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 September 30, 2011

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  R No    £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 November 1, 2011.
 
 

 
 

 

TABLE OF CONTENTS
 
   
Page
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
a) Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and March 31, 2011
1
 
b) Condensed Consolidated Statements of Operations for the Quarters ended September 30, 2011 and 2010 (unaudited)
2
 
c) Condensed Consolidated Statements of Operations for the Six Months ended September 30, 2011 and 2010 (unaudited)
3
 
d) Condensed Consolidated Statements of Comprehensive Income for the Quarters and the Six Months ended September 30, 2011 and 2010 (unaudited)
4
 
e) Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2011 and 2010 (unaudited)
5
 
f) Notes to Condensed Consolidated Financial Statements (unaudited)
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                 
56
Item 4.
Controls and Procedures                                                                                                                 
57
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                 
58
Item 1A.
Risk Factors                                                                                                                 
58
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                 
58
Item 3.
Defaults Upon Senior Securities                                                                                                                 
58
Item 4.
(Removed and Reserved)                                                                                                                 
58
Item 5.
Other Information                                                                                                                 
58
Item 6.
Exhibits                                                                                                                 
59
 

 
 

 

PART I FINANCIAL INFORMATION
 
ITEM 1. Financial Statements
 
 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
   
March 31,
 
   
2011
   
2011
 
   
(Unaudited)
       
   
(In thousands, except share data)
 
ASSETS
           
Cash and cash equivalents
  $ 448,159     $ 375,496  
Reinsurance recoverables and trade receivables, net
    227,750       205,371  
Inventories, net
    57,759       59,942  
Prepaid expenses
    48,900       57,624  
Investments, fixed maturities and marketable equities
    694,150       659,809  
Investments, other
    227,935       201,868  
Deferred policy acquisition costs, net
    55,626       52,870  
Other assets
    107,499       166,633  
Related party assets
    296,016       301,968  
      2,163,794       2,081,581  
Property, plant and equipment, at cost:
               
Land
    251,307       239,177  
Buildings and improvements
    1,052,203       1,024,669  
Furniture and equipment
    304,403       310,671  
Rental trailers and other rental equipment
    254,522       249,700  
Rental trucks
    1,739,993       1,611,763  
      3,602,428       3,435,980  
Less: Accumulated depreciation
    (1,363,085 )     (1,341,407 )
Total property, plant and equipment
    2,239,343       2,094,573  
Total assets
  $ 4,403,137     $ 4,176,154  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
  $ 330,671     $ 304,006  
Notes, loans and leases payable
    1,478,581       1,397,842  
Policy benefits and losses, claims and loss expenses payable
    961,514       927,376  
Liabilities from investment contracts
    238,116       246,717  
Other policyholders' funds and liabilities
    5,583       8,727  
Deferred income
    31,674       27,209  
Deferred income taxes
    350,656       271,257  
Total liabilities
    3,396,795       3,183,134  
                 
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;
               
6,100,000 and 5,791,700 shares issued and none and 5,791,700 outstanding as of September 30 and March 31, 2011
    -       -  
Series B preferred stock, with no par value, 100,000 shares authorized; none
               
issued and outstanding as of September 30 and March 31, 2011
    -       -  
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 September 30 and March 31, 2011
    -       -  
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
               
issued as of September 30 and March 31, 2011
    10,497       10,497  
Additional paid-in capital
    432,127       425,212  
Accumulated other comprehensive loss
    (66,221 )     (46,467 )
Retained earnings
    1,310,415       1,140,002  
Cost of common shares in treasury, net (22,377,912 shares as of September 30 and March 31, 2011)
    (525,653 )     (525,653 )
Cost of preferred shares in treasury, net (6,100,000 shares as of September 30 and 308,300 shares as of  March 31, 2011)
    (151,997 )     (7,189 )
Unearned employee stock ownership plan shares
    (2,826 )     (3,382 )
Total stockholders' equity
    1,006,342       993,020  
Total liabilities and stockholders' equity
  $ 4,403,137     $ 4,176,154  
 
 
 
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 September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 511,626     $ 467,128  
Self-storage revenues
    34,008       30,647  
Self-moving and self-storage products and service sales
    59,768       56,821  
Property management fees
    4,826       4,580  
Life insurance premiums
    46,197       40,022  
Property and casualty insurance premiums
    8,749       8,300  
Net investment and interest income
    15,901       12,874  
Other revenue
    22,106       16,604  
Total revenues
    703,181       636,976  
                 
Costs and expenses:
               
Operating expenses
    294,340       270,259  
Commission expenses
    64,049       57,613  
Cost of sales
    32,446       29,603  
Benefits and losses
    44,462       37,383  
Amortization of deferred policy acquisition costs
    2,675       1,876  
Lease expense
    32,712       37,964  
Depreciation, net of (gains) on disposals of (($7,917) and ($8,921), respectively)
    48,064       44,157  
Total costs and expenses
    518,748       478,855  
                 
Earnings from operations
    184,433       158,121  
Interest expense
    (22,963 )     (21,788 )
Pretax earnings
    161,470       136,333  
Income tax expense
    (60,459 )     (51,114 )
Net earnings
    101,011       85,219  
Less: Excess of redemption value over carrying value of preferred shares redeemed
    -       (140 )
Less: Preferred stock dividends
    164       (3,101 )
Earnings available to common shareholders
  $ 101,175     $ 81,978  
Basic and diluted earnings per common share
  $ 5.20     $ 4.22  
Weighted average common shares outstanding: Basic and diluted
    19,470,948       19,427,595  
 
 
Related party revenues for the second quarter of fiscal 2012 and 2011, net of eliminations, were $11.1 million and $10.8 million, respectively.
 
Related party costs and expenses for the second quarter of fiscal 2012 and 2011, net of eliminations, were $12.6 million and $12.0 million, respectively.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
       
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 958,174     $ 886,591  
Self-storage revenues
    65,836       58,874  
Self-moving and self-storage products and service sales
    124,146       120,111  
Property management fees
    9,561       9,116  
Life insurance premiums
    97,196       77,825  
Property and casualty insurance premiums
    15,647       14,479  
Net investment and interest income
    33,164       26,229  
Other revenue
    42,422       29,698  
Total revenues
    1,346,146       1,222,923  
                 
Costs and expenses:
               
Operating expenses
    566,315       523,393  
Commission expenses
    121,001       109,782  
Cost of sales
    65,224       61,268  
Benefits and losses
    94,392       72,805  
Amortization of deferred policy acquisition costs
    7,050       4,069  
Lease expense
    66,946       76,630  
Depreciation, net of (gains) on disposals of (($17,627) and ($17,309), respectivley)
    92,422       88,746  
Total costs and expenses
    1,013,350       936,693  
                 
Earnings from operations
    332,796       286,230  
Interest expense
    (45,596 )     (43,252 )
Pretax earnings
    287,200       242,978  
Income tax expense
    (107,966 )     (91,257 )
Net earnings
    179,234       151,721  
Less: Excess of redemption value over carrying value of preferred shares redeemed
    (5,908 )     (171 )
Less: Preferred stock dividends
    (2,913 )     (6,257 )
Earnings available to common shareholders
  $ 170,413     $ 145,293  
Basic and diluted earnings per common share
  $ 8.75     $ 7.48  
Weighted average common shares outstanding: Basic and diluted
    19,465,530       19,421,205  
 
 
Related party revenues for the first six months of fiscal 2012 and 2011, net of eliminations, were $22.0 million and $21.4 million, respectively.
 
Related party costs and expenses for the first six months of fiscal 2012 and 2011, net of eliminations, were $23.9 million and $22.6 million, respectively.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 

 
3

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
Quarter Ended September 30, 2011
 
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
                 
Net earnings
  $ 161,470     $ (60,459 )   $ 101,011  
Other comprehensive income (loss):
                       
Foreign currency translation
    (6,749 )     -       (6,749 )
Unrealized loss on investments
    (1,373 )     741       (632 )
Change in fair value of cash flow hedges
    (12,250 )     4,655       (7,595 )
Total comprehensive income
  $ 141,098     $ (55,063 )   $ 86,035  
 
Quarter Ended September 30, 2010
 
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
                 
Net earnings
  $ 136,333     $ (51,114 )   $ 85,219  
Other comprehensive income (loss):
                       
Foreign currency translation
    2,097       -       2,097  
Unrealized gain on investments
    5,575       (1,927 )     3,648  
Change in fair value of cash flow hedges
    (7,485 )     2,844       (4,641 )
Total comprehensive income
  $ 136,520     $ (50,197 )   $ 86,323  
 
Six Months Ended September 30, 2011
 
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
                 
Net earnings
  $ 287,200     $ (107,966 )   $ 179,234  
Other comprehensive income (loss):
                       
Foreign currency translation
    (5,757 )     -       (5,757 )
Unrealized loss on investments
    (6,751 )     2,742       (4,009 )
Change in fair value of cash flow hedges
    (16,110 )     6,122       (9,988 )
Total comprehensive income
  $ 258,582     $ (99,102 )   $ 159,480  
 
Six Months Ended September 30, 2010
 
Pre-tax
   
Tax
   
Net
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
                 
Net earnings
  $ 242,978     $ (91,257 )   $ 151,721  
Other comprehensive income (loss):
                       
Foreign currency translation
    (1,779 )     -       (1,779 )
Unrealized gain on investments
    6,763       (2,249 )     4,514  
Change in fair value of cash flow hedges
    (19,568 )     7,436       (12,132 )
Total comprehensive income
  $ 228,394     $ (86,070 )   $ 142,324  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
 Cash flow from operating activities:
           
 Net earnings
  $ 179,234     $ 151,721  
 Adjustments to reconcile net earnings to cash provided by operations:
               
 Depreciation
    110,049       106,055  
 Amortization of deferred policy acquisition costs
    7,050       4,069  
 Change in allowance for losses on trade receivables
    (16 )     (24 )
 Change in allowance for inventory reserves
    2,008       840  
 Net gain on sale of real and personal property
    (17,627 )     (17,309 )
 Net gain on sale of investments
    (4,880 )     (1,329 )
 Deferred income taxes
    89,129       57,091  
 Net change in other operating assets and liabilities:
               
Reinsurance recoverables and trade receivables
    (22,360 )     (5,969 )
Inventories
    177       (3,662 )
Prepaid expenses
    8,702       4,975  
Capitalization of deferred policy acquisition costs
    (9,010 )     (7,377 )
Other assets
    21,973       766  
Related party assets
    5,644       6,710  
Accounts payable and accrued expenses
    11,327       20,102  
Policy benefits and losses, claims and loss expenses payable
    35,676       39,452  
Other policyholders' funds and liabilities
    (3,144 )     (1,531 )
Deferred income
    4,558       2,399  
Related party liabilities
    293       693  
 Net cash provided by operating activities
    418,783       357,672  
                 
 Cash flows from investing activities:
               
 Purchases of:
               
Property, plant and equipment
    (348,331 )     (274,240 )
Short term investments
    (138,457 )     (109,785 )
Fixed maturities investments
    (137,121 )     (122,504 )
Equity securities
    (9,056 )     (9,043 )
Preferred stock
    (1,633 )     (11,902 )
Real estate
    (5,146 )     (1,784 )
Mortgage loans
    (65,612 )     (1,308 )
 Proceeds from sale of:
               
Property, plant and equipment
    110,289       122,157  
Short term investments
    154,026       178,461  
Fixed maturities investments
    97,010       56,841  
Equity securities
    10,210       133  
Preferred stock
    1,252       -  
Real estate
    109       683  
Mortgage loans
    29,722       1,421  
 Net cash used by investing activities
    (302,738 )     (170,870 )
                 
 Cash flows from financing activities:
               
Borrowings from credit facilities
    178,267       134,556  
Principal repayments on credit facilities
    (99,102 )     (209,420 )
Debt issuance costs
    (1,316 )     (89 )
Capital lease payments
    (3,505 )     (8,369 )
Leveraged Employee Stock Ownership Plan - repayments from loan
    556       592  
Securitization deposits
    38,428       -  
Preferred stock redemption paid
    (144,289 )     -  
Preferred stock dividends paid
    (2,913 )     (6,257 )
Contribution to related party
    (518 )     -  
Investment contract deposits
    6,070       5,875  
Investment contract withdrawals
    (14,671 )     (17,409 )
 Net cash used by financing activities
    (42,993 )     (100,521 )
                 
 Effects of exchange rate on cash
    (389 )     (569 )
                 
 Increase (decrease) in cash and cash equivalents
    72,663       85,712  
 Cash and cash equivalents at the beginning of period
    375,496       244,118  
 Cash and cash equivalents at the end of period
  $ 448,159     $ 329,830  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
1.      Basis of Presentation
 
AMERCO, a Nevada corporation (“AMERCO”), has a second fiscal quarter that ends on the 30 th of September for each year that is referenced. Our insurance company subsidiaries have a second quarter that ends on the 30 th of June 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 2011 and 2010 correspond to fiscal 2012 and 2011 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 September 30, 2011 and the related condensed consolidated statements of operations and comprehensive income for the second quarter and the first six months and the cash flows for the first six months ended fiscal 2012 and 2011 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 Quarterly Report on Form 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, 2011.
 
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”),
 
Repwest 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.
 
The Moving and Storage operating segment includes 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. The business plan for the Property and Casualty Insurance operating segment 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.

 
6

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The 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.
 
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 us for the redemption of our 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 eliminated in consolidation.
 
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 131,483 and 173,803 as of September 30, 2011 and September 30, 2010, respectively.
 
On June 1, 2011, the Company redeemed all 6,100,000 shares of its issued and outstanding Series A 8½% Preferred Stock (“Series A Preferred”) at a redemption price of $25 per share plus accrued dividends through that date.  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 deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares.
 
The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $146.3 million prior to the redemption.  The Company paid $152.5 million to redeem the shares on June 1, 2011 of which $7.7 million was paid to our insurance subsidiaries in exchange for their holdings.  The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings is $5.9 million.  This amount was recognized as a reduction to our earnings available to our common shareholders for the purposes of computing earnings per share for the first six months of fiscal 2012.
 
From January 1, 2009 through March 31, 2011, our insurance subsidiaries purchased 308,300 shares of our Series A Preferred on the open market for $7.2 million.  Pursuant to ASC 260, we recognized a $0.2 million charge to net earnings in the first six months of fiscal 2011 in connection with these purchases.
 
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 $14.4 million at September 30, 2011.

 
7

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Available-for-Sale Investments
 
Available-for-sale investments at September 30, 2011 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
  $ 28,550     $ 1,941     $ (19 )   $ -     $ 30,472  
U.S. government agency mortgage-backed securities
    50,646       4,390       (1 )     -       55,035  
Obligations of states and political subdivisions
    116,559       2,648       (70 )     (917 )     118,220  
Corporate securities
    424,478       24,123       (676 )     (892 )     447,033  
Mortgage-backed securities
    6,017       213       (70 )     -       6,160  
Redeemable preferred stocks
    24,371       1,012       (459 )     (34 )     24,890  
Common stocks
    27,736       12       (14,055 )     (1,353 )     12,340  
    $ 678,357     $ 34,339     $ (15,350 )   $ (3,196 )   $ 694,150  
 
The table above 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 $122.0 million during the first six months of fiscal 2012. The gross realized gains on these sales totaled $5.2 million. The gross realized losses on these sales totaled $0.1 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 may have declines determined by management to be other-than-temporary and the Company recognizes these write-downs through earnings. The Company’s insurance subsidiaries recognized $0.1 million in other-than-temporary impairments for the second quarter and first six months of fiscal 2012. There were no write downs in the second quarter or for the first six months 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.

 
8

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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, 2011
  $ 552  
Additions:
       
Other-than-temporary impairment not previously recognized
    -  
Balance at September 30, 2011
  $ 552  
 
 
 
The adjusted cost and estimated market value of available-for-sale investments at September 30, 2011, by contractual maturity, were as follows:
 
   
Amortized
Cost
   
Estimated
Market
Value
 
   
(Unaudited)
 
   
(In thousands)
 
Due in one year or less
  $ 39,532     $ 40,213  
Due after one year through five years
    150,925       159,268  
Due after five years through ten years
    173,671       183,302  
Due after ten years
    256,105       267,977  
      620,233       650,760  
                 
Mortgage backed securities
    6,017       6,160  
Redeemable preferred stocks
    24,371       24,890  
Equity securities
    27,736       12,340  
    $ 678,357     $ 694,150  
 
 

 
9

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
4. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
 
               
September 30,
   
March 31,
 
   
2012 Rate (a)
   
Maturities
   
2011
   
2011
 
               
(Unaudited)
       
               
(In thousands)
 
Real estate loan (amortizing term)
    6.93 %     2018     $ 250,000     $ 255,000  
Real estate loan (revolving credit)
    -       2018       -       -  
Real estate loan (amortizing term)
    2.13 %     2016       25,899       11,222  
Real estate loan (revolving credit)
    1.72 %     2012       23,599       -  
Senior mortgages
    5.47% - 5.75 %     2015       466,375       476,783  
Working capital loan (revolving credit)
    -       2012       -       -  
Fleet loans (amortizing term)
    3.52% - 7.95 %     2012 - 2018       403,938       325,591  
Fleet loans (securitization)
    4.90% - 5.56 %     2014 - 2017       244,127       271,290  
Other obligations
    3.00% - 9.50 %     2011 - 2031       66,648       57,956  
Less: Other obligations held by subsidiaries
                    (2,005 )     -  
Total notes, loans and leases payable
                  $ 1,478,581     $ 1,397,842  
                                 
(a) Interest rate as of September 30, 2011, 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 a current availability of $198.8 million. As of September 30, 2011, the outstanding balance on the Real Estate Loan was $250.0 million and the Company had the full $198.8 million available to be drawn. 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 September 30, 2011, the applicable LIBOR was 0.23% and the applicable margin was 1.50%, the sum of which was 1.73%. The rate on the term facility portion of the Real Estate 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%.
 
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 27, 2011. The loan is now comprised of a term loan facility with initial availability of $26.1 million and a final maturity of June 30, 2016. As of September 30, 2011, the outstanding balance was $25.9 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 loan balance 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 1.90%. At September 30, 2011, the applicable LIBOR was 0.23% and the margin was 1.90%, the sum of which was 2.13%. 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.
 
On April 29, 2011, Amerco Real Estate Company and U-Haul Company of Florida entered into a revolving credit agreement for $100.0 million. This agreement has a maturity of April 2012 with an option for a one year extension. As of September 30, 2011, the Company had $76.4 million available to be drawn. The interest rate is the applicable LIBOR plus a margin of 1.50%. At September 30, 2011, the applicable LIBOR was 0.22% and the margin was 1.50%, the sum of which was 1.72%. AMERCO and U-Haul International, Inc. are guarantors of this facility. 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 September 30, 2011 were in the aggregate amount of $415.0 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 $51.4 million as of September 30, 2011. These loans mature in 2015. Rates for these loans range from 5.47% to 5.75%. The loans require monthly principal and interest payments with the balances due upon maturity. The default provisions of the loans include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
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 September 30, 2011, 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 2012. 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%.
 
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 September 30, 2011 was $308.9 million with the final maturities between April 2012 and September 2018.
 
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

 
11

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
2.63%. At September 30, 2011, the applicable LIBOR was between 0.22% and 0.23% and applicable margins were between 1.13% and 2.63%. The interest rates are hedged with interest rate swaps fixing the rates between 3.85% and 7.32% based on current margins. Additionally, $11.8 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 was used to fund cargo van and pickup acquisitions for the past two years. This term note was amended on August 26, 2011. The amount of the term note was increased to $95 million and the final maturity of the note was extended to August 2016. The agreement contains options to extend the maturity through May 2017.  The note is secured by the purchased equipment and the corresponding operating cash flows associated with their operation.  This note has a fixed interest rate of 3.52%.
 
AMERCO and U-Haul International, Inc. are guarantors of this loan. The default provisions of these loans include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Rental Truck Securitizations
 
U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“2007 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 2007 Box Truck Note has a fixed interest rate of 5.56% with an estimated final maturity of February 2014. At September 30, 2011, the outstanding balance was $106.3 million. The note is secured by the box trucks that were purchased and the corresponding operating cash flows associated with their operation.
 
The 2007 Box Truck Note has the benefit of a financial guaranty insurance policy which guarantees the timely payment of interest on and the ultimate payment of the principal of this note.
 
2010 U-Haul S Fleet and its subsidiaries (collectively, “2010 USF”) issued a $155.0 million asset-backed note (“2010 Box Truck Note”) on October 28, 2010. 2010 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. U.S. Bank, NA acts as the trustee for this securitization.
 
The 2010 Box Truck Note has a fixed interest rate of 4.90% with an estimated final maturity of October 2017. At September 30, 2011, the outstanding balance was $137.8 million. The note is secured by the box trucks being purchased and the corresponding operating cash flows associated with their operation.
 
The 2007 Box Truck Note and 2010 Box Truck 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 these notes 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 September 2011, with terms of the leases between 3 and 7 years. At September 30, 2011, the balance of these leases was $59.7 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%. At September 30, 2011, the outstanding balance was $0.1 million.

 
12

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
In February 2011, the Company and US Bank, National Association (the “Trustee”) entered into the U-Haul Investors Club Indenture.  The Company and the Trustee entered into this indenture to provide for the issuance of notes (“U-Notes”) by the Company directly to investors over our proprietary website, uhaulinvestorsclub.com .  The U-Notes are secured by various types of collateral including rental equipment and real estate.  U-Notes are issued in smaller series that vary as to principal amount, interest rate and maturity.  U-Notes are obligations of the Company and secured by the associated collateral; they are not guaranteed by any of the Company’s affiliates or subsidiaries.
 
At September 30, 2011 the aggregate outstanding principal balance of the U-Notes issued was $6.8 million with interest rates between 3.00% and 8.00% and maturity dates between 2013 and 2031.
 
Annual Maturities of Notes, Loans and Leases Payable
 
The annual maturities of long-term debt as of September 30, 2011 for the next five years and thereafter are as follows:
 
   
Year Ending September 30,
 
   
2012
   
2013
   
2014
   
2015
   
2016
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes, loans and leases payable, secured
  $ 226,513     $ 112,910     $ 167,231     $ 474,254     $ 250,700     $ 246,973  
 
Interest on Borrowings
 
Interest Expense
 
Components of interest expense include the following:
 
   
Quarter Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $ 16,040     $ 14,586  
Capitalized interest
    (46 )     (122 )
Amortization of transaction costs
    1,058       1,049  
Interest expense resulting from derivatives
    5,911       6,275  
Total interest expense
  $ 22,963     $ 21,788  
 
 
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $ 31,879     $ 29,011  
Capitalized interest
    (78 )     (269 )
Amortization of transaction costs
    2,094       2,154  
Interest expense resulting from derivatives
    11,701       12,356  
Total interest expense
  $ 45,596     $ 43,252  
 
Interest paid in cash including payments related to derivative contracts, amounted to $20.6 million and $19.2 million for the second quarter of fiscal 2012 and 2011, respectively and $40.9 million and $38.8 million for the first six months of fiscal 2012 and 2011, respectively.

 
13

 

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 September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the quarter
    1.65 %     1.82 %
Interest rate at the end of the quarter
    1.72 %     -  
Maximum amount outstanding during the quarter
  $ 38,599     $ 75,000  
Average amount outstanding during the quarter
  $ 21,717     $ 33,804  
Facility fees
  $ 100     $ 57  
 
 
   
Revolving Credit Activity
 
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the first six months
    1.68 %     1.81 %
Interest rate at the end of the first six months
    1.72 %     -  
Maximum amount outstanding during the first six months
  $ 38,599     $ 111,000  
Average amount outstanding during the first six months
  $ 18,049     $ 59,585  
Facility fees
  $ 307     $ 113  
 
 
 
5. Derivatives
 
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.

 
14

 

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
  14.7  
(a)
 
7/6/2010
 
8/15/2010
 
7/15/2017
 
7/6/2010
  25.0  
(a), (b)
 
4/26/2011
 
6/1/2011
 
6/1/2018
 
7/1/2011
  50.0  
(a), (b)
 
7/29/2011
 
8/15/2011
 
8/15/2018
 
7/29/2011
  20.0  
(a), (b)
 
8/3/2011
 
9/12/2011
 
9/10/2018
 
8/3/2011
                       
(a) interest rate swap agreement
           
(b) forward swap
                   
 
 
As of September 30, 2011, the total notional amount of the Company’s variable interest rate swaps was $555.7 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
 
   
September 30, 2011
   
March 31, 2011
 
   
(Unaudited)
       
   
(In thousands)
 
Interest rate contracts designated as hedging instruments
  $ 66,816     $ 51,052  
 
 
       
   
The Effect of Interest Rate Contracts on the Statements of Operations
 
   
September 30, 2011
   
September 30, 2010
 
   
(Unaudited)
 
   
(In thousands)
 
Loss recognized in income on interest rate contracts
  $ 11,701     $ 12,356  
(Gain) loss recognized in AOCI on interest rate contracts (effective portion)
  $ 16,110     $ 19,568  
Loss reclassified from AOCI into income (effective portion)
  $ 12,048     $ 12,509  
(Gain) loss recognized in income on interest rate contracts (ineffective portion and amount excluded from effectiveness testing)
  $ (347 )   $ (153 )
 
 

 
15

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Gains or losses recognized in income on derivatives are recorded as interest expense in the statements of operations. At September 30, 2011, the Company expects to reclassify $21.1 million of net losses on interest rate contracts from accumulated other comprehensive income to earnings that will offset interest payments over the next twelve months.
 
6. Stockholders’ Equity
 
From January 1, 2009 through March 31, 2011, our insurance subsidiaries purchased 308,300 shares of Series A Preferred on the open market for $7.2 million. Pursuant to ASC 260, we recognized a $0.2 million charge to net earnings for the first six months of fiscal 2011 in connection with these entities.
 
On June 1, 2011, the Company redeemed all 6,100,000 shares of its issued and outstanding Series A Preferred at a redemption price of $25 per share plus accrued dividends through that date.  Pursuant to ASC 260, for earnings per share purposes, we recognize the deficit of the carrying amount of the Series A Preferred over the consideration paid to redeem the shares.
 
The Series A Preferred was recorded in our Additional Paid-In Capital account, net of original issue costs at $146.3 million prior to the redemption. The Company paid $152.5 million to redeem the shares on June 1, 2011 of which $7.7 million was paid to our insurance subsidiaries in exchange for their holdings. The difference between what was paid to redeem the shares less their carrying amount on our balance sheet, reduced by our insurance subsidiaries holdings is $5.9 million. This amount was recognized as a reduction to our earnings available to our common shareholders for the purposes of computing earnings per share for the first six months of fiscal 2012.
 
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, 2011
  $ (26,028 )   $ 10,861     $ (32,438 )   $ 1,138     $ (46,467 )
Foreign currency translation
    (5,757 )     -       -       -       (5,757 )
Unrealized gain on investments
    -       (4,009 )     -       -       (4,009 )
Change in fair value of cash flow hedges
    -       -       (9,988 )     -       (9,988 )
Balance at September 30, 2011
  $ (31,785 )   $ 6,852     $ (42,426 )   $ 1,138     $ (66,221 )
 
 
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 substantially through 2018, with the exception of one land lease expiring in 2034. As of September 30, 2011, AMERCO has guaranteed $143.1 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.

 
16

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 September 30:
                 
2012
  $ 14,584     $ 102,047     $ 116,631  
2013
    13,459       82,465       95,924  
2014
    8,847       63,315       72,162  
2015
    676       39,926       40,602  
2016
    550       9,707       10,257  
Thereafter
    5,139       4,022       9,161  
Total
  $ 43,255     $ 301,482     $ 344,737  
 
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.
 
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.

 
17

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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.
 
On May 12, 2011, the Nevada Supreme Court affirmed in part, reversed in part, and remanded the case for further proceedings.  First, the Court ruled that the Goldwasser settlement did not release claims that arose after the agreement and, therefore, reversed the trial court’s dismissal of the Complaint on that ground. Second, the Court affirmed the district court’s determination that the in pari delicto defense is available in a derivative suit and reversed and remanded to the district court to determine if the defense applies to this matter.  Third, the Court remanded to the district court to conduct an evidentiary hearing to determine whether demand upon the AMERCO Board was, in fact, futile.  Fourth, the Court invited AMERCO to seek a ruling from the district court as to the legal effect of the AMERCO Shareholders’ 2008 ratification of the underlying AMERCO/SAC transactions.
 
Last, as to individual claims for relief, the Court affirmed the district court’s dismissal of the breach of fiduciary duty of loyalty claims as to all defendants except Mark Shoen.  The Court affirmed the district court’s dismissal of the breach of fiduciary duty: ultra vires Acts claim as to all defendants. The Court reversed the district court’s dismissal of aiding and abetting a breach of fiduciary duty and unjust enrichment claims against the SAC entities.  The Court reversed the trial court’s dismissal of the claim for wrongful interference with prospective economic advantage as to all defendants.
 
On remand, on July 22, 2011, AMERCO filed a Motion for Summary Judgment based upon the Shareholder’s Ratification of the SAC transactions. In addition, on August 29, 2011, certain defendants filed a Motion to Dismiss Plaintiffs’ Claim for Wrongful Interference with Prospective Economic Advantage. On August 31, 2011, the trial court held a status conference and entered an order setting forth the briefing schedule for the two motions.
 
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.
 
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 Company’s Audit Committee (the “Audit Committee”) reviews and maintains oversight over related party transactions which are required to be disclosed under the Securities and Exchange Commission (“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.

 
18

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 completed on terms substantially 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.
 
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.
 
Related Party Revenue
 
   
Quarter Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
U-Haul interest income revenue from SAC Holdings
  $ 4,858     $ 4,815  
U-Haul interest income revenue from Private Mini
    1,366       1,374  
U-Haul management fee revenue from SAC Holdings
    3,821       3,598  
U-Haul management fee revenue from Private Mini
    554       543  
U-Haul management fee revenue from Mercury
    451       438  
    $ 11,050     $ 10,768  
 
 
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
U-Haul interest income revenue from SAC Holdings
  $ 9,674     $ 9,585  
U-Haul interest income revenue from Private Mini
    2,719       2,738  
U-Haul management fee revenue from SAC Holdings
    7,550       7,157  
U-Haul management fee revenue from Private Mini
    1,106       1,083  
U-Haul management fee revenue from Mercury
    905       875  
    $ 21,954     $ 21,438  
 
During the first six months of fiscal 2012, 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 received cash interest payments of $10.0 million and $8.8 million, from SAC Holdings during the first six months of fiscal 2012 and 2011, respectively. The largest aggregate amount of notes receivable outstanding during the first six months of fiscal 2012 was $196.2 million and the aggregate notes receivable balance at September 30, 2011 was $195.8 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.”

 
19

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 six months of fiscal 2012, AMERCO and U-Haul held various junior notes issued by Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. The Company received cash interest payments of $2.7 million and $2.8 million from Private Mini during the first six months of fiscal 2012 and 2011, respectively. The largest aggregate amount outstanding during the first six months of fiscal 2012 was $66.7 million and the aggregate notes receivable balance at September 30, 2011 was $66.5 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 $13.5 million from the above mentioned entities during the first six months of fiscal 2012 and 2011. 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.
 
Related Party Costs and Expenses
 
   
Quarter Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
U-Haul lease expenses to SAC Holdings
  $ 503     $ 622  
U-Haul commission expenses to SAC Holdings
    11,379       10,628  
U-Haul commission expenses to Private Mini
    763       724  
    $ 12,645     $ 11,974  
 
 
   
Six Months Ended September 30,
 
   
2011
   
2010
 
   
(Unaudited)
 
   
(In thousands)
 
U-Haul lease expenses to SAC Holdings
  $ 1,126     $ 1,245  
U-Haul commission expenses to SAC Holdings
    21,382       20,044  
U-Haul commission expenses to Private Mini
    1,406       1,340  
    $ 23,914     $ 22,629  
 
The Company leases space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. 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.

 
20

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
At September 30, 2011, 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
 
These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $21.1 million, expenses of $1.1 million and cash flows of $23.9 million during the first six months of fiscal 2012. Revenues and commission expenses related to the Dealer Agreements were $108.1 million and $22.8 million, respectively during the first six months of fiscal 2012.
 
The Company adopted Accounting Standards Update 2009-17 (“ASU 2009-17”), which amends the FASB ASC for the issuance of FASB Statement 167, Amendments to FASB Interpretation 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 (i) identified all other parties that hold interests in the VIE’s, and (ii) 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.

 
21

 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The Company has not provided financial or other support explicitly or implicitly during the first six months ended September 30, 2011 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 sheets 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 related party entities:
 
Related Party Assets
 
   
September 30,
   
March 31,
 
   
2011
   
2011
 
   
(Unaudited)
       
   
(In thousands)
 
U-Haul notes, receivables and interest from Private Mini
  $ 69,344     $ 69,201  
U-Haul notes receivable from SAC Holdings
    195,831       196,191  
U-Haul interest receivable from SAC Holdings
    16,816       17,096  
U-Haul receivable from SAC Holdings
    12,645       16,346  
U-Haul receivable from Mercury
    2,529       3,534  
Other (a)
    (1,149 )     (400 )
    $ 296,016     $ 301,968  
 
(a) Timing differences for intercompany balances with insurance subsidiaries.
 
From January 1, 2009 through March 31, 2011, our insurance subsidiaries purchased 308,300 shares of our Series A Preferred on the open market for $7.2 million.
 
11. Consolidating Financial Information by Industry Segment
 
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.
 
Management tracks revenues separately, but does not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.
 
The 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.
 
 

 
22

 

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 September 30, 2011 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
  $ 289,563     $ 131,044     $ 818     $ -       $ 421,425     $ 16,812     $ 9,922     $ -       $ 448,159  
Reinsurance recoverables and trade receivables, net
    -       26,401       -       -         26,401       181,613       19,738       (2 )
(c)
    227,750  
Inventories, net
    -       57,759       -       -         57,759       -       -       -         57,759  
Prepaid expenses
    5,426       43,088       386       -         48,900       -       -       -         48,900  
Investments, fixed maturities and marketable equities
    10,880       -       -       -         10,880       118,816       564,454       -         694,150  
Investments, other
    -       8,409       32,706       -         41,115       102,141       85,429       (750 )
(c)
    227,935  
Deferred policy acquisition costs, net
    -       -       -       -         -       -       55,626       -         55,626  
Other assets
    695       77,839       28,125       -         106,659       502       338       -         107,499  
Related party assets
    1,072,200       241,951       96       (1,015,373 )
(c)
    298,874       3,455       -       (6,313 )
(c)
    296,016  
      1,378,764       586,491       62,131       (1,015,373 )       1,012,013       423,339       735,507       (7,065 )       2,163,794  
                                                                             
Investment in subsidiaries
    (640 )     -       -       355,025  
(b)
    354,385       -       -       (354,385 )
(b)
    -  
                                                                             
Property, plant and equipment, at cost:
                                                                           
Land
    -       51,451       199,856       -         251,307       -       -       -         251,307  
Buildings and improvements
    -       158,789       893,414       -         1,052,203       -       -       -         1,052,203  
Furniture and equipment
    167       285,885       18,351       -         304,403       -       -       -         304,403  
Rental trailers and other rental equipment
    -       254,522       -       -         254,522       -       -       -         254,522  
Rental trucks
    -       1,739,993       -       -         1,739,993       -       -       -         1,739,993  
      167       2,490,640       1,111,621       -         3,602,428       -       -       -         3,602,428  
Less:  Accumulated depreciation
    (142 )     (1,011,475 )     (351,468 )     -         (1,363,085 )     -       -       -         (1,363,085 )
Total property, plant and equipment
    25       1,479,165       760,153       -         2,239,343       -       -       -         2,239,343  
Total assets
  $ 1,378,149     $ 2,065,656     $ 822,284     $ (660,348 )     $ 3,605,741     $ 423,339     $ 735,507     $ (361,450 )     $ 4,403,137  
                                                                             
(a) Balances as of June 30, 2011
                                                                           
(b) Eliminate investment in subsidiaries
                                                                           
(c) Eliminate intercompany receivabl