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, 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
   
         

 
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, accelerated filer, or a non-accelerated filer.  See definition of an “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large 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 November 1, 2007.
 




TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5 – 32
Item 2.
33 – 51
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                 
52
Item 4.
Controls and Procedures                                                                                                                 
52 – 53
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                 
53
Item 1A.
Risk Factors                                                                                                                 
53
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                 
53
Item 3.
Defaults Upon Senior Securities                                                                                                                 
54
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                 
54
Item 5.
Other Information                                                                                                                 
54
Item 6.
Exhibits                                                                                                                 
55 - 56




PART I FINANCIAL INFORMATION
 
ITEM 1.      Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
CONDENSED CONSOLIDATED BALANCE SHEETS
   
September 30,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
ASSETS
           
Cash and cash equivalents
  $
203,344
    $
75,272
 
Reinsurance recoverables and trade receivables, net
   
189,869
     
184,617
 
Notes and mortgage receivables, net
   
1,862
     
1,669
 
Inventories, net
   
62,983
     
67,023
 
Prepaid expenses
   
47,487
     
52,080
 
Investments, fixed maturities and marketable equities
   
656,912
     
681,801
 
Investments, other
   
166,650
     
178,699
 
Deferred policy acquisition costs, net
   
43,887
     
44,514
 
Other assets
   
231,506
     
95,123
 
Related party assets
   
205,849
     
245,179
 
     
1,810,349
     
1,625,977
 
Property, plant and equipment, at cost:
               
Land
   
206,780
     
202,917
 
Buildings and improvements
   
834,331
     
802,289
 
Furniture and equipment
   
313,303
     
301,751
 
Rental trailers and other rental equipment
   
206,599
     
200,208
 
Rental trucks
   
1,736,826
     
1,604,123
 
SAC Holding II - property, plant and equipment
   
81,385
     
80,349
 
     
3,379,224
     
3,191,637
 
Less: Accumulated depreciation
    (1,310,726 )     (1,294,566 )
Total property, plant and equipment
   
2,068,498
     
1,897,071
 
Total assets
  $
3,878,847
    $
3,523,048
 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
  $
264,876
    $
251,197
 
AMERCO's notes and loans payable
   
1,452,042
     
1,181,165
 
SAC Holding II notes and loans payable, non-recourse to AMERCO
   
74,197
     
74,887
 
Policy benefits and losses, claims and loss expenses payable
   
773,250
     
768,751
 
Liabilities from investment contracts
   
361,380
     
386,640
 
Other policyholders' funds and liabilities
   
10,774
     
10,563
 
Deferred income
   
14,935
     
16,478
 
Deferred income taxes
   
137,676
     
113,170
 
Related party liabilities
   
2,008
     
2,099
 
Total liabilities
   
3,091,138
     
2,804,950
 
Commitments and contingencies (Notes 3, 6 and 7)
               
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 September 30 and March 31, 2007
   
-
     
-
 
Series B preferred stock, with no par value, 100,000 shares authorized; none
               
issued and outstanding as of September 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 September 30 and March 31, 2007
   
-
     
-
 
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
               
issued as of September 30 and March 31, 2007
   
10,497
     
10,497
 
Additional paid-in capital
   
376,661
     
375,412
 
Accumulated other comprehensive loss
    (32,628 )     (41,779 )
Retained earnings
   
941,870
     
849,300
 
Cost of common shares in treasury, net (21,926,386 shares as of
               
September 30, 2007 and 21,440,387 as of March 31, 2007)
    (501,165 )     (467,198 )
Unearned employee stock ownership plan shares
    (7,526 )     (8,134 )
Total stockholders' equity
   
787,709
     
718,098
 
Total liabilities and stockholders' equity
  $
3,878,847
    $
3,523,048
 
                 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Quarter Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $
439,801
    $
445,720
 
Self-storage revenues
   
33,088
     
32,416
 
Self-moving and self-storage products and service sales
   
62,495
     
61,916
 
Property management fees
   
3,993
     
3,986
 
Life insurance premiums
   
27,937
     
31,120
 
Property and casualty insurance premiums
   
7,332
     
6,470
 
Net investment and interest income
   
16,419
     
15,626
 
Other revenue
   
9,492
     
8,999
 
Total revenues
   
600,557
     
606,253
 
                 
Costs and expenses:
               
Operating expenses
   
284,990
     
280,808
 
Commission expenses
   
53,437
     
53,605
 
Cost of sales
   
33,943
     
31,448
 
Benefits and losses
   
25,592
     
28,842
 
Amortization of deferred policy acquisition costs
   
3,266
     
4,825
 
Lease expense
   
34,457
     
37,385
 
Depreciation, net of (gains) losses on disposals
   
55,746
     
43,087
 
Total costs and expenses
   
491,431
     
480,000
 
                 
Earnings from operations
   
109,126
     
126,253
 
Interest expense
    (27,495 )     (21,063 )
Amortization of fees on early extinguishment of debt
   
-
      (6,969 )
Pretax earnings
   
81,631
     
98,221
 
Income tax expense
    (31,157 )     (37,730 )
Net earnings
   
50,474
     
60,491
 
Less: Preferred stock dividends
    (3,241 )     (3,241 )
Earnings available to common shareholders
  $
47,233
    $
57,250
 
Basic and diluted earnings per common share
  $
2.39
    $
2.74
 
Weighted average common shares outstanding: Basic and diluted
   
19,733,755
     
20,910,204
 
                 
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,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $
835,878
    $
852,954
 
Self-storage revenues
   
65,124
     
62,847
 
Self-moving and self-storage products and service sales
   
131,209
     
129,367
 
Property management fees
   
7,940
     
7,833
 
Life insurance premiums
   
57,124
     
62,039
 
Property and casualty insurance premiums
   
13,248
     
11,852
 
Net investment and interest income
   
30,788
     
29,101
 
Other revenue
   
17,404
     
16,932
 
Total revenues
   
1,158,715
     
1,172,925
 
                 
Costs and expenses:
               
Operating expenses
   
558,321
     
542,187
 
Commission expenses
   
101,360
     
103,141
 
Cost of sales
   
68,591
     
63,764
 
Benefits and losses
   
54,869
     
59,448
 
Amortization of deferred policy acquisition costs
   
7,183
     
10,451
 
Lease expense
   
67,195
     
74,757
 
Depreciation, net of (gains) losses on disposals
   
100,011
     
82,758
 
Total costs and expenses
   
957,530
     
936,506
 
                 
Earnings from operations
   
201,185
     
236,419
 
Interest expense
    (51,266 )     (39,525 )
Amortization of fees on early extinguishment of debt
   
-
      (6,969 )
Pretax earnings
   
149,919
     
189,925
 
Income tax expense
    (57,693 )     (74,013 )
Net earnings
   
92,226
     
115,912
 
Less: Preferred stock dividends
    (6,482 )     (6,482 )
Earnings available to common shareholders
  $
85,744
    $
109,430
 
Basic and diluted earnings per common share
  $
4.32
    $
5.23
 
Weighted average common shares outstanding: Basic and diluted
   
19,850,874
     
20,903,946
 
                 
 

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

 

3


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Six Months Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
 Cash flow from operating activities:
           
 Net earnings
  $
92,226
    $
115,912
 
 Adjustments to reconcile net earnings to cash provided by operations:
               
 Depreciation
   
113,194
     
86,545
 
 Amortization of deferred policy acquisition costs
   
7,183
     
10,451
 
 Change in provision for (gain) loss on trade receivables
   
87
      (11 )
 Change in provision for gain on mortgage notes
    (19 )     (20 )
 Change in provision for inventory reserves
   
1,281
     
-
 
 Net gain on sale of real and personal property
    (13,183 )     (3,787 )
 Net loss on sale of investments
   
149
     
891
 
 Write-off of unamortized debt issuance costs
   
-
     
6,969
 
 Deferred income taxes
   
33,966
     
27,677
 
 Net change in other operating assets and liabilities:
               
Reinsurance recoverables and trade receivables
    (5,154 )    
18,383
 
Inventories
   
3,181
      (8,357 )
Prepaid expenses
   
4,120
      (2,962 )
Capitalization of deferred policy acquisition costs
    (2,539 )     (3,166 )
Other assets
    (10,373 )     (95 )
Related party assets
   
41,881
     
12,899
 
Accounts payable and accrued expenses
   
13,497
     
7,380
 
Policy benefits and losses, claims and loss expenses payable
   
5,066
      (8,420 )
Other policyholders' funds and liabilities
   
211
     
1,577
 
Deferred income
    (1,673 )    
530
 
Related party liabilities
    (3,411 )     (10,016 )
 Net cash provided by operating activities
   
279,690
     
252,380
 
                 
 Cash flows from investing activities:
               
 Purchases of:
               
Property, plant and equipment
    (360,511 )     (378,605 )
Short term investments
    (128,627 )     (103,999 )
Fixed maturities investments
    (45,622 )     (59,033 )
Real estate
    (3,441 )    
-
 
Mortgage loans
    (4,895 )     (8,855 )
 Proceeds from sale of:
               
Property, plant and equipment
   
100,660
     
57,204
 
Short term investments
   
144,814
     
145,044
 
Fixed maturities investments
   
61,206
     
52,056
 
Cash received in excess of purchase for company acquired
   
-
     
1,235
 
Equity securities
   
46
     
-
 
Preferred stock
   
2,625
     
125
 
Real estate
   
153
     
10,113
 
Mortgage loans
   
4,043
     
4,182
 
Payments from notes and mortgage receivables
   
367
     
293
 
 Net cash used by investing activities
    (229,182 )     (280,240 )
                 
 Cash flows from financing activities:
               
Borrowings from credit facilities
   
447,620
     
276,744
 
Principal repayments on credit facilities
    (179,043 )     (39,614 )
Debt issuance costs
    (9,850 )     (539 )
Leveraged Employee Stock Ownership Plan - repayments from loan
   
608
     
608
 
Treasury stock repurchases
    (33,966 )    
-
 
Securitization deposits
    (116,176 )    
-
 
Preferred stock dividends paid
    (6,482 )     (6,482 )
Investment contract deposits
   
8,772
     
8,444
 
Investment contract withdrawals
    (34,032 )     (40,275 )
 Net cash provided by financing activities
   
77,451
     
198,886
 
                 
 Effects of exchange rate on cash
   
113
     
131
 
                 
 Increase in cash equivalents
   
128,072
     
171,157
 
 Cash and cash equivalents at the beginning of period
   
75,272
     
155,459
 
 Cash and cash equivalents at the end of period
  $
203,344
    $
326,616
 

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


4


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 

 
 
1.      Basis of Presentation
 
The second fiscal quarter for AMERCO 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 disclosure of our 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 the Company’s fiscal years 2008 and 2007, respectively.
 
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 second quarter and the first six months of fiscal 2008 and fiscal 2007, and the balance sheet as of March 31, 2007 include the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holding II Corporation and its subsidiaries (“SAC Holding II”).
 
The condensed consolidated balance sheet as of September 30, 2007 and the related condensed consolidated statements of operations for the second quarter and the first six months and the cash flows for the first six months ended 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,
 
   Oxford Life Insurance Company (“Oxford”) and its wholly-owned subsidiaries,
 
Unless the context otherwise requires, the term “Company,” “we,” “us” or “our” refers to AMERCO and 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 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 319,316 and 368,142 as of September 30, 2007 and September 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:
               
September 30,
   
March 31,
 
   
2008 Rate (a)
   
Maturities
   
2007
   
2007
 
               
(Unaudited)
       
               
(In thousands)
 
Real estate loan (amortizing term)
    6.93 %  
    2018
    $
290,000
    $
295,000
 
Real estate loan (revolving credit)
   
-
   
2018
     
-
     
-
 
Senior mortgages
    5.19%-5.75 %  
2015
     
519,990
     
521,332
 
Construction loan (revolving credit)
    7.32 %  
2009
     
21,700
     
-
 
Working capital loan (revolving credit)
   
-
   
2008
     
-
     
-
 
Fleet loans (amortizing term)
    6.11%-7.42 %    
2012-2014
     
322,143
     
364,833
 
Fleet loans (securitization)
    5.40%-5.56 %    
2010-2014
     
298,209
     
-
 
Fleet loan (revolving credit)
   
-
   
2011
     
-
     
-
 
Total AMERCO notes and loans payable
                  $
1,452,042
    $
1,181,165
 
                                 
(a) Interest rate as of September 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. and has a final maturity date of August 2018. The loan is comprised of a term loan facility with initial availability of $300.0 million and a revolving credit facility with an availability of $200.0 million. As of September 30, 2007 the outstanding balance on the Real Estate Loan was $290.0 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 September 30, 2007 the applicable LIBOR was 5.82% and the applicable margin was 1.50%, the sum of which was 7.32%. 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 the 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.
 
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 September 30, 2007 were in the aggregate amount of $460.6 million and are due July 2015. These 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% 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.

7


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Various subsidiaries of the Company are borrowers under mortgage backed loans that we also classify as senior mortgages.  These loans are secured by certain properties owned by the Company.  The loan balance of these notes totals $59.4 as of September 30, 2007.  Maturity dates begin in 2009 with the majority maturing in 2015.  Rates for these loans range from 5.19% to 5.75%.  The loans require monthly principal and interest payments with the balances due upon maturity.  The default provisions of the loans include non-payment of principal or interest and other standard reporting and change-in-control covenants.  There are limited restrictions regarding our use of the funds.
 
Construction / Working Capital Loans
 
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit Construction Loan 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 September 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 September 30, 2007 the applicable LIBOR was 5.82% and the margin was 1.50%, the sum of which was 7.32%. 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 was originally in the amount of $20.0 million. The loan is secured by certain properties owned by the borrower. On September 5, 2007, the loan was amended to increase the availability to $35.0 million. 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. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. At September 30, 2007 the facility was fully available.
 
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 September 30, 2007 was $106.6 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 September 30, 2007, the applicable LIBOR was 5.82% and the applicable margin was 1.75%, the sum of which was 7.57%. 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 September 30, 2007 was $119.3 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 September 30, 2007 the applicable LIBOR was 5.82% and the applicable margin was 1.75%, the sum of which was 7.57%. 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.

8


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 lender is Bayerische Hypo-und Vereinsbank AG (“HVB”). The Company’s outstanding balance at September 30, 2007 was $33.7 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 September 30, 2007 the applicable LIBOR was 5.82% and the applicable margin was 1.75%, the sum of which was 7.57%. 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 September 30, 2007 was $26.5 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 September 30, 2007 the applicable LIBOR was 5.82% and the applicable margin was 1.125%, the sum of which was 6.95%. 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.
 
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 September 30, 2007 was $36.0 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 September 30, 2007 the applicable LIBOR was 5.82% and the applicable margin was 1.125%, the sum of which was 6.95%. The interest rate is hedged with an interest rate swap fixing the rate at 6.11% based on the current margin. AMERCO is the 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. 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 September 30, 2007 the outstanding balance was $211.6 million. $91.7 million remains in an escrow account, available to acquire new box trucks through the end of fiscal 2008. The note is secured 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 September 30, 2007 the outstanding balance was $86.6 million. $2.4 million remains in an escrow account, available to acquire new cargo vans and pick up trucks. The note is secured 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.

9


 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 maximum amount that can be drawn is $100.0 million with a final maturity of 2011. As of September 30, 2007, the facility was fully available.
 
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. U-Haul International, Inc. is the 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.
 
Annual Maturities of AMERCO Consolidated Notes and Loans Payable
 
The annual maturities of AMERCO consolidated long-term debt as of September 30, 2007 for the next five years and thereafter is as follows:
 
   
Year Ending September 30,
 
   
2008
   
2009
   
2010
   
2011
   
2012
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes payable, secured
  $
110,829
    $
125,323
    $
159,029
    $
63,355
    $
141,671
    $
851,835
 
                                                 
 

 
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:
 
   
September 30,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
Notes payable, secured, 7.87% interest rate, due 2027
  $
74,197
    $
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 were 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.

10


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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 September 30, 2007 for the next five years and thereafter is as follows:
 
   
Year Ending September 30,
 
   
2008
   
2009
   
2010
   
2011
   
2012
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes payable, secured
  $
1,499
    $
1,640
    $
1,776
    $
1,923
    $
2,067
    $
65,292
 
                                                 
 

 
4. Interest on Borrowings
 
Interest Expense
 
Expenses associated with loans outstanding were as follows:
   
Quarter Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $
25,373
    $
19,331
 
Capitalized interest
    (322 )     (129 )
Amortization of transaction costs
   
1,514
     
1,076
 
Interest income resulting from derivatives
    (568 )     (738 )
Amortization of transaction costs related to early extinguishment of debt
   
-
     
6,969
 
Total AMERCO interest expense
   
25,997
     
26,509
 
SAC Holding II interest expense
   
3,236
     
3,206
 
Less: Intercompany transactions
   
1,738
     
1,683
 
Total SAC Holding II interest expense
   
1,498
     
1,523
 
Total
  $
27,495
    $
28,032
 
                 
 

 

   
Six Months Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $
47,496
    $
35,888
 
Capitalized interest
    (605 )     (171 )
Amortization of transaction costs
   
2,395
     
2,374
 
Interest income resulting from derivatives
    (1,021 )     (1,601 )
Amortization of transaction costs related to early extinguishment of debt
   
-
     
6,969
 
Total AMERCO interest expense
   
48,265
     
43,459
 
SAC Holding II interest expense
   
6,467
     
6,600
 
Less: Intercompany transactions
   
3,466
     
3,565
 
Total SAC Holding II interest expense
   
3,001
     
3,035
 
Total
  $
51,266
    $
46,494
 
                 
 


11


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Interest paid in cash by AMERCO amounted to $25.9 million and $17.1 million for the second quarter of fiscal 2008 and fiscal 2007, respectively.
 
Interest paid in cash by AMERCO (excluding any fees from the early extinguishment of debt) amounted to $46.0 million and $33.2 million for the first six months of fiscal 2008 and fiscal 2007, respectively.
 
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 September 30, 2007, the Company had approximately $633.8 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, effective July 11, 2005 when the Real Estate Loan was paid down by $222.4 million the cash flow hedge designations for these contracts were removed. 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.
 
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 six months ended September 30, 2007 and September 30, 2006, the Company recorded interest income related to these swap agreements of $1.2 million and $1.6 million, respectively, all of which represented the ineffective component of the swaps that impacted earnings during the period.

12


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
   
Revolving Credit Activity
 
   
Quarter Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the quarter
    6.87 %     6.85 %
Interest rate at the end of the quarter
    7.32 %     6.82 %
Maximum amount outstanding during the quarter
  $
121,700
    $
90,000
 
Average amount outstanding during the quarter
  $
98,874
    $
90,000
 
Facility fees
  $
65
    $
57
 
                 
 

 

   
Revolving Credit Activity
 
   
Six Months Ended September 30,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the first six months
    6.80 %     7.35 %
Interest rate at the end of the first six months
    7.32 %     6.82 %
Maximum amount outstanding during the first six months
  $
138,700
    $
90,000
 
Average amount outstanding during the first six months
  $
100,065
    $
90,000
 
Facility fees
  $
134
    $
114
 
                 
 

 
5. 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
   
FASB
Statement No.
 158 Adjustment
   
Accumulated
Other
 Comprehensive
Income (Loss)
 
   
(Unaudited)
 
   
(In thousands)
 
Balance at March 31, 2007
  $ (36,166 )   $ (355 )   $ (5,105 )   $ (153 )   $ (41,779 )
Foreign currency translation
   
11,879
     
-
     
-
     
-
     
11,879
 
Unrealized loss on investments
   
-
      (1,287 )    
-
     
-
      (1,287 )
Change in fair market value of cash flow hedge
   
-
     
-
      (1,441 )    
-
      (1,441 )
Balance at September 30, 2007
  $ (24,287 )   $ (1,642 )   $ (6,546 )   $ (153 )   $ (32,628 )
                                         
 
 
 
Total comprehensive income for the six months ended September 30, 2007 and 2006 were $101.4 million and $103.6 million, respectively.

13


 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
6. Contingent Liabilities and Commitments
 
The Company leases a portion of its rental equipment and certain of its facilities under operating leases with terms that expire at various dates substantially through 2012, with the exception of one land lease expiring in 2034. At September 30, 2007, AMERCO has guaranteed $170.1 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of the lease, the Company has the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. AMERCO has been leasing equipment since 1987 and has experienced no material losses relating to these types of residual value guarantees.
 
Lease commitments for leases having terms of more than one year were as follows:
 
   
Property, Plant
and Equipment
   
Rental
Equipment
   
Total
 
   
            (Unaudited)
 
         
(In thousands)
       
Year-ended September 30:
                 
2008
  $
12,458
    $
116,904
    $
129,362
 
2009
   
12,134
     
102,248
     
114,382
 
2010
   
11,723
     
84,057
     
95,780
 
2011
   
11,601
     
67,796
     
79,397
 
2012
   
10,928
     
53,883
     
64,811
 
Thereafter
   
22,593
     
52,125
     
74,718
 
Total
  $
81,437
    $
477,013
    $
558,450
 
                         
 


14


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
7. 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. In September and October of 2007, the defendants filed Motions For Judgment on the Pleadings or, In the Alternative, Summary Judgment. We are currently awaiting the Court’s rulings on these motions.
 
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 $7.6 million in total through 2011 to remediate these properties.

15


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
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.
 
8. Related Party Transactions
 
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were consummated on terms equivalent to those that would prevail in arm’s-length transactions.
 
SAC 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 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 six months 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 $9.4 million and $9.8 million, and received cash interest payments of $10.2 million and $37.2 million, from SAC Holdings during the first six months of fiscal 2008 and 2007, respectively. The cash interest payments for the first six months 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 six months of fiscal 2008 was $203.7 million and the aggregate notes receivable balance at September 30, 2007 was $198.4 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 $122.2 million of principal depending upon the amount of remaining basic interest and the cash flow generated by the underlying property. This amount is referred to as the “cash flow-based calculation.”
 
To the extent that this cash flow-based calculation exceeds the amount of remaining basic interest, contingent interest 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 six months of fiscal 2008, AMERCO and U-Haul held various junior notes with Private Mini Storage Realty, L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater. The Company recorded interest income of $2.5 million during the first six months of both fiscal 2008 and 2007, and received cash interest payments of $2.5 million from Private Mini during the first six months of both fiscal 2008 and 2007, respectively. The balance of notes receivable from Private Mini at September 30, 2007 was $69.6 million. The largest aggregate amount outstanding during fiscal 2008 was $70.1 million.

16


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The Company currently manages the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini pursuant to a standard form of management agreement, under which the Company receives a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. The Company received management fees, exclusive of reimbursed expenses, of $15.0 million and $9.2 million from the above mentioned entities during the first six months 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   $1.3 million for each of the first six months of fiscal 2008 and 2007. 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 September 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. For the first six months of fiscal 2008 and 2007, the Company paid the above mentioned entities $20.8 million and $21.2   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 $20.4 million, expenses of $1.3 million and cash flows of $49.4 million during the first six months of fiscal 2008.  Revenues and commission expenses related to the Dealer Agreements were $97.3 million and $20.8 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 Holdings Corporation.
 
On September 1, 2007, SAC Holding Corporation issued a promissory note to U-Haul. As part of the note, the Company reclassified $20.0 million of deferred interest due from SAC Holding Corporation to a note receivable. The note accrues interest at 9.0% per annum with interest payments due quarterly and a final maturity in 2019.
 
During the second quarter of fiscal 2008 the Company received $20.1 million from SAC Holding Corporation as full repayment for one of its junior notes.
 


17


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Related Party Assets
   
September 30,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
Private Mini notes, receivables and interest
  $
71,566
    $
71,785
 
Oxford note receivable from SAC Holding Corporation
   
-
     
5,040
 
U-Haul notes receivable from SAC Holding Coporation
   
123,340
     
123,578
 
U-Haul interest receivable from SAC Holding Corporation
   
3,441
     
23,361
 
U-Haul receivable from SAC Holding Corporation
   
9,233
     
16,596
 
U-Haul receivable from Mercury
   
2,405
     
4,278
 
Other (a)
    (4,136 )    
541
 
    $
205,849
    $
245,179
 
                 
(a) The current period credit balance resulted from a timing difference between Oxford and AMERCO for a
 
partial repayment of an intercompany note. This will reverse in our December 31, 2007 financial statements.
 


 
Related Party Liabilities
   
September 30,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
SAC Holding II payable to affiliate
  $
2,008
    $
2,099
 
                 
 

 
9. 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 September 30, 2007 and March 31, 2007 and the related condensed consolidating statements of operations for the second quarter and first six months of fiscal 2008 and 2007 and the condensed consolidating cash flow statements for the first six months 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.
 


18


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
9. Financial Information by Consolidating Industry Segment:
 
Consolidating balance sheets by industry segment as of September 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
    $
182,197
    $
2,995
    $
-
      $
185,223
    $
4,459
    $
13,662
    $
-
      $
203,344
    $
-
    $
-
      $
203,344
 
Reinsurance recoverables and trade receivables, net
   
-
     
25,255
     
25
     
-
       
25,280
     
154,004
     
10,585
     
-
       
189,869
     
-
     
-
       
189,869
 
Notes and mortgage receivables, net
   
-
     
1,307
     
555
     
-
       
1,862
     
-
     
-
     
-
       
1,862
     
-
     
-
       
1,862
 
Inventories, net
   
-
     
61,644
     
-
     
-
       
61,644
     
-
     
-
     
-
       
61,644
     
1,339
     
-
       
62,983
 
Prepaid expenses
   
-
     
47,169
     
44
     
-
       
47,213
     
-
     
-
     
-
       
47,213
     
274
     
-
       
47,487
 
Investments, fixed maturities and marketable equities
   
-
     
-
     
-
     
-
       
-
     
151,662
     
505,250
     
-
       
656,912
     
-
     
-
       
656,912
 
Investments, other
   
-
     
966
     
13,917
     
-
       
14,883
     
71,784
     
79,983
     
-
       
166,650
     
-
     
-
       
166,650
 
Deferred policy acquisition costs, net
   
-
     
-
     
-
     
-
       
-
     
76
     
43,811
     
-
       
43,887
     
-
     
-
       
43,887
 
Other assets
   
6
     
181,375
     
41,738
     
-
       
223,119
     
2,193
     
911
     
-
       
226,223
     
5,283
     
-
       
231,506
 
Related party assets
   
1,208,523
     
233,811
     
89
      (1,146,512 )
(d)
   
295,911
     
8,663
     
-
      (17,962 )
(d)
   
286,612
     
-
      (80,763 )
(d)
   
205,849
 
     
1,208,560
     
733,724
     
59,363
      (1,146,512 )      
855,135
     
392,841
     
654,202
      (17,962 )      
1,884,216
     
6,896
      (80,763 )      
1,810,349
 
                                                                                                       
Investment in subsidiaries
    (160,547 )    
-
     
-
     
444,861
 
(c)
   
284,314
     
-
     
-
      (284,314 )
(c)
   
-
     
-
     
-
       
-
 
Investment in SAC Holding II
    (8,901 )    
-
     
-
     
-
        (8,901 )    
-
     
-
     
-
        (8,901 )    
-
     
8,901
 
(c)
   
-
 
Total investment in subsidiaries and SAC Holding II
    (169,448 )    
-
     
-
     
444,861
       
275,413
     
-
     
-
      (284,314 )       (8,901 )    
-
     
8,901
       
-
 
                                                                                                       
Property, plant and equipment, at cost:
                                                                                                     
Land
   
-
     
43,731
     
163,049
     
-
       
206,780
     
-
     
-
     
-
       
206,780
     
-
     
-
       
206,780
 
Buildings and improvements
   
-
     
112,781
     
721,550
     
-
       
834,331
     
-
     
-
     
-
       
834,331
     
-
     
-
       
834,331
 
Furniture and equipment
   
4,645
     
290,586
     
18,072
     
-
       
313,303
     
-
     
-
     
-
       
313,303
     
-
     
-
       
313,303
 
Rental trailers and other rental equipment
   
-
     
206,599
     
-
     
-
       
206,599
     
-
     
-
     
-
       
206,599
     
-
     
-
       
206,599
 
Rental trucks
   
-
     
1,736,826
     
-
     
-
       
1,736,826
     
-
     
-
     
-
       
1,736,826
     
-
     
-
       
1,736,826
 
SAC Holding II - property, plant and equipment (b)
   
-
     
-
     
-
     
-
       
-
     
-
     
-
     
-
       
-
     
155,597
      (74,212 )
(e)
   
81,385
 
     
4,645
     
2,390,523
     
902,671
     
-
       
3,297,839
     
-
     
-
     
-
       
3,297,839
     
155,597
      (74,212 )      
3,379,224
 
Less:  Accumulated depreciation
    (950 )     (1,004,243 )     (302,187 )    
-
        (1,307,380 )    
-
     
-
     
-
        (1,307,380 )     (13,851 )    
10,505
 
(e)
    (1,310,726 )
Total property, plant and equipment
   
3,695
     
1,386,280
     
600,484
     
-
       
1,990,459
     
-
     
-
     
-
       
1,990,459
     
141,746
      (63,707 )      
2,068,498
 
Total assets
  $
1,042,807
    $
2,120,004
    $
659,847
    $ (701,651 )     $
3,121,007
    $
392,841
    $
654,202
    $ (302,276 )     $
3,865,774
    $
148,642
    $ (135,569 )     $
3,878,847
 
                                                                                                       
(a)  Balances as of June 30, 2007
                                                                                                     
(b) Included in this caption is land of $57,169, buildings and improvements of $97,680, and furniture and equipment of $748
                                                     
(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
                                                                                       
                                                                                                       
 


19


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of September 30, 2007 are as follows: