.7 million and $27.5 million, respectively during the first nine months of fiscal 2010.
 
During the second quarter of fiscal 2010, Real Estate entered into an agreement with SAC Holdings for the exchange of three storage properties. Real Estate received one location with total rentable square feet of nearly 68,000 in exchange for two locations with total rentable square feet of approximately 56,000. U-Haul also reduced the balance of its receivable from SAC Holdings by approximately $2.0 million in relation to this exchange.
 
From January 1, 2009 through September 30, 2009, RepWest purchased 80,000 shares of Series A Preferred on the open market for $1.5 million. RepWest purchased an additional 27,200 shares on the open market for $0.6 million in the third quarter of fiscal 2010. RepWest and Oxford may make additional investments in shares of the Series A Preferred in the future.
 
Related Party Assets
 

   
December 31,
   
March 31,
 
   
2009
   
2009
 
   
(Unaudited)
       
   
(In thousands)
 
U-Haul notes, receivables and interest from Private Mini
  $ 72,814     $ 70,584  
U-Haul notes receivable from SAC Holdings
    197,087       197,552  
U-Haul interest receivable from SAC Holdings
    12,818       8,815  
U-Haul receivable from SAC Holdings
    13,855       20,517  
U-Haul receivable from Mercury
    5,874       6,264  
Other (a)
    (7,681 )     (198 )
    $ 294,767     $ 303,534  
 
(a) Our credit balance at December 31, 2009 was due to a timing difference for dividends paid by RepWest and Oxford to AMERCO in the amount of $7.8 million. This timing difference will reverse in the Company’s March 31, 2010 financial statements.
 
11. Consolidating Financial Information by Industry Segment
 
AMERCO has three reportable segments. They are Moving and Storage, Property and Casualty Insurance and Life Insurance. 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.
 
AMERCO’s three reportable segments are:
 
 
(a)
Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,
 
 
(b)
Property and Casualty Insurance, comprised of RepWest and its subsidiaries and ARCOA, and
 
 
(c)
Life Insurance, comprised of Oxford and its subsidiaries.
 
The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries.
 
Investments in subsidiaries are accounted for by the parent using the equity method of accounting.
 


 
20

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
11. Financial Information by Consolidating Industry Segment:
 
Consolidating balance sheets by industry segment as of December 31, 2009 are as follows:
 

   
Moving & Storage
     
AMERCO Legal Group
 
   
AMERCO
   
U-Haul
   
Real Estate
   
Eliminations
     
Moving & Storage
Consolidated
   
Property & Casualty Insurance (a)
   
Life
Insurance (a)
   
Eliminations
     
AMERCO
Consolidated
 
   
(Unaudited)
 
   
(In thousands)
 
Assets:
     
Cash and cash equivalents
  $ 444     $ 373,148     $ 3     $ -       $ 373,595     $ 22,330     $ 15,776     $ -       $ 411,701  
Reinsurance recoverables and trade receivables, net
    -       18,385       24       -         18,409       170,704       14,117       -         203,230  
Notes and mortgage receivables, net
    -       2,234       1,356       -         3,590       -       -       -         3,590  
Inventories, net
    -       57,683       -       -         57,683       -       -       -         57,683  
Prepaid expenses
    466       51,952       405       -         52,823       -       -       -         52,823  
Investments, fixed maturities and marketable equities
    -       -       -       -         -       101,947       452,599       (1,874 )
(d)
    552,672  
Investments, other
    -       1,078       13,950       -         15,028       106,052       92,791       -         213,871  
Deferred policy acquisition costs, net
    -       -       -       -         -       -       36,544       -         36,544  
Other assets
    42,993       102,537       27,797       -         173,327       581       545       -         174,453  
Related party assets
    1,293,580       246,866       59,157       (1,295,376 )
(c)
    304,227       2,643       -       (12,103 )
(c)
    294,767  
      1,337,483       853,883       102,692       (1,295,376 )       998,682       404,257       612,372       (13,977 )       2,001,334  
                                                                             
Investment in subsidiaries
    (258,967 )     -       -       580,413  
(b)
    321,446       -       -       (321,446 )
(b)
    -  
                                                                             
Property, plant and equipment, at cost:
                                                                           
Land
    -       43,775       180,379       -         224,154       -       -       -         224,154  
Buildings and improvements
    -       154,686       802,526       -         957,212       -       -       -         957,212  
Furniture and equipment
    251       309,392       18,144       -         327,787       -       -       -         327,787  
Rental trailers and other rental equipment
    -       242,008       -       -         242,008       -       -       -         242,008  
Rental trucks
    -       1,555,880       -       -         1,555,880       -       -       -         1,555,880  
      251       2,305,741       1,001,049       -         3,307,041       -       -       -         3,307,041  
Less:  Accumulated depreciation
    (216 )     (1,009,774 )     (328,696 )     -         (1,338,686 )     -       -       -         (1,338,686 )
Total property, plant and equipment
    35       1,295,967       672,353       -         1,968,355       -       -       -         1,968,355  
Total assets
  $ 1,078,551     $ 2,149,850     $ 775,045     $ (714,963 )     $ 3,288,483     $ 404,257     $ 612,372     $ (335,423 )     $ 3,969,689  
                                                                             
(a) Balances as of September 30, 2009
                                                                           
(b) Eliminate investment in subsidiaries
                                                                           
(c) Eliminate intercompany receivables and payables
                                                                           
(d) Eliminate intercompany preferred stock investment
                                                                           
 


 
21

 

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of December 31, 2009 are as follows:
 

   
Moving & Storage
     
AMERCO Legal Group
 
   
AMERCO
   
U-Haul
   
Real Estate
   
Eliminations
     
Moving & Storage
Consolidated
   
Property & Casualty Insurance (a)
   
Life
Insurance (a)
   
Eliminations
       
AMERCO
Consolidated
 
   
(Unaudited)
 
   
(In thousands)
 
Liabilities:
                                                           
Accounts payable and accrued expenses
  $ 1,104     $ 258,820     $ 5,004