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.
|
52
|
|
|
Item
4.
|
52
– 53
|
|
|
PART
II OTHER INFORMATION
|
||
|
Item
1.
|
53
|
|
|
Item
1A.
|
53
|
|
|
Item
2.
|
53
|
|
|
Item
3.
|
54
|
|
|
Item
4.
|
54
|
|
|
Item
5.
|
54
|
|
|
Item
6.
|
55
- 56
|
PART
I FINANCIAL INFORMATION
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
|
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.
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.
AMERCO
AND CONSOLIDATED ENTITIES
|
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.
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.
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.
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.
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.
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.
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.
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
|
||||
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.
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.
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
|
||||||
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.
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.
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.
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.
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
|
|||||||||||||||||||||||||||||||||||||||||||||||||||