June 30, 2007 10-Q
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, 2007

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.
     
 
 
1-11255
AMERCO
88-0106815
 
(A Nevada Corporation)
 
 
1325 Airmotive Way, Ste. 100
 
 
Reno, Nevada 89502-3239
 
 
Telephone (775) 688-6300
 
     
 
 
2-38498
U-Haul International, Inc.
86-0663060
 
(A Nevada Corporation)
 
 
2727 N. Central Avenue
 
 
Phoenix, Arizona 85004
 
 
Telephone (602) 263-6645
 
     

 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and larger accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Larger accelerated filer £   Accelerated filer R  Non-accelerated filer £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R No £
 
20,059,314 shares of AMERCO Common Stock, $0.25 par value, were outstanding at August 1, 2007.
 
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at August 1, 2007.





TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5 - 32
Item 2.
33 - 48
Item 3.
49
Item 4.
50
     
 
PART II OTHER INFORMATION
 
Item 1.
51
Item 1A.
51
Item 2.
51
Item 3.
51
Item 4.
51
Item 5.
51
Item 6.
52

 


 

PART I FINANCIAL INFORMATION
 
ITEM 1. Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
June 30,
 
March 31,
 
   
2007
 
2007
 
   
(Unaudited)
     
   
(In thousands)
 
ASSETS
         
Cash and cash equivalents
 
$
161,629
 
$
75,272
 
Reinsurance recoverables and trade receivables, net
   
190,885
   
184,617
 
Notes and mortgage receivables, net
   
2,068
   
1,669
 
Inventories, net
   
64,998
   
67,023
 
Prepaid expenses
   
47,423
   
52,080
 
Investments, fixed maturities and marketable equities
   
674,036
   
681,801
 
Investments, other
   
170,731
   
178,699
 
Deferred policy acquisition costs, net
   
40,645
   
44,514
 
Other assets
   
325,493
   
95,123
 
Related party assets
   
240,056
   
245,179
 
     
1,917,964
   
1,625,977
 
Property, plant and equipment, at cost:
             
Land
   
204,704
   
202,917
 
Buildings and improvements
   
817,433
   
802,289
 
Furniture and equipment
   
306,502
   
301,751
 
Rental trailers and other rental equipment
   
202,341
   
200,208
 
Rental trucks
   
1,725,380
   
1,604,123
 
SAC Holding II - property, plant and equipment
   
81,034
   
80,349
 
     
3,337,394
   
3,191,637
 
Less: Accumulated depreciation
   
(1,301,975
)
 
(1,294,566
)
Total property, plant and equipment
   
2,035,419
   
1,897,071
 
Total assets
 
$
3,953,383
 
$
3,523,048
 
LIABILITIES AND STOCKHOLDERS' EQUITY
             
Liabilities:
             
Accounts payable and accrued expenses
 
$
267,163
 
$
251,197
 
AMERCO's notes and loans payable
   
1,582,793
   
1,181,165
 
SAC Holding II notes and loans payable, non-recourse to AMERCO
   
74,545
   
74,887
 
Policy benefits and losses, claims and loss expenses payable
   
767,246
   
768,751
 
Liabilities from investment contracts
   
373,632
   
386,640
 
Other policyholders' funds and liabilities
   
10,697
   
10,563
 
Deferred income
   
16,246
   
16,478
 
Deferred income taxes
   
113,101
   
113,170
 
Related party liabilities
   
2,474
   
2,099
 
Total liabilities
   
3,207,897
   
2,804,950
 
Commitments and contingencies (notes 3, 7 and 8)
             
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 shares issued and outstanding as of June 30 and March 31, 2007
   
-
   
-
 
Series B preferred stock, with no par value, 100,000 shares authorized; none
             
issued and outstanding as of June 30 and March 31, 2007
   
-
   
-
 
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, 2007 and March 31, 2007
   
-
   
-
 
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
             
issued as of June 30, 2007 and March 31, 2007
   
10,497
   
10,497
 
Additional paid-in capital
   
376,090
   
375,412
 
Accumulated other comprehensive loss
   
(26,743
)
 
(41,779
)
Retained earnings
   
894,637
   
849,300
 
Cost of common shares in treasury, net (21,926,386 shares as of
             
June 30, 2007 and 21,440,387 as of March 31, 2007)
   
(501,165
)
 
(467,198
)
Unearned employee stock ownership plan shares
   
(7,830
)
 
(8,134
)
Total stockholders' equity
   
745,486
   
718,098
 
Total liabilities and stockholders' equity
 
$
3,953,383
 
$
3,523,048
 
               
 

 
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,
 
       
2007
 
2006
 
       
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
             
Self-moving equipment rentals
       
$
396,136
 
$
407,234
 
Self-storage revenues
         
32,036
   
30,431
 
Self-moving and self-storage products and service sales
         
68,655
   
67,451
 
Property management fees
         
3,947
   
3,847
 
Life insurance premiums
         
29,187
   
30,919
 
Property and casualty insurance premiums
         
5,916
   
5,382
 
Net investment and interest income
         
14,369
   
13,475
 
Other revenue
         
7,912
   
7,933
 
Total revenues
         
558,158
   
566,672
 
                     
Costs and expenses:
                   
Operating expenses
         
273,331
   
261,379
 
Commission expenses
         
47,923
   
49,536
 
Cost of sales
         
34,648
   
32,316
 
Benefits and losses
         
29,277
   
30,606
 
Amortization of deferred policy acquisition costs
         
3,917
   
5,626
 
Lease expense
         
32,738
   
37,372
 
Depreciation, net of (gains) losses on disposals
         
44,265
   
39,671
 
Total costs and expenses
         
466,099
   
456,506
 
                     
Earnings from operations
         
92,059
   
110,166
 
Interest expense
         
(23,771
)
 
(18,462
)
Pretax earnings
         
68,288
   
91,704
 
Income tax expense
         
(26,536
)
 
(36,283
)
Net earnings
         
41,752
   
55,421
 
Less: Preferred stock dividends
         
(3,241
)
 
(3,241
)
Earnings available to common shareholders
       
$
38,511
 
$
52,180
 
Basic and diluted earnings per common share
       
$
1.93
 
$
2.50
 
Weighted average common shares outstanding: Basic and diluted
         
19,937,152
   
20,897,688
 
                     

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

2


 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

   
Quarter Ended June 30,
 
   
2007
 
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Comprehensive income:
         
Net earnings
 
$
41,752
 
$
55,421
 
Other comprehensive income (loss), net of tax:
             
Foreign currency translation
   
5,627
   
1,922
 
Unrealized gain (loss) on investments, net
   
1,220
   
(2,586
)
Fair market value of cash flow hedges
   
8,189
   
1,215
 
Total comprehensive income
 
$
56,788
 
$
55,972
 
               

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,
 
   
2007
 
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Cash flow from operating activities:
         
Net earnings
 
$
41,752
 
$
55,421
 
Adjustments required to convert net earnings to the cash basis:
             
Depreciation
   
55,233
   
40,666
 
Amortization of deferred policy acquisition costs
   
3,917
   
5,626
 
Change in provision for losses on trade receivables
   
166
   
(32
)
Change in provision for losses on mortgage notes
   
10
   
(10
)
Change in provision for inventory reserves
   
(190
)
 
-
 
Net gain on sale of real and personal property
   
(10,968
)
 
(995
)
Net loss on sale of investments
   
83
   
553
 
Deferred income taxes
   
6,166
   
14,253
 
Net change in other operating assets and liabilities:
             
Reinsurance recoverables and trade receivables
   
(6,075
)
 
17,780
 
Inventories
   
2,067
   
(3,201
)
Prepaid expenses
   
12,863
   
(3,079
)
Capitalization of deferred policy acquisition costs
   
(1,315
)
 
(2,386
)
Other assets
   
(11,191
)
 
2,132
 
Related party assets
   
5,909
   
28,624
 
Accounts payable and accrued expenses
   
11,110
   
14,561
 
Policy benefits and losses, claims and loss expenses payable
   
(1,411
)
 
(14,610
)
Other policyholders' funds and liabilities
   
133
   
(1,273
)
Deferred income
   
(306
)
 
2,257
 
Related party liabilities
   
(826
)
 
(6,083
)
Net cash provided by operating activities
   
107,127
   
150,204
 
               
Cash flows from investing activities:
             
Purchases of:
             
Property, plant and equipment
   
(224,680
)
 
(166,999
)
Short term investments
   
(62,247
)
 
(53,131
)
Fixed maturities investments
   
(12,586
)
 
(32,272
)
Real estate
   
(270
)
 
-
 
Mortgage loans
   
(2,783
)
 
(7,305
)
Proceeds from sale of:
             
Property, plant and equipment
   
54,128
   
28,692
 
Short term investments
   
70,238
   
82,228
 
Fixed maturities investments
   
20,475
   
21,852
 
Cash received in excess of purchase for company acquired
   
-
   
1,233
 
Equity securities
   
46
   
-
 
Preferred stock
   
2,625
   
125
 
Real estate
   
-
   
877
 
Mortgage loans
   
2,615
   
2,086
 
Payments from notes and mortgage receivables
   
48
   
403
 
Net cash used by investing activities
   
(152,391
)
 
(122,211
)
               
Cash flows from financing activities:
             
Borrowings from credit facilities
   
445,294
   
87,376
 
Principal repayments on credit facilities
   
(44,800
)
 
(8,136
)
Debt issuance costs
   
(8,880
)
 
(1,437
)
Leveraged Employee Stock Ownership Plan - repayments from loan
   
304
   
285
 
Treasury stock repurchases
   
(33,966
)
 
-
 
Securitization deposits
   
(210,308
)
 
-
 
Preferred stock dividends paid
   
(3,241
)
 
(3,241
)
Investment contract deposits
   
4,027
   
4,251
 
Investment contract withdrawals
   
(17,035
)
 
(20,843
)
Net cash provided by financing activities
   
131,395
   
58,255
 
               
Effects of exchange rate on cash
   
226
   
151
 
               
Increase in cash equivalents
   
86,357
   
86,399
 
Cash and cash equivalents at the beginning of period
   
75,272
   
155,459
 
Cash and cash equivalents at the end of period
 
$
161,629
 
$
241,858
 
               
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Basis of Presentation
 
The first fiscal quarter for AMERCO 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 2007 and 2006 correspond to fiscal 2008 and 2007 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 consolidated financial statements for the first quarter of fiscal 2008 and fiscal 2007, and the balance sheet as of March 31, 2007 include the accounts of AMERCO, its wholly-owned subsidiaries and SAC Holding II Corporation and its subsidiaries (“SAC Holding II”).
 
The condensed consolidated balance sheet as of June 30, 2007 and the related condensed consolidated statements of operations, comprehensive income, and cash flow for the first quarter of fiscal 2008 and 2007 are unaudited.
 
In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this 10-Q should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the AMERCO 2007 Form 10-K.
 
Intercompany accounts and transactions have been eliminated.
 
Description of Legal Entities
 
AMERCO, a Nevada corporation (“AMERCO”), is the holding company for:
 
U-Haul International, Inc. (“U-Haul”),
 
Amerco Real Estate Company (“Real Estate”),
 
Republic Western Insurance Company (“RepWest”) and its wholly-owned subsidiary
 
North American Fire & Casualty Insurance Company (“NAFCIC”),
 
Oxford Life Insurance Company (“Oxford”) and its wholly-owned subsidiaries
 
North American Insurance Company (“NAI”)
 
Christian Fidelity Life Insurance Company (“CFLIC”) and its wholly-owned subsidiary
 
Dallas General Life Insurance Company (“DGLIC”),
 
Unless the context otherwise requires, the term “Company,” “we,” “us” or “our” refers to AMERCO and all of its legal subsidiaries.
 

 
5


 


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II.
 
Moving and Storage operations include AMERCO, U-Haul and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate and consist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane, the rental of self-storage spaces to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
Property and Casualty Insurance includes RepWest and its wholly-owned subsidiary. RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. RepWest also underwrites components of the Safemove, Safetow and Safestor protection packages to U-Haul customers.
 
Life Insurance includes Oxford and its wholly-owned subsidiaries. Oxford originates and reinsures annuities, ordinary life and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for Arizona employees of the Company.
 
SAC Holding Corporation and its subsidiaries, and SAC Holding II Corporation and its subsidiaries, collectively referred to as “SAC Holdings”, own self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain SAC Holdings’ properties entitling AMERCO to potential future income based on the financial performance of these properties. With respect to SAC Holding II, AMERCO is considered the primary beneficiary of these contractual interests. Consequently, we include the results of SAC Holding II in the consolidated financial statements of AMERCO, as required by FIN 46(R).
 
2. Earnings per Share
 
Net earnings for purposes of computing earnings per common share are net earnings less preferred stock dividends. Preferred stock dividends include accrued dividends of AMERCO.
 
The shares used in the computation of the Company’s basic and diluted earnings per common share were as follows:
   
Quarter Ended June 30,
 
   
2007
 
2006
 
   
(Unaudited)
 
Basic and diluted earnings per common share
 
$
1.93
 
$
2.50
 
               
Weighted average common shares outstanding: Basic and diluted
   
19,937,152
   
20,897,688
 
               
 

 
The weighted average common shares outstanding listed above exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares net of shares committed to be released were 331,802 and 380,658 as of June 30, 2007 and June 30, 2006, respectively.
 
6,100,000 shares of preferred stock have been excluded from the weighted average shares outstanding calculation because they are not common stock and they are not convertible into common stock.

6


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
3. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
           
June 30,
 
March 31,
 
   
2008 Rate (a)
 
Maturities
 
2007
 
2007
 
           
(Unaudited)
     
           
(In thousands)
 
Real estate loan (amortizing term)
   
6.93
%
 
2018
 
$
292,500
 
$
295,000
 
Real estate loan (revolving credit)
   
-
   
2018
   
-
   
-
 
Senior mortgages
   
5.47%-5.75
%
 
2015
   
519,555
   
521,332
 
Construction loan (revolving credit)
   
6.82
%
 
2009
   
21,700
   
-
 
Working capital loan (revolving credit)
   
-
   
2008
   
-
   
-
 
Fleet loans (amortizing term)
   
6.11%-7.42
%
 
2012-2014
   
345,444
   
364,833
 
Fleet loans (securitization)
   
5.40%-5.56
%
 
2010-2014
   
303,594
   
-
 
Fleet loan (revolving credit)
   
6.69
%
 
2011
   
100,000
   
-
 
Total AMERCO notes and loans payable
             
$
1,582,793
 
$
1,181,165
 
                           
(a) Interest rate as of June 30, 2007, 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 lender is Merrill Lynch Commercial Finance Corp. The original amount of the Real Estate Loan was $465.0 million with an original maturity date of June 10, 2010. On August 18, 2006, the loan was amended to increase the availability to $500.0 million and extend the final maturity date to 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, 2007 the outstanding balance on the Real Estate Loan was $292.5 million, with no portion of the revolver drawn down. 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, per the provisions of the amended Loan Agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.50%, the sum of which was 6.82%. The applicable margin ranges from 1.50% to 2.00%. 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 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.

7


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
Senior Mortgages
 
Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. The lenders for these senior mortgages are Merrill Lynch Mortgage Lending, Inc. and Morgan Stanley Mortgage Capital, Inc. These senior mortgages loan balances as of June 30, 2007 were in the aggregate amount of $462.9 million and are due July 2015. The senior mortgages require average monthly principal and interest payments of $3.0 million with the unpaid loan balance and accrued and unpaid interest due at maturity. The senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of these senior mortgages, are 5.68% per annum for the Merrill Lynch Mortgage Lending Agreement and 5.52% per annum for the Morgan Stanley Mortgage Capital Agreement. 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.
 
U-Haul Company of Canada is the borrower under a mortgage backed loan, which we also classify as a senior mortgage. The loan was arranged by Merrill Lynch Canada and the loan balance as of June 30, 2007 was $10.3 million ($11.0 million Canadian currency). The loan is secured by certain properties owned by the borrower. The loan was entered into on June 29, 2005 at a rate of 5.75%. The loan requires monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. It has a twenty-five year amortization with a maturity of July 1, 2015. The default provisions of the 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.
 
A subsidiary of Amerco Real Estate Company is a borrower under a mortgage backed loan, which we also classify as a senior mortgage. The lender is Morgan Stanley Mortgage Capital, Inc. and the loan balance as of June 30, 2007 was $23.3 million. The loan was entered into on August 17, 2005 at a rate of 5.47%. The loan is secured by certain properties owned by the borrower. The loan requires monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. It has a twenty-five year amortization with a maturity of September 17, 2015. The default provisions of the 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.
 
Finally, various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under a mortgage backed loan. The lender is Lehman Brothers Bank, FSB and the loan balance as of June 30, 2007 was $23.0 million. The loan was entered into on October 6, 2005 at a rate of 5.72%. The loan is secured by certain properties owned by the borrower. The loan requires monthly principal and interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. It has a twenty-five year amortization with a maturity of October 11, 2015. The default provisions of the 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.
 
Construction / Working Capital Loans
 
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit facility with MidFirst Bank effective June 29, 2006. The maximum amount that can be drawn at any one time is $40.0 million. The final maturity is June 2009. As of June 30, 2007 the outstanding balance was $21.7 million.
 
The Construction Loan requires monthly interest only payments with the principal and any accrued and unpaid interest due at maturity. The loan can be used to develop new or existing storage properties. The loan is secured by the properties being constructed. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.50%, the sum of which was 6.82%. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Amerco Real Estate Company is a borrower under an asset backed facility. The lender is JP Morgan Chase Bank, and the facility is in the amount of $20.0 million. The loan was entered into on November 27, 2006 and is secured by certain properties owned by the borrower. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. The loan agreement provides for revolving loans, subject to the terms of the loan agreement with final maturity in November 2008, subject to a one year extension. The loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. At June 30, 2007 the facility was fully available.

8


 
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 an amortizing term loan. The lender is Merrill Lynch Commercial Finance Corp. The Company’s outstanding balance at June 30, 2007 was $112.3 million and the final maturity is April 2012.
 
The Merrill Lynch Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Merrill Lynch Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.50% and 1.75%. At June 30, 2007, the applicable LIBOR was 5.32% and the applicable margin was 1.75%, the sum of which was 7.07%. The interest rate is hedged with an interest rate swap fixing the rate at 6.81% based on the current margin. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is BTMU Capital Corporation (“BTMU”). The Company’s outstanding balance at June 30, 2007 was $126.3 million, and the final maturity is October 2012.
 
The BTMU Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The BTMU Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.25% and 1.75%. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.75%, the sum of which was 7.07%. The interest rate is hedged with an interest rate swap fixing the rate at 7.32% based on the current margin. AMERCO and U-Haul International, Inc. are guarantors of the loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is Bayerische Hypo-und Vereinsbank AG (“HVB”). The Company’s outstanding balance at June 30, 2007 was $40.8 million and its final maturity is July 2013.
 
The HVB Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The HVB Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.25% and 1.75%. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.75%, the sum of which was 7.07%. The interest rate is hedged with an interest rate swap fixing the rate at 7.42% based on the current margin. U-Haul International, Inc. is a guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is U.S. Bancorp Equipment Finance, Inc. (“U.S. Bank”). The Company’s outstanding balance at June 30, 2007 was $28.0 million and its final maturity is February 2014.
 
The U.S. Bank Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The U.S. Bank Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 0.900% and 1.125%. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.13%, the sum of which was 6.45%. The interest rate is hedged with an interest rate swap fixing the rate at 6.37% based on the current margin. AMERCO and U-Haul International, Inc. 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.

9


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lenders are HSBC Bank US, NA and KBC Bank, NV (“HSBC/KBC”). The Company’s outstanding balance at June 30, 2007 was $38.0 million and its final maturity is March 2014.
 
The HSBC/KBC Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The HSBC/KBC Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 0.900% and 1.125%. At June 30, 2007 the applicable LIBOR was 5.32% and the applicable margin was 1.13%, the sum of which was 6.45%. The interest rate is hedged with an interest rate swap fixing the rate at 6.11% based on the current margin. AMERCO is a guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Rental Truck Securitizations
 
U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“Boxed-Truck Note”) and a $86.6 million asset-backed note (“Cargo Van/Pickup Note”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from these securitized transactions will be used to finance new box truck, cargo van and pickup truck purchases throughout fiscal 2008. The assets of these special purpose entities will not be available to satisfy the claims of AMERCO’s general creditors. U.S. Bank, NA acts as the trustee for this securitization.
 
The Boxed Truck Note has a fixed interest rate of 5.56% with an estimated final maturity of February 2014. At June 30, 2007 the outstanding balance was $217.0 million of which $72.5 million has already been used to acquire new box trucks. The note is securitized by the box trucks being purchased and operating cash flows associated with their operation. The unused portion of this facility has been recorded as “Other assets” on our balance sheet.
 
The Cargo Van/Pickup Note has a fixed interest rate of 5.40% with an estimated final maturity of May 2010. At June 30, 2007 the outstanding balance was $86.6 million of which $34.8 million has already been used to acquire new cargo vans and pickup trucks. The note is securitized by the cargo vans and pickup trucks being purchased and the operating cash flows associated with their operation. The unused portion of this facility has been recorded as “Other assets” on our balance sheet.
 
The Box Truck Note and Cargo Van/Pickup Note have the benefit of financial guaranty insurance policies through Ambac Assurance Corporation. These policies guarantee the timely payment of interest on and the ultimate payment of the principal of the notes.
 
The Box Truck Note and the Cargo Van/Pickup Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of the notes include non-payment of principal or interest and other standard reporting and change in control covenants.
 
Revolving Credit Agreement
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under a revolving credit facility. The lender is Merrill Lynch Commercial Finance Corp. The original amount that could be drawn was $150.0 million with an original maturity date of July 2010. On March 12, 2007, the revolving credit agreement was amended to limit the maximum amount that can be drawn to $100.0 million and extended the final maturity to March 2011. As of June 30, 2007, the outstanding balance was $100.0 million.
 
The revolving credit agreement requires monthly interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The revolving credit agreement is secured by various older rental trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin. At June 30, 2007, the applicable LIBOR was 5.32% and the applicable margin was 1.37%, the sum of which was 6.69%. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

10


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
Annual Maturities of AMERCO Consolidated Notes and Loans Payable
 
The annual maturities of AMERCO consolidated long-term debt as of June 30, 2007 for the next five years and thereafter is as follows:
   
Year Ending June 30,
 
   
2008
 
2009
 
2010
 
2011
 
2012
 
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes payable, secured
 
$
111,268
 
$
129,791
 
$
165,294
 
$
165,155
 
$
118,732
 
$
892,553
 
                                       
 

 
SAC Holding II Notes and Loans Payable to Third Parties
 
SAC Holding II notes and loans payable to third parties, other than AMERCO, were as follows:
   
June 30,
 
March 31,
 
   
2007
 
2007
 
   
(Unaudited)
     
   
(In thousands)
 
Notes payable, secured, 7.87% interest rate, due 2027
 
$
74,545
 
$
74,887
 
               
 

 
Secured notes payable are secured by deeds of trusts on the collateralized land and buildings. Principal and interest payments on notes payable to third party lenders are due monthly in the amount of $0.6 million. Certain notes payable contain provisions whereby the loans may not be prepaid at any time prior to the maturity date without payment to the lender of a Yield Maintenance Premium, as defined in the loan agreements.
 
On March 15, 2004, the SAC entities issued $200.0 million aggregate principal amount of 8.5% senior notes due 2014 (the “new SAC notes”). SAC Holding Corporation and SAC Holding II Corporation are jointly and severally liable for these obligations. The proceeds from this issuance flowed exclusively to SAC Holding Corporation and as such SAC Holding II had recorded no liability for this. On August 30, 2004, SAC Holdings paid down $43.2 million on this note. On June 22, 2007, SAC Holdings repaid the balance of the new SAC notes and terminated the related indenture. No funds from SAC Holding II were used as part of this transaction.
 
Annual Maturities of SAC Holding II Notes and Loans Payable to Third Parties
 
The annual maturities of SAC Holding II long-term debt as of June 30, 2007 for the next five years and thereafter is as follows:
   
Year Ending June 30,
 
   
2008
 
2009
 
2010
 
2011
 
2012
 
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes payable, secured
 
$
1,469
 
$
1,608
 
$
1,740
 
$
1,884
 
$
2,037
 
$
65,807
 
                                       
 


11


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
W.P. Carey Transactions
 
In 1999, AMERCO, U-Haul and Real Estate entered into financing agreements for the purchase and construction of self-storage facilities with the Bank of Montreal and Citibank (the “leases” or the “synthetic leases”). Title to the real property subject to these leases was held by non-affiliated entities.
 
These leases were amended and restated on March 15, 2004. In connection with such amendment and restatement, we paid down approximately $31.0 million of lease obligations and entered into leases with a three year term, with four one year renewal options. After such pay down, our lease obligation under the amended and restated synthetic leases was approximately $218.5 million.
 
On April 30, 2004, the amended and restated leases were terminated and the properties underlying these leases were sold to UH Storage (DE) Limited Partnership, an affiliate of W. P. Carey. U-Haul entered into a ten year operating lease with W. P. Carey (UH Storage DE) for a portion of each property (the portion of the property that relates to U-Haul’s truck and trailer rental and moving supply sales businesses). The remainder of each property (the portion of the property that relates to self-storage) was leased by W. P. Carey (UH Storage DE) to Mercury Partners, LP (“Mercury”) pursuant to a twenty year lease. These events are referred to as the “W. P. Carey Transactions.” As a result of the W. P. Carey Transactions, we no longer have a capital lease related to these properties.
 
The sales price for these transactions was $298.4 million and cash proceeds were $298.9 million. The Company realized a gain on the transaction of $2.7 million, which is being amortized over the life of the lease term.
 
As part of the W. P. Carey Transactions, U-Haul entered into agreements to manage these properties (including the portion of the properties leased by Mercury). These management agreements allow us to continue to operate the properties as part of the U-Haul moving and self-storage system.
 
U-Haul’s annual lease payments under the new lease are approximately $10.0 million per year, with Consumer Price Index (“CPI”) inflation adjustments beginning in the sixth year of the lease. The lease term is ten years, with a renewal option for an additional ten years. Upon closing of the W. P. Carey Transactions, we made a $5.0 million security deposit.
 
The property management agreement we entered into with Mercury provides that Mercury will pay U-Haul a management fee based on gross self-storage rental revenues generated by the properties. During the first quarter of fiscal 2008 and 2007, U-Haul received cash payments of $2.3 million and $0.4 million, respectively in management fees from Mercury.

12


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
4. Interest on Borrowings
 
Interest Expense
 
Expenses associated with loans outstanding were as follows:
   
Quarter Ended June 30,
 
   
2007
 
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
 
$
22,123
 
$
16,557
 
Capitalized interest
   
(283
)
 
(42
)
Amortization of transaction costs
   
881
   
1,298
 
Interest income resulting from derivatives
   
(453
)
 
(863
)
Total AMERCO interest expense
   
22,268
   
16,950
 
SAC Holding II interest expense
   
3,231
   
3,394
 
Less: Intercompany transactions
   
1,728
   
1,882
 
Total SAC Holding II interest expense
   
1,503
   
1,512
 
Total
 
$
23,771
 
$
18,462
 
               
 

 
Interest paid in cash by AMERCO amounted to $20.1 million and $16.1 million for the first quarter of fiscal 2008 and 2007, respectively.

13


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
The exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations. We have used interest rate swap and interest rate cap agreements to provide for matching the gain or loss recognition on the hedging instrument with the recognition of the changes in the cash flows associated with the hedged asset or liability attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. As of June 30, 2007, the Company had approximately $759.6 million of variable rate debt obligations. On June 8, 2005, the Company entered into separate interest rate swap contracts for $100.0 million of our variable rate debt over a three year term and for $100.0 million of our variable rate debt over a five year term, which were designated as cash flow hedges effective July 1, 2005. These swap contracts were cancelled on August 16, 2006 in conjunction with our amendment of the Real Estate Loan and we entered into a new interest rate swap contract for $300.0 million of our variable rate debt over a twelve year term effective on August 18, 2006. On May 13, 2004, the Company entered into separate interest rate cap contracts for $200.0 million of our variable rate debt over a two year term and for $50.0 million of our variable rate debt over a three year term; however, these contracts were dedesignated as cash flow hedges effective July 11, 2005 when the Real Estate Loan was paid down by $222.4 million. The $200.0 million interest rate cap contract expired on May 17, 2006 and the $50.0 million interest rate cap contract expired on May 17, 2007. On November 15, 2005, the Company entered into a forward starting interest rate swap contract for $142.3 million of a variable rate debt over a six year term that started on May 10, 2006. On June 21, 2006, the Company entered into a forward starting interest rate swap contract for $50.0 million of our variable rate debt over a seven year term that started on July 10, 2006. On June 9, 2006, the Company entered into a forward starting interest rate swap contract for $144.9 million of a variable rate debt over a six year term that started on October 10, 2006. On February 9, 2007, the Company entered into an interest rate swap contract for $30.0 million of our variable rate debt over a seven year term that started on February 12, 2007. On March 8, 2007, the Company entered into two separate interest rate swap contracts each for $20.0 million of our variable rate debt over a seven year term that started on March 10, 2007. These interest rate swap agreements were designated cash flow hedges on their effective dates.
 
The interest rate cap agreement is no longer designated as a hedge as it was replaced with an interest rate swap agreement when the associated debt was replaced in fiscal 2007. Therefore all changes in the interest rate caps fair value (including changes in the option’s time value), are recorded to earnings. Previously the change in each caplets’ respective allocated fair value amount was reclassified out of accumulated other comprehensive income into earnings when each of the hedged forecasted transactions (the quarterly interest payments) impact earnings and when interest payments are either made or received. For the quarters ended June 30, 2007 and June 30, 2006, the Company recorded interest income related to these cap agreements of $0.1 million and $0.3 million, respectively. The interest income amounts consisted of $0.2 million and $0.8 million of interest expense representing the portion of the caps in excess of the balance of related debt that impacted earnings during the quarters ended June 30, 2007 and 2006, respectively, net of cash received of $0.3 million and $1.1 million, respectively.
 
The hedging relationship of the interest rate swap agreements is not considered to be perfectly effective. Therefore, for each reporting period an effectiveness test is performed. For the portion of the change in the interest rate swaps fair value deemed effective, this is charged to accumulated other comprehensive income. The remaining ineffective portion is charged to interest expense for the period. For the quarters ended June 30, 2007 and June 30, 2006, the Company recorded interest income related to these swap agreements of $0.5 million, all of which represented the ineffective component of the swaps that impacted earnings during the period.
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
   
Revolving Credit Activity
 
   
Quarter Ended June 30,
 
   
2007
 
2006
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the quarter
   
6.72
%
 
6.74
%
Interest rate at the end of the quarter
   
6.71
%
 
6.92
%
Maximum amount outstanding during the quarter
 
$
138,700
 
$
90,000
 
Average amount outstanding during the quarter
 
$
101,269
 
$
90,000
 
Facility fees
 
$
69
 
$
57
 

14


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
5. Stockholders Equity
 
On September 13, 2006, we announced that our Board of Directors (the “Board”) had authorized us to repurchase up to $50.0 million of our common stock. The stock may be repurchased by the Company from time to time on the open market between September 13, 2006 and October 31, 2007. On March 9, 2007, the Board authorized an increase in the Company’s common stock repurchase program to a total aggregate amount, net of brokerage commissions, of $115.0 million (which amount is inclusive of the $50.0 million common stock repurchase program approved by the Board in 2006). As with the original program, the Company may repurchase stock from time to time on the open market until October 31, 2007. The extent to which the Company repurchases its shares and the timing of such purchases will depend upon market conditions and other corporate considerations. The purchases will be funded from available working capital. During the first quarter of fiscal 2008, we repurchased 485,999 shares.
 
The repurchases made by the Company were as follows:




Period
 
Total # of Shares Repurchased
 
Average Price Paid per Share (1)
 
Total # of Shares Repurchased as Part of Publicly Announced Plan
 
Total $ of Shares Repurchased as Part of Publicly Announced Plan
 
Maximum $ of Shares That May Yet be Repurchased Under the Plan
 
   
April 1 - 30, 2007
   
196,232
 
$
69.94
   
196,232
 
$
13,723,504
   $
52,170,394
 
May 1 - 31, 2007
   
218,090
   
69.85
   
218,090
   
15,234,536
   
36,935,858
 
June 1 - 30, 2007
   
71,677
   
69.87
   
71,677
   
5,008,018
   
31,927,840
 
First Quarter Total
   
485,999
 
$
69.89
   
485,999
 
$
33,966,058
       
                                 
    Cumulative Plan Total
   
1,225,290
 
$
67.80
   
1,225,290
 
$
83,072,160
       
 

 

 
6. Comprehensive Income (Loss)
 
A summary of accumulated other comprehensive income (loss) components, net of tax, were as follows:
   
Foreign Currency Translation
 
Unrealized Gain (Loss) on Investments
 
Fair Market Value of Cash Flow Hedge
 
Adjustment to initially apply FASB Statement No. 158
 
Accumulated Other Comprehensive Income (Loss)
 
   
(Unaudited)
 
   
(In thousands)
 
Balance at March 31, 2007
 
$
(36,166
)
$
(355
)
$
(5,105
)
$
(153
)
$
(41,779
)
Foreign currency translation
   
5,627
   
-
   
-
   
-
   
5,627
 
Unrealized gain on investments
   
-
   
1,220
   
-
   
-
   
1,220
 
Change in fair market value of cash flow hedge
   
-
   
-
   
8,189
   
-
   
8,189
 
Balance at June 30, 2007
 
$
(30,539
)
$
865
 
$
3,084
 
$
(153
)
$
(26,743
)
                                 
 


15


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
7. 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 2012, with the exception of one land lease expiring in 2034. At June 30, 2007, AMERCO has guaranteed $172.3 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 related to these types of residual rate guarantee.
 
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:
             
2008
 
$
12,453
 
$
112,435
 
$
124,888
 
2009
   
12,212
   
97,109
   
109,321
 
2010
   
11,786
   
82,733
   
94,519
 
2011
   
11,641
   
63,595
   
75,236
 
2012
   
11,159
   
47,658
   
58,817
 
Thereafter
   
25,236
   
47,757
   
72,993
 
Total
 
$
84,487
 
$
451,287
 
$
535,774
 
                     


16


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
8. Contingencies
 
Shoen
 
On September 24, 2002, Paul F. Shoen filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al., CV02-05602, 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 a nominal defendant for purposes of the derivative action. 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 Holdings prior to the filing of the complaint. The complaint seeks a declaration that such transfers are void as well as unspecified damages. On October 28, 2002, AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed Motions to Dismiss the complaint. In addition, on October 28, 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 on January 16, 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. These additional suits are substantially similar to the Paul F. Shoen derivative action. The five suits assert virtually identical claims. In fact, three of the five plaintiffs are parties who are working closely together and chose to file the same claims multiple times. These lawsuits alleged that the AMERCO Board lacked independence. In reaching its decision to dismiss these claims, the court determined that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Board. The court consolidated all five complaints before dismissing them on May 28, 2003. Plaintiffs appealed and, on July 13, 2006, the Nevada Supreme Court reviewed and remanded the claim 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. On November 8, 2006, the nominal plaintiffs filed an Amended Complaint. On December 22, 2006, the defendants filed Motions to Dismiss. Briefing was concluded on February 21, 2007. On March 29, 2007, the Court denied AMERCO’s motion to dismiss regarding the issue of demand futility. On March 30, 2007, the Court heard oral argument on the remainder of the Defendants’ Motions to Dismiss and requested supplemental briefing. The supplemental briefs were filed on May 14, 2007.
 
Environmental
 
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management, that none of these suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss.
 
Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
 
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO’s financial position or operating results. Real Estate expects to spend approximately $7.7 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 condition and ongoing results of operations.

17


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
9. Related Party Transactions
 
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were consummated on terms equivalent to those that would prevail in arm’s-length transactions.
 
SAC Holdings was established in order to acquire self-storage properties. These properties are being managed by the Company pursuant to management agreements. The sale of self-storage properties by the Company to SAC Holdings has in the past provided significant cash flows to the Company.
 
Management believes that its past 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 2008 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”), 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 $4.6 million and $5.3 million, and received cash interest payments of $4.6 million and $34.2 million, from SAC Holdings during the first quarter of fiscal 2008 and 2007, respectively. The cash interest payments for the first quarter of fiscal 2007 included a payment to significantly reduce the outstanding interest receivable from SAC Holdings. The largest aggregate amount of notes receivable outstanding during the first quarter of fiscal 2008 and the aggregate notes receivable balance at June 30, 2007 was $203.7 million, of which $75.1 million is with SAC Holding II and has been eliminated in the consolidating financial statements. In accordance with the terms of these notes, SAC Holdings, may repay the notes without penalty or premium.
 
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 $142.3 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 is 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 2008, AMERCO and U-Haul held various junior notes with Private Mini Storage Realty (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. The Company recorded interest income of $1.2 million during the first quarter of both fiscal 2008 and 2007, and received cash interest payments of $1.3 million and $1.2 million, from Private Mini during the first quarter of fiscal 2008 and 2007, respectively. The balance of notes receivable from Private Mini at June 30, 2007 was $69.8 million. The largest aggregate amount outstanding during fiscal 2008 was $70.1 million.

18


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
The Company currently manages the self-storage properties owned or leased by SAC Holdings, Mercury, 4 SAC, 5 SAC, 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 $10.1 million and $4.4 million from the above mentioned entities during the first quarter of fiscal 2008 and 2007, 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 and $0.7 million in first quarter of fiscal 2008 and 2007, respectively. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to the Company.
 
At June 30, 2007, 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. During the first quarter of fiscal 2008 and 2007, the Company paid the above mentioned entities $9.8 million and $10.1 million, respectively in commissions pursuant to such dealership contracts.
 
These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenues of $10.0 million, expenses of $0.6 million and cash flows of $13.4 million during the first quarter of fiscal 2008. Revenues and commission expenses related to the Dealer Agreements were $46.2 million and $9.8 million, respectively.
 
In prior years, U-Haul sold various properties to SAC Holding Corporation at prices in excess of U-Haul’s carrying values resulting in gains which U-Haul deferred and treated as additional paid-in capital. The transferred properties have historically been stated at the original cost basis as the gains were eliminated in consolidation. In March 2004, these deferred gains were recognized and treated as contributions from a related party in the amount of $111.0 million as a result of the deconsolidation of SAC Holding Corporation.
 
Independent fleet owners own approximately 1.7% of all U-Haul rental trailers. There are approximately 280 independent fleet owners, including certain officers, directors, employees and stockholders of AMERCO. Such AMERCO officers, directors, employees and stockholders owned less than 1.0% of all U-Haul rental trailers during the first quarter of fiscal 2008 and 2007, respectively. Payments to these individuals under this program are de minimis (less than one thousand dollars per quarter, per person). All rental equipment is operated under contract with U-Haul whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. Based on the terms of various contracts, rental fees are distributed to U-Haul (for services as operators), to the fleet owners (including certain subsidiaries and related parties of U-Haul) and to rental dealers (including Company operated U-Haul Centers).
 


19


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
Related Party Assets
   
June 30,
 
March 31,
 
   
2007
 
2007
 
   
(Unaudited)
     
   
(In thousands)
 
Private Mini notes, receivables and interest
 
$
71,670
 
$
71,785
 
Oxford note receivable from SAC Holding Corporation (a)
   
5,040
   
5,040
 
U-Haul notes receivable from SAC Holding Coporation
   
123,578
   
123,578
 
U-Haul interest receivable from SAC Holding Corporation
   
23,803
   
23,361
 
U-Haul receivable from SAC Holding Corporation
   
12,969
   
16,596
 
U-Haul receivable from Mercury
   
2,253
   
4,278
 
Other
   
743
   
541
 
   
$
240,056
 
$
245,179
 
               
(a) SAC Holding Corporation repaid this note in full April 13, 2007.
             
 

 
Related Party Liabilities
   
June 30,
 
March 31,
 
   
2007
 
2007
 
   
(Unaudited)
     
   
(In thousands)
 
SAC Holding II payable to affiliate
 
$
2,474
 
$
2,099
 
               
 


20


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
10. Consolidating Financial Information by Industry Segment
 
AMERCO has four reportable segments. They are Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II. Management tracks revenues separately, but does not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.
 
This section includes condensed consolidating financial information which presents the condensed consolidating balance sheets as of June 30, 2007 and March 31, 2007 and the related condensed consolidating statements of operations and condensed consolidating cash flow statements for the first quarter of fiscal 2008 and 2007 for:
 
 
(a)
Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate
 
 
(b)
Property and Casualty Insurance, comprised of RepWest and its wholly-owned subsidiary
 
 
(c)
Life Insurance, comprised of Oxford and its wholly-owned subsidiaries
 
 
(d)
SAC Holding II and its subsidiaries
 
The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries and SAC Holding II and its subsidiaries.
 
Investments in subsidiaries are accounted for by the parent using the equity method of accounting.
 

 
21



 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
10. Financial Information by Consolidating Industry Segment:
 
Consolidating balance sheets by industry segment as of June 30, 2007 are as follows:
   
Moving & Storage
         
AMERCO Legal Group
     
AMERCO as Consolidated
 
   
AMERCO
 
U-Haul
 
Real Estate
 
Eliminations
     
Moving & Storage
Consolidated
 
Property & Casualty Insurance (a)
 
Life
Insurance (a)
 
Eliminations
     
AMERCO
Consolidated
 
SAC Holding II
 
Eliminations
     
Total Consolidated
 
   
(Unaudited)
 
   
(In thousands)
 
Assets:
     
Cash and cash equivalents
 
$
31
 
$
153,619
 
$
23
 
$
-
       
$
153,673
 
$
1,298
 
$
6,658
 
$
-
       
$
161,629
 
$
-
 
$
-
       
$
161,629
 
Reinsurance recoverables and trade receivables, net
   
-
   
24,355
   
31
   
-
         
24,386
   
154,308
   
12,191
   
-
         
190,885
   
-
   
-
         
190,885
 
Notes and mortgage receivables, net
   
-
   
1,202
   
866
   
-
         
2,068
   
-
   
-
   
-
         
2,068
   
-
   
-
         
2,068
 
Inventories, net
   
-
   
63,682
   
-
   
-
         
63,682
   
-
   
-
   
-
         
63,682
   
1,316
   
-
         
64,998
 
Prepaid expenses
   
-
   
47,233
   
67
   
-
         
47,300
   
-
   
-
   
-
         
47,300
   
123
   
-
         
47,423
 
Investments, fixed maturities and marketable equities
   
-
   
-
   
-
   
-
         
-
   
154,146
   
519,890
   
-
         
674,036
   
-
   
-
         
674,036
 
Investments, other
   
-
   
1,119
   
10,735
   
-
         
11,854
   
75,076
   
83,801
   
-
         
170,731
   
-
   
-
         
170,731
 
Deferred policy acquisition costs, net
   
-
   
-
   
-
   
-
         
-
   
177
   
40,468
   
-
         
40,645
   
-
   
-
         
40,645
 
Other assets
   
7
   
275,488
   
42,196
   
-
         
317,691
   
1,976
   
847
   
-
         
320,514
   
4,979
   
-
         
325,493
 
Related party assets
   
1,173,630
   
245,234
   
12,700
   
(1,106,084
)
 
(d
)
 
325,480
   
9,850
   
5,040
   
(20,162
)
 
(d
)
 
320,208
   
-
   
(80,152
)
 
(d
)
 
240,056
 
     
1,173,668
   
811,932
   
66,618
   
(1,106,084
)
       
946,134
   
396,831
   
668,895
   
(20,162
)
       
1,991,698
   
6,418
   
(80,152
)
       
1,917,964
 
                                                                                             
Investment in subsidiaries
   
(191,909
)
 
-
   
-
   
473,911
   
(c
)
 
282,002
   
-
   
-
   
(282,002
)
 
(c
)
 
-
   
-
   
-
         
-
 
Investment in SAC Holding II
   
(8,944
)
 
-
   
-
   
-
         
(8,944
)
 
-
   
-
   
-
         
(8,944
)
 
-
   
8,944
   
(c
)
 
-
 
Total investment in subsidiaries and SAC Holding II
   
(200,853
)
 
-
   
-
   
473,911
         
273,058
   
-
   
-
   
(282,002
)
       
(8,944
)
 
-
   
8,944
         
-
 
                                                                                             
Property, plant and equipment, at cost:
                                                                                           
Land
   
-
   
41,655
   
163,049
   
-
         
204,704
   
-
   
-
   
-
         
204,704
   
-
   
-
         
204,704
 
Buildings and improvements
   
-
   
116,336
   
701,097
   
-
         
817,433
   
-
   
-
   
-
         
817,433
   
-
   
-
         
817,433
 
Furniture and equipment
   
4,612
   
283,841
   
18,049
   
-
         
306,502
   
-
   
-
   
-
         
306,502
   
-
   
-
         
306,502
 
Rental trailers and other rental equipment
   
-
   
202,341
   
-
   
-
         
202,341
   
-
   
-
   
-
         
202,341
   
-
   
-
         
202,341
 
Rental trucks
   
-
   
1,725,380
   
-
   
-
         
1,725,380
   
-
   
-
   
-
         
1,725,380
   
-
   
-
         
1,725,380
 
SAC Holding II - property, plant and equipment (b)
   
-
   
-
   
-
   
-
         
-
   
-
   
-
   
-
         
-
   
155,246
   
(74,212
)
 
(e
)
 
81,034
 
     
4,612
   
2,369,553
   
882,195
   
-
         
3,256,360
   
-
   
-
   
-
         
3,256,360
   
155,246
   
(74,212
)
       
3,337,394
 
Less: Accumulated depreciation
   
(801
)
 
(999,111
)
 
(299,220
)
 
-
         
(1,299,132
)
 
-
   
-
   
-
         
(1,299,132
)
 
(13,208
)
 
10,365
   
(e
)
 
(1,301,975
)
Total property, plant and equipment
   
3,811
   
1,370,442
   
582,975
   
-
         
1,957,228
   
-
   
-
   
-
         
1,957,228
   
142,038
   
(63,847
)
       
2,035,419
 
Total assets
 
$
976,626
 
$
2,182,374
 
$
649,593
 
$
(632,173
)
     
$
3,176,420
 
$
396,831
 
$
668,895
 
$
(302,164
)
     
$
3,939,982
 
$
148,456
 
$
(135,055
)
     
$
3,953,383
 
                                                                                             
(a) Balances as of March 31, 2007
                                                                                           
(b) Included in this caption is land of $57,169, buildings and improvements of $97,443, and furniture and equipment of $634
                                               
(c) Eliminate investment in subsidiaries and SAC Holding II
                                                                                   
(d) Eliminate intercompany receivables and payables
                                                                                   
(e) Eliminate gain on sale of property from U-Haul to SAC Holding II
                                                                             

22


 
AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 
Consolidating balance sheets by industry segment as of June 30, 2007 are as follows:
   
Moving & Storage
         
AMERCO Legal Group
     
AMERCO as Consolidated
 
   
AMERCO
 
U-Haul
 
Real Estate
 
Eliminations