body10q.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 June 30, 2010

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.
 
Larger 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 August 1, 2010.
 


 
 

 

TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5 - 31
Item 2.
32 - 45
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                
46
Item 4.
Controls and Procedures                                                                                                                
46 - 47
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                
47
Item 1A.
Risk Factors                                                                                                                
47
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                
47
Item 3.
Defaults Upon Senior Securities                                                                                                                
48
Item 4.
(Removed and Reserved)                                                                                                                
48
Item 5.
Other Information                                                                                                                
48
Item 6.
Exhibits                                                                                                                
48


 
 

 

PART I FINANCIAL INFORMATION
 
ITEM 1.   Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
June 30,
   
March 31,
 
   
2010
   
2010
 
   
(Unaudited)
       
   
(In thousands)
 
ASSETS
           
Cash and cash equivalents
  $ 288,114     $ 244,118  
Reinsurance recoverables and trade receivables, net
    213,656       198,283  
Notes and mortgage receivables, net
    1,227       1,461  
Inventories, net
    55,626       52,837  
Prepaid expenses
    55,710       53,379  
Investments, fixed maturities and marketable equities
    593,562       549,318  
Investments, other
    192,724       227,486  
Deferred policy acquisition costs, net
    38,905       39,194  
Other assets
    146,993       145,864  
Related party assets
    296,601       302,126  
      1,883,118       1,814,066  
Property, plant and equipment, at cost:
               
Land
    223,753       224,904  
Buildings and improvements
    992,336       970,937  
Furniture and equipment
    324,988       323,334  
Rental trailers and other rental equipment
    242,451       244,131  
Rental trucks
    1,562,423       1,529,817  
      3,345,951       3,293,123  
Less: Accumulated depreciation
    (1,349,529 )     (1,344,735 )
Total property, plant and equipment
    1,996,422       1,948,388  
Total assets
  $ 3,879,540     $ 3,762,454  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
  $ 338,794     $ 296,057  
Notes, loans and leases payable
    1,338,636       1,347,635  
Policy benefits and losses, claims and loss expenses payable
    826,189       816,909  
Liabilities from investment contracts
    263,142       268,810  
Other policyholders' funds and liabilities
    8,055       8,155  
Deferred income
    31,889       25,207  
Deferred income taxes
    207,727       186,770  
Total liabilities
    3,014,432       2,949,543  
                 
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;
               
5,934,000 and 5,992,800 shares issued and outstanding as of June 30 and March 31, 2010
    -       -  
Series B preferred stock, with no par value, 100,000 shares authorized; none
               
issued and outstanding as of June 30 and March 31, 2010
    -       -  
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 June 30 and March 31, 2010
    -       -  
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
               
issued as of June 30 and March 31, 2010
    10,497       10,497  
Additional paid-in capital
    418,899       419,811  
Accumulated other comprehensive loss
    (66,708 )     (56,207 )
Retained earnings
    1,032,332       969,017  
Cost of common shares in treasury, net (22,377,912 shares as of June 30 and March 31, 2010)
    (525,653 )     (525,653 )
Unearned employee stock ownership plan shares
    (4,259 )     (4,554 )
Total stockholders' equity
    865,108       812,911  
Total liabilities and stockholders' equity
  $ 3,879,540     $ 3,762,454  
 

 
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 June 30,
 
   
2010
   
2009
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 419,463     $ 372,941  
Self-storage revenues
    28,227       27,004  
Self-moving and self-storage products and service sales
    63,290       57,822  
Property management fees
    4,536       4,450  
Life insurance premiums
    37,803       27,604  
Property and casualty insurance premiums
    6,179       6,215  
Net investment and interest income
    13,355       13,680  
Other revenue
    13,094       10,943  
Total revenues
    585,947       520,659  
                 
Costs and expenses:
               
Operating expenses
    253,134       258,501  
Commission expenses
    52,169       44,411  
Cost of sales
    31,665       30,450  
Benefits and losses
    35,422       27,694  
Amortization of deferred policy acquisition costs
    2,193       1,917  
Lease expense
    38,666       39,273  
Depreciation, net of (gains) losses on disposals
    44,589       59,217  
Total costs and expenses
    457,838       461,463  
                 
Earnings from operations
    128,109       59,196  
Interest expense
    (21,464 )     (23,221 )
Pretax earnings
    106,645       35,975  
Income tax expense
    (40,143 )     (13,543 )
Net earnings
    66,502       22,432  
Excess (loss) of carrying amount of preferred stock over consideration paid
    (31 )     323  
Less: Preferred stock dividends
    (3,156 )     (3,241 )
Earnings available to common shareholders
  $ 63,315     $ 19,514  
Basic and diluted earnings per common share
  $ 3.26     $ 1.01  
Weighted average common shares outstanding: Basic and diluted
    19,414,815       19,369,591  

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



 
2

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 


   
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Quarter Ended June 30, 2010
                 
                   
Comprehensive income:
                 
Net earnings
  $ 106,645     $ (40,143 )   $ 66,502  
Other comprehensive income (loss):
                       
Foreign currency translation
    (3,876 )     -       (3,876 )
Unrealized gain on investments
    1,188       (322 )     866  
Change in fair value of cash flow hedges
    (12,083 )     4,592       (7,491 )
Total comprehensive income
  $ 91,874     $ (35,873 )   $ 56,001  


 

 

 
   
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Quarter Ended June 30, 2009
                 
                   
Comprehensive income:
                 
Net earnings
  $ 35,975     $ (13,543 )   $ 22,432  
Other comprehensive income (loss):
                       
Foreign currency translation
    4,229       -       4,229  
Unrealized loss on investments
    (5,182 )     1,809       (3,373 )
Change in fair value of cash flow hedges
    22,369       (8,500 )     13,869  
Total comprehensive income
  $ 57,391     $ (20,234 )   $ 37,157  

 

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


 
3

 


 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Quarter Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
 
   
(In thousands)
 
 Cash flow from operating activities:
           
 Net earnings
  $ 66,502     $ 22,432  
 Adjustments to reconcile net earnings to the cash provided by operations:
               
 Depreciation
    52,977       57,879  
 Amortization of deferred policy acquisition costs
    2,193       1,917  
 Change in allowance for losses on trade receivables
    (28 )     13  
 Change in allowance for losses on mortgage notes
    -       (6 )
 Change in allowance for inventory reserves
    494       754  
 Net (gain) loss on sale of real and personal property
    (8,388 )     1,338  
 Net gain on sale of investments
    (1,015 )     (625 )
 Deferred income taxes
    25,230       5,328  
 Net change in other operating assets and liabilities:
               
Reinsurance recoverables and trade receivables
    (15,345 )     (11,890 )
Inventories
    (3,283 )     5,807  
Prepaid expenses
    (2,331 )     (6,838 )
Capitalization of deferred policy acquisition costs
    (3,663 )     (3,063 )
Other assets
    (1,043 )     (1,631 )
Related party assets
    4,691       7,792  
Accounts payable and accrued expenses
    38,968       6,962  
Policy benefits and losses, claims and loss expenses payable
    10,240       6,367  
Other policyholders' funds and liabilities
    (100 )     (2,021 )
Deferred income
    6,727       4,050  
Related party liabilities
    791       (343 )
 Net cash provided by operating activities
    173,617       94,222  
                 
 Cash flows from investing activities:
               
 Purchases of:
               
Property, plant and equipment
    (138,902 )     (123,546 )
Short term investments
    (51,827 )     (51,535 )
Fixed maturities investments
    (66,227 )     (33,647 )
Equity securities
    (6,225 )     -  
Preferred stock
    (3,475 )     (882 )
Real estate
    (134 )     (293 )
Mortgage loans
    (51 )     (288 )
 Proceeds from sale of:
               
Property, plant and equipment
    47,225       38,088  
Short term investments
    84,427       60,778  
Fixed maturities investments
    33,701       40,572  
Equity securities
    133       -  
Real estate
    1,588       12  
Mortgage loans
    721       735  
Payments from notes and mortgage receivables
    234       497  
 Net cash used by investing activities
    (98,812 )     (69,509 )
                 
 Cash flows from financing activities:
               
Borrowings from credit facilities
    91,957       13,478  
Principal repayments on credit facilities
    (106,679 )     (37,757 )
Debt issuance costs
    (89 )     (277 )
Capital lease payments
    (6,951 )     (329 )
Leveraged Employee Stock Ownership Plan - repayments from loan
    295       264  
Preferred stock dividends paid
    (3,156 )     (3,241 )
Investment contract deposits
    3,018       2,829  
Investment contract withdrawals
    (8,685 )     (13,500 )
 Net cash used by financing activities
    (30,290 )     (38,533 )
                 
 Effects of exchange rate on cash
    (519 )     (50 )
                 
 Increase (decrease) in cash and cash equivalents
    43,996       (13,870 )
 Cash and cash equivalents at the beginning of period
    244,118       240,587  
 Cash and cash equivalents at the end of period
  $ 288,114     $ 226,717  


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

 
4

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
1.      Basis of Presentation
 
AMERCO, a Nevada Corporation (“AMERCO”), has a first fiscal quarter that ends on the 30th of June for each year that is referenced. Our insurance company subsidiaries have a first quarter that ends on the 31st of March 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 2010 and 2009 correspond to fiscal 2011 and 2010 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 June 30, 2010 and the related condensed consolidated statements of operations and cash flows for the first quarter of fiscal 2011 and 2010 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
 
Intercompany accounts and transactions have been eliminated.
 
Description of Legal Entities
 
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.
 
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. Operations 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.
 
The Property and Casualty Insurance operating segment 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, Super Safemove and Safestor protection packages to U-Haul customers. 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 operating segment 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.

 
5

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
2. Earnings per Share
 
Net earnings for purposes of computing earnings per common share are net earnings less preferred stock dividends paid, adjusted for the price paid by our insurance companies for purchasing AMERCO Preferred stock less its carrying value on our balance sheet. Preferred stock dividends include accrued dividends of AMERCO. Preferred stock dividends paid to or accrued for entities that are part of the consolidated group are excluded.
 
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 186,583 and 231,942 as of June 30, 2010 and June 30, 2009, respectively.
 
5,934,000 and 6,049,800 shares of preferred stock have been excluded from the weighted average shares outstanding calculation as of June 30, 2010 and 2009, respectively because they are not common stock and they are not convertible into common stock.
 
From January 1, 2009 through March 31, 2010, our insurance subsidiaries purchased 166,000 shares of our Series A 8½ % Preferred Stock (“Series A Preferred”) on the open market for $3.6 million. Between April 1, 2010 and June 30, 2010 they acquired an additional 138,000 shares for $3.5 million. Our insurance subsidiaries may make additional investments in shares of the Series A Preferred in the future. Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 - Earnings Per Share (“ASC 260”), for earnings per share purposes, we recognize the excess or deficit of the carrying amount of the Series A Preferred over the fair value of the consideration paid. In the first quarter of fiscal 2011 this resulted in a $31 thousand charge to net earnings as the amount paid by the insurance companies exceeded the carrying value, net of a prorated portion of original issue costs of the preferred stock. In the first quarter of fiscal 2010 we recognized a $0.3 million gain as the amount paid was less than our adjusted carrying value.
 
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 June 30, 2010.
 
Available-for-Sale Investments
 
Available-for-sale investments at June 30, 2010 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
  $ 75,475     $ 2,071     $ (48 )   $ (98 )   $ 77,400  
U.S. government agency mortgage-backed securities
    82,534       4,929       (2 )     (43 )     87,418  
Obligations of states and political subdivisions
    18,960       341       (1,072 )     (79 )     18,150  
Corporate securities
    348,660       16,321       (1,169 )     (624 )     363,188  
Mortgage-backed securities
    8,647       235       (381 )     (19 )     8,482  
Redeemable preferred stocks
    22,198       1,267       (1,539 )     (21 )     21,905  
Common stocks
    24,472       450       -       (3,741 )     21,181  
Less: Preferred stock of AMERCO held by subsidiaries
    (3,628 )     (534 )     -       -       (4,162 )
    $ 577,318     $ 25,080     $ (4,211 )   $ (4,625 )   $ 593,562  
 


 
6

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The table on the previous page 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 $33.8 million during the first quarter of fiscal 2011. The gross realized gains on these sales totaled $1.1 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 $0.1 million for the first quarter of fiscal 2010. There were no write downs in the first quarter of fiscal 2011.
 
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 not to sell its fixed maturity and common stock investments for a period of time sufficient to allow the Company to recover its costs.
 
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.
 
Credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows:
 
   
Credit Loss
 
   
(Unaudited)
 
   
(In thousands)
 
       
Balance at March 31, 2010
  $ 552  
Other-than-temporary impairment not previously recognized
    -  
Balance at June 30, 2010
  $ 552  
 


 
7

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The adjusted cost and estimated market value of available-for-sale investments at June 30, 2010, by contractual maturity, were as follows:
 
   
June 30, 2010
 
   
Amortized
Cost
   
Estimated
Market
Value
 
   
(Unaudited)
 
   
(In thousands)
 
Due in one year or less
  $ 38,810     $ 39,717  
Due after one year through five years
    165,687       173,065  
Due after five years through ten years
    119,014       123,910  
Due after ten years
    202,118       209,464  
      525,629       546,156  
                 
Mortgage backed securities
    8,647       8,482  
Redeemable preferred stocks
    22,198       21,905  
Equity securities
    24,472       21,181  
Less: Preferred stock of AMERCO held by subsidiaries
    (3,628 )     (4,162 )
    $ 577,318     $ 593,562  
 

 
4. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
 
               
June 30,
   
March 31,
 
   
2011 Rate (a)
   
Maturities
   
2010
   
2010
 
               
(Unaudited)
       
               
(In thousands)
 
Real estate loan (amortizing term)
    6.93 %     2018     $ 262,500     $ 265,000  
Real estate loan (revolving credit)
    1.85 %     2018       60,000       86,000  
Real estate loan (amortizing term)
    5.00 %     2011       11,486       31,865  
Senior mortgages
    5.47% - 6.13 %     2015 - 2016       485,670       489,186  
Working capital loan (revolving credit)
    -       2011       -       15,000  
Fleet loans (amortizing term)
    4.78% - 7.95 %     2012 - 2017       328,741       276,222  
Fleet loans (securitization)
    5.56 %     2014       136,622       143,170  
Other obligations
    3.25% - 9.50 %     2011 - 2017       53,617       41,192  
Total notes, loans and leases payable
                  $ 1,338,636     $ 1,347,635  
                                 
(a) Interest rate as of June 30, 2010, including the effect of applicable hedging instruments.
                 
 

 
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 June 30, 2010, the outstanding balance on the Real Estate Loan was $262.5 million and $60.0 million had been drawn down on the revolving credit facility. U-Haul International, Inc. is a guarantor of this loan.

 
8

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 June 30, 2010, the applicable LIBOR was 0.35% and the applicable margin was 1.50%, the sum of which was 1.85%. 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 June 30, 2010, the applicable LIBOR was 0.35% and the applicable margin was 1.50%, the sum of which was 1.85%.
 
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, 2010. The loan is comprised of a term loan facility and a revolving credit facility with combined availability of $20 million and a final maturity of June 2011. As of June 30, 2010, the outstanding balance was $11.5 million.
 
This Real Estate Loan requires monthly principal and interest payments with the unpaid principal and any accrued and unpaid interest due at maturity. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 3.00%. At June 30, 2010, 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 mortgage loan balances as of June 30, 2010 were in the aggregate amount of $429.6 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 $56.1 million as of June 30, 2010. 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 June 30, 2010, the Company had the full $25.0 million available to be drawn. 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%.

 
9

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Fleet Loans
 
Rental Truck Amortizing Loans
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under amortizing term loans. The balance of the loans as of June 30, 2010 was $272.0 million with the final maturities between April 2012 and July 2017.
 
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 June 30, 2010, the applicable LIBOR was 0.35% and applicable margins were between 1.13% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 4.78% and 7.42% based on current margins. Additionally, $21.1 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.
 
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 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.  At June 30, 2010, the applicable LIBOR was 0.54% and the applicable margin was 4.50%, the sum of which was 5.04%.  At June 30, 2010 the Company had drawn $56.7 million 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”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from the securitized transaction were used to finance new box 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 June 30, 2010, the outstanding balance was $136.6 million. The note is secured by the box trucks that were purchased and the corresponding operating cash flows associated with their operation.
 
The Box Truck Note has the benefit of financial guaranty insurance policy that guarantees the timely payment of interest on and the ultimate payment of the principal of the note.
 
The Box Truck Note is 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 note include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Other Obligations
 
The Company entered into capital leases for new equipment between April 2008 and May 2010, with terms of the leases between 3 and 7 years. At June 30, 2010, the balance of these leases was $46.9 million.
 
In January 2010, the Company entered into a $0.5 million premium financing arrangement for two years expiring in December 2011 with a fixed rate of 3.37%. The Company entered into $7.5 million of premium financing arrangements for one year expiring in March and April 2011 at rates between 3.25% and 5.50%. At June 30, 2010, the outstanding balance was $6.7 million.

 
10

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Annual Maturities of Notes, Loans and Leases Payable
 
The annual maturities of long-term debt as of June 30, 2010 for the next five years and thereafter are as follows:
 
   
Year Ending June 30,
 
   
2011
   
2012
   
2013
   
2014
   
2015
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes, loans and leases payable, secured
  $ 100,597     $ 138,206     $ 161,141     $ 156,496     $ 54,728     $ 727,468  
 

 
5. Interest on Borrowings
 
Interest Expense
 
Components of interest expense include the following:
 
   
Quarter Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $ 14,425     $ 16,059  
Capitalized interest
    (147 )     (151 )
Amortization of transaction costs
    1,105       1,185  
Interest expense resulting from derivatives
    6,081       6,128  
Total interest expense
  $ 21,464     $ 23,221  
 

 
Interest paid in cash by AMERCO amounted to $13.1 million and $14.9 million for the first quarter of fiscal 2011 and 2010, 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.

 
11

 

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

Original variable rate debt amount
 
Agreement Date
 
Effective Date
 
Expiration Date
 
Designated cash flow hedge date
(Unaudited)
(In millions)
$ 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
 

 
As of June 30, 2010, the total notional amount of the Company’s variable interest rate swaps was $505.2 million.
 
The derivative fair values located in Accounts payable and accrued expenses in the balance sheets were as follows:
 
 
Liability Derivatives
 
Fair Value as of
 
June 30, 2010
 
March 31, 2010
 
(Unaudited)
   
 
(In thousands)
Interest rate contracts designated as hedging instruments
$66,142   $54,239
 

       
   
The Effect of Interest Rate Contracts on the Statement of Operations
 
   
June 30, 2010
   
June 30, 2009
 
   
(Unaudited)
 
   
(In thousands)
 
             
Loss recognized in income on interest rate contracts
  $ 6,081     $ 6,128  
Loss recognized in AOCI on interest rate contracts (effective portion)
  $ 12,083     $ 22,368  
Loss reclassified from AOCI into income (effective portion)
  $ 6,260     $ 6,783  
(Gain) loss recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing)
  $ (179 )   $ 655  
 

 
Gains or losses recognized in income on derivatives are recorded as interest expense in the statement of operations.

 
12

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
 
   
Revolving Credit Activity
 
   
Quarter Ended June 30,
 
   
2010
   
2009
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the quarter
    1.80 %     1.90 %
Interest rate at the end of the quarter
    1.85 %     1.83 %
Maximum amount outstanding during the quarter
  $ 111,000     $ 207,280  
Average amount outstanding during the quarter
  $ 85,648     $ 205,232  
Facility fees
  $ 56     $ 242  
 

 
6. Stockholders Equity
 
On December 3, 2008, the Board of Directors (the “Board”) authorized us, using management’s discretion, to buy back shares from former employees who were participants in our Employee Stock Ownership Plan (“ESOP”). To be eligible for consideration, the employees’ respective ESOP account balances must be valued at more than $1,000 at the then-prevailing market prices but have less than 100 shares. No such shares have been purchased.
 
Between January 1, 2009 and June 30, 2010, our insurance subsidiaries purchased 304,000 shares of Series A Preferred on the open market for $7.1 million. Our insurance subsidiaries 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 tax, were as follows:
 
   
Foreign Currency Translation
   
Unrealized Gain 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, 2010
  $ (29,142 )   $ 5,931     $ (33,933 )   $ 937     $ (56,207 )
Foreign currency translation
    (3,876 )     -       -       -       (3,876 )
Unrealized gain on investments
    -       866       -       -       866  
Change in fair value of cash flow hedges
    -       -       (7,491 )     -       (7,491 )
Balance at June 30, 2010
  $ (33,018 )   $ 6,797     $ (41,424 )   $ 937     $ (66,708 )
 


 
13

 

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 June 30, 2010, AMERCO has guaranteed $174.6 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 June 30:
                 
2011
  $ 15,076     $ 116,061     $ 131,137  
2012
    14,134       101,436       115,570  
2013
    13,637       84,443       98,080  
2014
    11,824       67,352       79,176  
2015
    721       43,574       44,295  
Thereafter
    5,818       13,020       18,838  
Total
  $ 61,210     $ 425,886     $ 487,096  

 
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.

 
14

 

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 Nevada Supreme Court heard the case En Banc on July 7, 2010 and we are awaiting the ruling.
 
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 air, land and water and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. 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 $2.6 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.
 
10. Related Party Transactions
 
As set forth in the Audit Committee Charter and consistent with Nasdaq Listing Rules, the Audit Committee reviews and maintains oversight over related party transactions which are required to be disclosed under 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 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 SAC Holding II Corporation, (collectively “SAC Holdings”) were established in order to acquire self-storage properties. These properties are being managed by the Company pursuant to management agreements. In the past, the Company has sold various self-storage properties to SAC Holdings, and such sales provided significant cash flows to the Company.

 
15

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Management believes that the 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 quarter of fiscal 2011, 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 $4.8 million and $4.7 million, and received cash interest payments of $3.3 million and $2.8 million, from SAC Holdings during the first quarter of fiscal 2011 and 2010, respectively. The largest aggregate amount of notes receivable outstanding during the first quarter of fiscal 2011 was $196.9 million and the aggregate notes receivable balance at June 30, 2010 was $196.7 million. In accordance with the terms of these notes, SAC Holdings may prepay the notes without penalty or premium at any time. The scheduled maturities of these notes are between 2019 and 2024.
 
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 quarter of fiscal 2011, 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 $1.4 million and $1.3 million for the first quarter of fiscal 2011 and 2010, respectively and received cash interest payments of $1.4 million and $1.3 million from Private Mini for the first quarter of fiscal 2011 and 2010, respectively. The balance of notes receivable from Private Mini at June 30, 2010 was $67.0 million. The largest aggregate amount outstanding during the first quarter of fiscal 2011 was $67.3 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 $8.8 million and $9.7 million from the above mentioned entities during the first quarter of fiscal 2011 and 2010, 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 $0.6 million for both the first quarter of fiscal 2011 and 2010. 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 June 30, 2010, 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 $10.0 million and $9.2 million in commissions pursuant to such dealership contracts during the first quarter of fiscal 2011 and 2010, respectively.

 
16

 

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 revenues of $10.2 million, expenses of $0.6 million and cash flows of $11.5 million during the first quarter of fiscal 2011. Revenues and commission expenses related to the Dealer Agreements were $47.5 million and $10.0 million, respectively during the first quarter of fiscal 2011.
 
Between January 1, 2009 and June 30, 2010, our insurance subsidiaries purchased 304,000 shares of Series A Preferred on the open market for $7.1 million. Our insurance subsidiaries may make additional investments in shares of the Series A Preferred in the future.
 
The Company adopted Accounting Standards Update (“ASU”) 2009-17, which amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R), as of April 1, 2010.  Management determined that the junior notes of SAC Holdings and Private Mini and the management agreements with SAC Holdings, Mercury, 4 SAC, 5 SAC, Galaxy, and Private Mini represent potential variable interests for the Company.  Management evaluated whether it should be identified as the primary beneficiary of one or more of these variable interest entity’s (“VIE’s”) using a two step approach in which management a) identified all other parties that hold interests in the VIE’s, and b) determined if any variable interest holder has the power to direct the activities of the VIE’s that most significantly impact their economic performance.
 
Management determined that they do not have a variable interest in the holding entities Mercury, 4 SAC, 5 SAC, or Galaxy through management agreements which are with the individual operating entities or through the issuance of junior debt therefore the Company is precluded from consolidating these entities, which is consistent with the accounting treatment immediately prior to adopting ASU 2009-17.
 
The Company has junior debt with the holding entities SAC Holding Corporation, SAC Holding II Corporation, and Private Mini which represents a variable interest in each individual entity.  Though the Company has certain protective rights within these debt agreements, the Company has no present influence or control over these holding entities unless their protective rights become exercisable, which management considers unlikely based on their payment history.  As a result, the Company has no basis under ASC 810 - Consolidation (“ASC 810”) to consolidate these entities, which is consistent with the accounting treatment immediately prior to adopting ASU 2009-17.
 
The Company does not have the power to direct the activities that most significantly impact the economic performance of the individual operating entities which have management agreements with U-Haul.  Through control of the holding entities assets, and its ability and history of making key decisions relating to the entity and its assets, Blackwater, and its owner, are the variable interest holder with the power to direct the activities that most significantly impact each of the individual holding entities and the individual operating entities’ performance.  As a result, the Company has no basis under ASC 810 to consolidate these entities, which is consistent with the accounting treatment immediately prior to adopting ASU 2009-17.
 
The Company has not provided financial or other support explicitly or implicitly during the quarter ended June 30, 2010 to any of these entities that it was not previously contractually required to provide.  The carrying amount and classification of the assets and liabilities in the Company’s balance sheet that relate to the Company’s variable interests in the aforementioned entities are as follows, which approximate the maximum exposure to loss as a result of the Company’s involvement with these entities:

 
17

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Related Party Assets
 
   
June 30,
   
March 31,
 
   
2010
   
2010
 
   
(Unaudited)
       
   
(In thousands)
 
U-Haul notes, receivables and interest from Private Mini
  $ 69,236     $ 69,867  
U-Haul notes receivable from SAC Holdings
    196,741       196,903  
U-Haul interest receivable from SAC Holdings
    15,200       13,775  
U-Haul receivable from SAC Holdings
    11,202       15,780  
U-Haul receivable from Mercury
    4,421       6,138  
Other (a)
    (199 )     (337 )
    $ 296,601     $ 302,126  
                 
(a) Timing differences for intercompany balances with insurance subsidiaries.
 
 

 
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:
 
·  
Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate,
 
·  
Property and Casualty Insurance, comprised of RepWest and its subsidiaries and ARCOA, and
 
·  
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.
 


 
18

 

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 June 30, 2010 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
  $ 132,490     $ 122,283     $ 3     $ -       $ 254,776     $ 20,388     $ 12,950     $ -       $ 288,114  
Reinsurance recoverables and trade receivables, net
    -       28,440       -       -         28,440       166,450       18,766       -         213,656  
Notes and mortgage receivables, net
    -       357       870       -         1,227       -       -       -         1,227  
Inventories, net
    -       55,626       -       -         55,626       -       -       -         55,626  
Prepaid expenses
    -       55,684       26       -         55,710       -       -       -         55,710  
Investments, fixed maturities and marketable equities
    19,720       -       -       -         19,720       108,331       469,673       (4,162 )
(d)
    593,562  
Investments, other
    -       1,120       12,908       -         14,028       98,490       80,206       -         192,724  
Deferred policy acquisition costs, net
    -       -       -       -         -       -       38,905       -         38,905  
Other assets
    37,797       80,950       26,999       -         145,746       782       465       -         146,993  
Related party assets
    1,172,454       242,197       25       (1,115,514 )
(c)
    299,162       2,734       -       (5,295 )
(c)
    296,601  
      1,362,461       586,657       40,831       (1,115,514 )       874,435       397,175       620,965       (9,457 )       1,883,118  
                                                                             
Investment in subsidiaries
    (234,014 )     -       -       564,949  
(b)
    330,935       -       -       (330,935 )
(b)
    -  
                                                                             
Property, plant and equipment, at cost:
                                                                           
Land
    -       43,450       180,303       -         223,753       -       -       -         223,753  
Buildings and improvements
    1       164,488       827,847       -         992,336       -       -       -         992,336  
Furniture and equipment
    246       306,574       18,168       -         324,988       -       -       -         324,988  
Rental trailers and other rental equipment
    -       242,451       -       -         242,451       -       -       -         242,451  
Rental trucks
    -       1,562,423       -       -         1,562,423       -       -       -         1,562,423  
      247       2,319,386       1,026,318       -         3,345,951       -       -       -         3,345,951  
Less:  Accumulated depreciation
    (215 )     (1,014,230 )     (335,084 )     -         (1,349,529 )     -       -       -         (1,349,529 )
Total property, plant and equipment
    32       1,305,156       691,234       -         1,996,422       -       -       -         1,996,422  
Total assets
  $ 1,128,479     $ 1,891,813     $ 732,065     $ (550,565 )     $ 3,201,792     $ 397,175     $ 620,965     $ (340,392 )     $ 3,879,540  
                                                                             
(a) Balances as of March 31, 2010
 
(b) Eliminate investment in subsidiaries
 
(c) Eliminate intercompany receivables and payables
 
(d) Eliminate intercompany preferred stock investment
 
 


 
19

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of June 30, 2010 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
  $ 15,565     $ 312,247     $ 4,036     $ -       $ 331,848     $ -     $ 6,946     $ -       $ 338,794  
Notes, loans and leases payable
    -       560,547       778,089       -         1,338,636       -       -       -         1,338,636  
Policy benefits and losses, claims and loss expenses payable
    -       387,202       -       -         387,202       267,752       171,235       -         826,189  
Liabilities from investment contracts
    -       -       -       -         -       -       263,142       -         263,142  
Other policyholders' funds and liabilities
    -       -       -       -         -       6,200       1,855       -         8,055  
Deferred income
    -       31,889       -       -         31,889       -       -       -         31,889  
Deferred income taxes
    239,573       -       -       -         239,573       (32,066 )     408       (188 )
(d)
    207,727  
Related party liabilities
    -       1,011,042       108,034       (1,115,514 )
(c)
    3,562       1,606       127       (5,295 )
(c)
    -  
Total liabilities
    255,138       2,302,927       890,159       (1,115,514 )       2,332,710       243,492       443,713       (5,483 )       3,014,432  
                                                                             
Stockholders' equity:
                                                                           
Series preferred stock:
                                                                           
Series A preferred stock
    -       -       -       -         -       -       -       -         -  
Series B preferred stock
    -       -       -       -         -       -       -       -         -  
Series A common stock
    -       -       -       -         -       -       -       -         -  
Common stock
    10,497       540       1       (541 )
(b)
    10,497       3,301       2,500       (5,801 )
(b)
    10,497  
Additional paid-in capital
    422,883       121,230       147,941       (269,171 )
(b)
    422,883       89,620       26,271       (119,875 )  (b,d )   418,899  
Accumulated other comprehensive income (loss)
    (66,361 )     (73,505 )     -       73,505  
(b)
    (66,361 )     1,340       7,525       (9,212 )  (b,d )   (66,708 )
Retained earnings (deficit)
    1,031,975       (455,120 )     (306,036 )     761,156  
(b)
    1,031,975       59,422       140,956       (200,021 )  (b,d )   1,032,332  
Cost of common shares in treasury, net
    (525,653 )     -       -       -         (525,653 )     -       -       -           (525,653 )
Unearned employee stock ownership plan shares
    -       (4,259 )     -       -         (4,259 )     -       -       -           (4,259 )
Total stockholders' equity (deficit)
    873,341       (411,114 )     (158,094 )     564,949         869,082       153,683       177,252       (334,909 )         865,108  
Total liabilities and stockholders' equity
  $ 1,128,479     $ 1,891,813     $ 732,065     $ (550,565 )     $ 3,201,792     $ 397,175     $ 620,965     $ (340,392 )       $ 3,879,540  
                                                                               
                                                                               
(a) Balances as of March 31, 2010
                                                                             
(b) Eliminate investment in subsidiaries
                                                                             
(c) Eliminate intercompany receivables and payables
                                                                             
(d) Eliminate intercompany preferred stock investment
                                                                             
 


 
20

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of March 31, 2010 are as follows:
 

   
Moving & Storage
        AMERCO Legal Group  
   
AMERCO
   
U-Haul
   
Real Estate
   
Eliminations