March 31, 2007 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

(Mark One)
R ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended March 31, 2007
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________________ to __________________

Commission 
File Number
Registrant, State of Incorporation
Address and Telephone Number
I.R.S. Employer
Identification No.
 
 
1-11255
AMERCO
88-0106815
 
(A Nevada Corporation)
 
 
1325 Airmotive Way, Ste. 100
 
 
Reno, Nevada 89502-3239
 
 
Telephone (775) 688-6300
 
 
 
2-38498
U-Haul International, Inc.
86-0663060
 
(A Nevada Corporation)
 
 
2727 N. Central Avenue
 
 
Phoenix, Arizona 85004
 
 
Telephone (602) 263-6645
 
     
Securities registered pursuant to Section 12(b) of the Act:
 
Registrant
 
Title of Class
Name of Each Exchange on Which Registered
AMERCO
Series A 8 ½% Preferred Stock
New York Stock Exchange
AMERCO
Common
NASDAQ
U-Haul International, Inc.
None
 
     
 
Securities registered pursuant to Section 12(g) of the Act:
 
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No R
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes £ No R
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and 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
 
The aggregate market value of AMERCO common stock held by non-affiliates on September 30, 2006 was $453,787,990. The aggregate market value was computed using the closing price for the common stock trading on NASDAQ on such date. Shares held by executive officers, directors and persons owning directly or indirectly more than 5% of the outstanding common stock have been excluded from the preceding number because such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes. 



 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 £
 
20,130,991 shares of AMERCO Common Stock, $0.25 par value were outstanding at June 1, 2007.
 
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at June 1, 2007. None of these shares were held by non-affiliates.
 
Documents incorporated by reference: Portions of AMERCO’s definitive Proxy Statement for the 2007 Annual Meeting of Stockholders, to be filed within 120 days after AMERCO’s year ended March 31, 2007, are incorporated by reference into Part III of this report.




TABLE OF CONTENTS
 
   
Page No.
 
PART I
 
     
Item 1.
Business
2 - 7
Item 1A.
Risk Factors
7 - 10
Item 1B.
Unresolved Staff Comments
10
Item 2.
Properties
10
Item 3.
Legal Proceedings
11
Item 4.
12
     
 
PART II
 
Item 5.
12 - 14
Item 6.
Selected Financial Data
15 - 16
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17 - 44
Item 7A.
45
Item 8.
45
Item 9.
45
Item 9A.
Controls and Procedures
46 - 47
Item 9B.
Other information
47
     
 
PART III
 
Item 10.
49
Item 11.
49
Item 12.
49
Item 13.
49
Item 14.
49
     
 
PART IV
 
Item 15.
50 -59

 

 




 
PART I
 
 
Item 1. Business
 
 
Company Overview
 
We are North America’s largest “do-it-yourself” moving and storage operator through our subsidiary U-Haul International, Inc. (“U-Haul”). U-Haul is synonymous with “do-it-yourself” moving and storage and is a leader in supplying products and services to help people move and store their household and commercial goods. Our primary service objective is to provide the best product and service to the most people at the lowest cost.
 
We rent our distinctive orange and white U-Haul trucks and trailers as well as offer self-storage rooms through a network of nearly 1,450 Company operated retail moving centers and approximately 14,500 independent U-Haul dealers. In addition, we have an independent storage facility network with over 2,900 active affiliates. We also sell U-Haul brand boxes, tape and other moving and self-storage products and services to “do-it-yourself” moving and storage customers at all of our distribution outlets and through our eMove web site.
 
U-Haul is the most convenient supplier of products and services meeting the needs of North America’s “do-it-yourself” moving and storage market. Our broad geographic coverage throughout the United States and Canada and our extensive selection of U-Haul brand moving equipment rentals, self-storage rooms and related moving and storage products and services provide our customers with convenient “one-stop” shopping.
 
Through Republic Western Insurance Company (“RepWest”), our property and casualty insurance subsidiary, we manage the property, liability and related insurance claims processing for U-Haul. Oxford Life Insurance Company (“Oxford”), our life insurance subsidiary, sells Medicare supplement, life insurance, annuities and other related products to non U-Haul customers and also administers the self-insured employee health and dental plans for Arizona employees of the Company.
 
We were founded in 1945 under the name “U-Haul Trailer Rental Company.” Since 1945, we have rented trailers. Starting in 1959, we rented trucks on a one-way and in-town basis exclusively through independent U-Haul dealers. Since 1974, we have developed a network of U-Haul managed retail centers, through which we rent our trucks and trailers and sell moving and self-storage products and services to complement our independent dealer network.
 
Available Information
 
AMERCO and U-Haul are each incorporated in Nevada. U-Haul’s Internet address is www.uhaul.com. On AMERCO’s investor relations web site, www.amerco.com, we post the following filings as soon as practicable after they are electronically filed with or furnished to the United States Securities and Exchange Commission (“SEC”): our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement related to our annual meeting of stockholders, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our web site are available free of charge. Additionally, you will find these materials on the SEC’s website at www.sec.gov.
 
Products and Rental Equipment
 
Our customers are primarily “do-it-yourself” household movers. U-Haul moving equipment is specifically designed, engineered and manufactured for the “do-it-yourself” household mover. These “do-it-yourself” movers include individuals and families moving their belongings from one home to another, college students moving their belongings, vacationers and sports enthusiasts needing extra space or having special towing needs, people trying to save on home furniture and home appliance delivery costs, and “do-it-yourself” home remodeling and gardening enthusiasts who need to transport materials.
 
As of March 31, 2007, our rental fleet consisted of approximately 100,000 trucks, 78,500 trailers and 31,100 towing devices. This equipment and our U-Haul brand of self-moving products and services are available through our network of managed retail moving centers and independent U-Haul dealers. Independent U-Haul dealers receive rental equipment from the Company, act as a rental agent and are paid a commission based on gross revenues generated from their U-Haul rentals.

2


 
Our rental truck chassis are manufactured by domestic and foreign truck manufacturers. These chassis are joined with the U-Haul designed and manufactured van boxes at U-Haul operated manufacturing and assembly facilities strategically located throughout the United States. U-Haul rental trucks feature our proprietary Lowest DeckSM, which provides our customers with extra ease of loading. The loading ramps on our trucks are the widest in the industry, which reduce the time needed to move belongings. Our Gentle Ride SuspensionSM helps our customers safely move delicate and prized possessions. Also, the engineers at our U-Haul Technical Center determined that the softest ride in our trucks was at the front of the van box. Consequently, they designed the part of the van box that hangs over the front cab of the truck to be the location for our customers to place their most fragile items during their move. We call this area Mom’s AtticSM.
 
Our distinctive orange trailers are also manufactured at these same U-Haul operated manufacturing and assembly facilities. These trailers are well suited to the low profile of many of today’s newly manufactured automobiles. Our engineering staff is committed to making our trailers easy to tow, aerodynamic and fuel efficient.
 
To provide our self-move customers with added value, our rental trucks and trailers are designed for fuel efficiency. To help make our rental equipment more trouble free, we perform extensive preventive maintenance and repairs.
 
We also provide customers with equipment to transport their vehicle. We provide three towing options, including: auto transport, in which all four wheels are off the ground, tow dolly, in which the front wheels of the towed vehicle are off the ground, and tow bar, where all four wheels are on the ground.
 
To help our customers load their boxes and larger household appliances and furniture, we offer several accessory rental items. Our utility dolly has a lightweight design and is easy to maneuver. Another rental accessory is our four wheel dolly, which provides a large, flat surface for moving dressers, wall units, pianos and other large household items. U-Haul appliance dollies provide the leverage needed to move refrigerators, freezers, washers and dryers easily and safely. These utility, furniture and appliance dollies, along with the low decks and the wide loading ramps on all U-Haul trucks and trailers, are designed for easy loading and unloading of our customers’ belongings.
 
The total package U-Haul offers the “do-it-yourself” household mover doesn’t end with trucks, trailers and accessory rental items. Our moving supplies include a wide array of affordably priced U-Haul brand boxes, tape and packing materials. We also provide specialty boxes for dishes, computers and sensitive electronic equipment, carton sealing tape, security locks, and packing supplies, like wrapping paper and cushioning foam. U-Haul brand boxes are specifically sized to make loading easier.
 
U-Haul is North America’s largest seller and installer of hitches and towing systems. In addition to towing U-Haul equipment these hitching and towing systems can tow jet skis, motorcycles, boats, campers and horse trailers. Our hitches, ball mounts, and balls undergo stringent testing requirements. Each year, more than one million customers visit our locations for expertise on complete towing systems, trailer rentals and the latest in towing accessories.
 
U-Haul has one of North America’s largest propane barbeque-refilling networks, with over 1,000 locations providing this convenient service. We employ trained, certified personnel to refill all propane cylinders, and our network of propane dispensing locations is the largest automobile alternative refueling network in North America.
 
Self-storage is a natural outgrowth of the self-moving industry. Conveniently located U-Haul self-storage rental facilities provide clean, dry and secure space for storage of household and commercial goods, with storage units ranging in size from 6 square feet to 845 square feet. We operate nearly 1,055 self-storage locations in North America, with more than 383,000 rentable rooms comprising approximately 33.7 million square feet of rentable storage space. Our self-storage centers feature a wide array of security measures, ranging from electronic property access control gates to individually alarmed storage units. At many centers, we offer climate controlled storage rooms to protect temperature sensitive goods such as video tapes, albums, photographs and precious wood furniture.
 
Additionally, we offer moving and storage protection packages such as Safemove and Safetow, protecting moving and towing customers with a damage waiver, cargo protection and medical and life coverage, and Safestor, protecting storage customers from loss on their goods in storage. For our customers who desire additional coverage over and above the standard Safemove protection, in fiscal 2007 we began offering our new Super Safemove product. This package provides the rental customer with a layer of primary liability protection.

3


 
Our eMove web site, www.eMove.com, is the largest network of customers and businesses in the self-moving and self-storage industry. The eMove network consists of channels where customers, businesses and service providers transact business. The eMove Moving Help marketplace connects “do-it-yourself” movers with independent service providers to assist movers pack, load, unload, clean, drive and other services. Thousands of independent service providers already participate in the eMove network.
 
Through the eMove Storage Affiliate Program, independent storage businesses can join the world’s largest storage reservation system. Self-storage customers making a reservation through eMove can access all of the U-Haul self-storage centers and all of our independent storage affiliate partners for even greater convenience to meet their self-storage needs.
 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage (AMERCO, U-Haul and Real Estate), Property and Casualty Insurance, Life Insurance and SAC Holding II Corporation and its subsidiaries (“SAC Holding II”) (see Note 2 “Principles of Consolidation” to the “Notes to Consolidated Financial Statements”).
 
Financial information for each of our Operating Segments is included in the Notes to Consolidated Financial Statements as part of “Item 8: Financial Statements and Supplementary Data” of this report.
 
Moving and Storage Operating Segment
 
 
Our “do-it-yourself” moving business consists of U-Haul truck and trailer rentals and U-Haul moving supply and service sales. Our Moving and Storage Operating Segment consists of the rental of trucks, trailers, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
Net revenue from our Moving and Storage operating segment were approximately 89.9%, 90.2% and 89.2% of consolidated net revenue in fiscal 2007, 2006 and 2005, respectively.
 
During fiscal 2007, the Company added over 22,500 new trucks and nearly 2,000 new trailers to our existing rental fleet. These additions were a combination of U-Haul manufactured vehicles and purchases. As new trucks were added to the fleet, the Company rotated out of the fleet older trucks. The total rental truck fleet size increased incrementally from last fiscal year. The continued expansion and replacement of our rental fleet will allow us to enter new markets and to achieve better utilization in existing markets.
 
Within our truck and trailer rental operation we are focused on expanding our independent dealer network to provide added convenience for our customers. U-Haul has approximately 14,500 dealers which are independent contractors, and are exclusive to U-Haul International, Inc. An independent dealer must maintain a singular fleet of U-Haul vehicles. U-Haul maximizes vehicle utilization by effective distribution of the truck and trailer fleets among the nearly 1,450 Company operated centers and approximately 14,500 independent dealers. Utilizing its sophisticated reservations management system, the Company’s centers and dealers electronically report their inventory in real-time, which facilitates matching equipment to customer demand. Approximately 55% of all U-Move rental revenue originates from the Company operated centers.
 
At our owned and operated retail centers we have implemented several customer service initiatives. These initiatives include improving management of our rental equipment to provide our retail centers with the right type of rental equipment, at the right time and at the most convenient location for our customers, effective marketing of our broad line of self-moving related products and services, maintaining longer hours of operation to provide more convenience to our customers, and increasing staff by attracting and retaining “moonlighters” (part-time U-Haul employees with full-time jobs elsewhere) during our peak hours of operation.
 
Effective marketing of our self-moving related products and services, such as boxes, pads and insurance, helps our customers have a better moving experience and helps them protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-yourself” moving and storage customer in mind.

4


 
Our self-storage business consists of U-Haul self-storage room rentals, self-storage related products and service sales and management of self-storage facilities not owned by the Company.
 
U-Haul is one of the largest North American operators of self-storage and has been a leader in the self-storage industry since 1974. U-Haul operates over 383,000 storage rooms, comprising approximately 33.7 million square feet of storage space with locations in 49 states and 10 Canadian provinces. U-Haul’s owned and managed self-storage facility locations range in size up to 171,500 square feet of storage space, with individual storage units in sizes ranging from 6 square feet to 845 square feet.
 
The primary market for storage rooms is the storage of household goods. We believe that our self-storage services provide a competitive advantage through such things as Maximum Security (“MAX”), an electronic system that monitors the storage facility 24 hours a day; climate control; individually alarmed rooms; extended hour access; and an internet-based customer reservation and account management system.
 
eMove is an online marketplace that connects consumers to over 3,900 independent sellers of Moving Help™ and over 2,900 Self-Storage Affiliates. Our network of customer-rated Affiliates provides pack and load help, cleaning help, self-storage and similar services, all over North America.
 
An individual or a company can connect to the eMove network by becoming an eMove Moving Help® Affiliate or an eMove Storage Affiliate™. Moving Helpers assist customers with packing, loading, cleaning and unloading their truck or storage unit. The Storage Affiliate program enables independent self-storage facilities to expand their reach by connecting into a centralized 1-800 and internet reservation system and for a fee, receive an array of services including web-based management software, Secured Online Affiliated Rentals (S.O.A.R®), co-branded rental trucks, savings on insurance, credit card processing and more.
 
With over 100,000 unedited reviews of independent Affiliates, the marketplace has facilitated thousands of Moving Help® and Self-Storage transactions all over North America. We believe that acting as an intermediary, with little added investment, serves the customer in a cost effective manner. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.
 
Property and Casualty Insurance Operating Segment
 
 
RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. Through the Company’s affiliation with RepWest, U-Haul offers its customers moving and storage contents insurance products, branded Safemove and Safestor, respectively. The Safemove policy provides moving customers with a damage waiver, cargo protection and medical and life coverage. Management believes that its Safemove product is highly competitive, as competing policies contain deductibles, higher premiums and more confusing layers of coverage. We continue to focus on increasing the penetration of these products. The business plan for RepWest includes offering property and casualty products for other U-Haul related programs.
 
Net revenue from our Property and Casualty Insurance operating segment were approximately 1.9%, 1.8% and 2.1% of consolidated net revenue in fiscal 2007, 2006 and 2005, respectively.
 
Life Insurance Operating Segment
 
 
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.
 
Net revenue from our Life Insurance operating segment was approximately 6.9%, 6.7% and 7.6% of consolidated net revenue in fiscal 2007, 2006 and 2005, respectively.
 
SAC Holding II Operating Segment
 
 
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 of 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).

5


 
Net revenue from our SAC Holding II operating segment was approximately 1.3%, 1.3% and 1.1% of consolidated net revenue in fiscal 2007, 2006 and 2005, respectively.
 
Employees
 
As of March 31, 2007, we employed approximately 18,000 people throughout North America with approximately 98% of these employees working within our Moving and Storage operating segment.
 
Sales and Marketing
 
We promote U-Haul brand awareness through direct and co-marketing arrangements. Our direct marketing activities consist of yellow pages, print and web based advertising as well as trade events, movie cameos of our rental fleet and boxes, and industry and consumer communications. Our rental equipment is our best form of advertisement. We support our independent U-Haul dealers through advertising of U-Haul moving and self-storage rentals, products and services.
 
Our marketing plan includes maintaining our leadership position with U-Haul being synonymous with “do-it-yourself” moving and storage. We accomplish this by continually improving the ease of use and efficiency of our rental equipment, by providing added convenience to our retail centers through independent U-Haul dealers, and by expanding the capabilities of our eMove web site.
 
A significant driver of U-Haul’s rental transaction volume is our utilization of an online reservation and sales system, through www.uhaul.com, www.eMove.com and our 24-hour 1-800-GO-U-HAUL telephone reservations system. The Company’s 1-800-GO-U-HAUL telephone reservation line is prominently featured on nationwide yellow page advertising, its websites and on the outside of its vehicles, and is a major driver of customer lead sources. Nearly 30% of the reservations made for U-Move rentals were completed through the Company’s website.
 
Competition
 
Moving and Storage Operating Segment
 
 
The moving truck and trailer rental industry is large and highly competitive. There are two distinct users of rental trucks: commercial and “do-it-yourself” residential users. We focus primarily on the “do-it-yourself” residential user. Within this segment, we believe the principal competitive factors are convenience of rental locations, availability of quality rental moving equipment, breadth of essential products and services, and price. Our major competitors in the moving equipment rental market are AvisBudget Group and Penske Truck Leasing.
 
The self-storage market is large and highly fragmented. We believe the principal competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Our primary competitors in the self-storage market are Public Storage Inc., Extra Space Storage, Inc., and Sovran Self-Storage Inc.
 
Insurance Operating Segments
 
 
The highly competitive insurance industry includes a large number of life insurance companies and property and casualty insurance companies. In addition, the marketplace includes financial services firms offering both insurance and financial products. Some of the insurance companies are owned by stockholders and others are owned by policyholders. Many competitors have been in business for a longer period of time or possess substantially greater financial resources and broader product portfolios than our insurance companies. We compete in the insurance business based upon price, product design, and services rendered to agents and policyholders.
 
6

Recent Developments
 
Preferred Stock Dividends
 
 
On May 4, 2007, the Board of Directors of AMERCO (the “Board”) declared a regular quarterly cash dividend of $0.53125 per share on the Company’s Series A 8½ % Preferred Stock. The dividend was paid on June 1, 2007 to holders of record on May 15, 2007.
 
Fleet Securitization Transaction
 
 
The Company has entered into a securitized financing, as of June 1, 2007, through an offer by certain new special-purpose entities of up to $217.0 million of Fixed Rate Series 2007-1-BT Notes and $86.6 million of Fixed Rate Series 2007-1-CP Notes in a private placement transaction exempt from registration under the Securities Act of 1933, as amended. The new special-purpose entities that will issue the notes will be indirect subsidiaries of AMERCO. These new special-purpose subsidiaries will use the net proceeds from the sale of the notes to, among other things, acquire box trucks, cargo vans and pickup trucks from the manufacturers as well as from other subsidiaries of AMERCO. The new special-purpose subsidiaries will generate income from truck and trailer rentals to be used to service and repay the notes. The notes will not be obligations of AMERCO or any of its subsidiaries other than the new special-purpose subsidiaries. These special-purpose subsidiaries will be consolidated into U-Haul’s financial statements.
 
RepWest was upgraded
 
 
On May 30, 2007, A.M. Best Co. upgraded the financial strength ratings of RepWest to B (Fair) and set the outlook as stable.
 
Cautionary Statement Regarding Forward-Looking Statements
 
 
This Annual Report on Form 10-K, contains “forward-looking statements” regarding future events and our future results. We may make additional written or oral forward-looking statements from time to time in filings with the SEC or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, earnings or loss; estimates of capital expenditures, plans for future operations, products or services; financing needs and plans; our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us; liquidity; goals and strategies; plans for new business; growth rate assumptions, pricing, costs, and access to capital and leasing markets as well as assumptions relating to the foregoing. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could significantly affect results include, without limitation, the risk factors enumerated at the end of this section, as well as the following: the Company’s ability to operate pursuant to the terms of its credit facilities; the Company’s ability to maintain contracts that are critical to its operations; the costs and availability of financing; the Company’s ability to execute its business plan; the Company’s ability to attract, motivate and retain key employees; general economic conditions; fluctuations in our costs to maintain and update our fleet and facilities; our ability to refinance our debt; changes in government regulations, particularly environmental regulations; our credit ratings; the availability of credit; changes in demand for our products; changes in the general domestic economy; the degree and nature of our competition; the resolution of pending litigation against the Company; changes in accounting standards and other factors described in this report or the other documents we file with the SEC. The above factors, the following disclosures, as well as other statements in this report and in the Notes to Consolidated Financial Statements, could contribute to or cause such risks or uncertainties, or could cause our stock price to fluctuate dramatically. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized. The Company assumes no obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.
 
Item 1A. Risk Factors
 
 
The following discussion of risk factors should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), the consolidated financial statements and related notes. These risk factors may be important in understanding this Annual Report on Form 10-K or elsewhere.

7


 
We operate in a highly competitive industry.
 
 
The truck rental industry is highly competitive and includes a number of significant national, regional and local competitors. Competition is generally based on convenience of rental locations, availability of quality rental moving equipment, breadth of essential services and price. Financial results for the Company can be adversely impacted by aggressive pricing from our competitors. In our truck rental business, our primary competitors are AvisBudget Group and Penske Truck Leasing. Some of our competitors may have greater financial resources than we have. We can not assure you that we will be able to maintain existing rental prices or implement price increases. Moreover, if our competitors reduce prices and we are not able or willing to do so as well, we may lose rental volume, which would likely have a materially adverse affect on our results of operations.
 
The self-storage industry is large and highly fragmented. We believe the principle competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Some of our primary competitors in the self-storage market are Public Storage, Inc., Extra Space Storage, Inc., and Sovran Self-Storage Inc. Competition in the market areas in which we operate is significant and affects the occupancy levels, rental sales and operating expenses of our facilities. Competition might cause us to experience a decrease in occupancy levels, limit our ability to raise rental sales and require us to offer discounted rates that would have a material affect on operating results.
 
Entry into the self-storage business through acquisition of existing facilities is possible for persons or institutions with the required initial capital. Development of new self-storage facilities is more difficult however, due to land use, environmental and other regulatory requirements. The self-storage industry has in the past experienced overbuilding in response to perceived increases in demand. We cannot assure you that we will be able to successfully compete in existing markets or expand into new markets.
 
We are controlled by asmall contingent of stockholders.
 
 
As of March 31, 2007, Edward J. Shoen, Chairman of the Board of Directors and President of AMERCO, James P. Shoen, a director of AMERCO, and Mark V. Shoen, an executive officer of AMERCO, collectively are the owners of 8,967,863 shares (approximately 43.6%) of the outstanding common shares of AMERCO. In addition, on June 30, 2006, Edward J. Shoen, James P. Shoen, Mark V. Shoen, Rosmarie T. Donovan (Trustee of the Shoen Irrevocable Trusts) and Southwest Fiduciary, Inc. (Trustee of the Irrevocable “C” Trusts) (collectively, the “Reporting Persons”) entered into a Stockholder Agreement in which the Reporting Persons agreed to vote as one block in a manner consistent with the Stockholder Agreement and in furtherance of their interests. As of March 1, 2007, Adagio Trust Company replaced Southwest Fiduciary, Inc. as the trustee of the Irrevocable “C” Trusts, and became a signatory to the Stockholder Agreement that was entered into by the other Reporting Persons on June 30, 2006. Pursuant to the Stockholder Agreement, the Reporting Persons appointed James P. Shoen as proxy to vote their collective 10,642,588 shares (approximately 51.8%) of the Company’s common stock as provided for in the agreement. For additional information, see the Schedule 13D’s filed on July 13, 2006 and on March 9, 2007 with the SEC. In addition, 1,897,670 shares (approximately 9.2%) of the outstanding common shares of AMERCO are held by our Employee Savings and Employee Stock Ownership Trust.
 
As a result of their stock ownership and the Stockholder Agreement, Edward J. Shoen, Mark V. Shoen and James P. Shoen will be in a position to significantly influence the business affairs and policies of the Company, including the approval of significant transactions, the election of the members of the Board of Directors and other matters submitted to our stockholders. There can be no assurance that the interests of the Reporting Persons will not conflict with the interest of our other stockholders. Furthermore, as a result of the Reporting Persons’ voting power, the Company is a “controlled company” as defined in the Nasdaq listing rules and, therefore, may avail itself of certain exemptions under Nasdaq Marketplace Rules, including rules that require the Company to have (i) a majority of independent directors on the Board; (ii) a compensation committee composed solely of independent directors; (iii) a nominating committee composed solely of independent directors; (iv) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (v) director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors. The Company currently exercises its right to an exemption from the Nasdaq rule requiring compensation of other executive officers, aside from the President, be determined by a majority of the independent directors or the compensation committee.

8


 
Our operations subject us to numerous environmental regulations and the possibility that environmental liability in the future could adversely affect our operations.
 
 
Compliance with environmental requirements of federal, state and local governments significantly affects our business. 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. Under environmental laws or common law principles, we can be held strictly liable for hazardous substances that are found on real property we have owned or operated. We are aware of issues regarding hazardous substances on some of our real estate and we have put in place a remedial plan at each site where we believe such a plan is necessary (see Note 17 “Contingencies” of the “Notes to Consolidated Financial Statements”). We regularly make capital and operating expenditures to stay in compliance with environmental laws. In particular, we have managed a testing and removal program since 1988 for our underground storage tanks. Despite these compliance efforts, risk of environmental liability is part of the nature of our business.
 
Environmental laws and regulations are complex, change frequently and could become more stringent in the future. We cannot assure you that future compliance with these regulations, future environmental liabilities, the cost of defending environmental claims, conducting any environmental remediation or generally resolving liabilities caused by us or related third parties will not have a material adverse effect on our business, financial condition or results of operations.
 
Our quarterly results of operations fluctuate due to seasonality and other factors associated with our industry.
 
 
Our business is seasonal and our results of operations and cash flows fluctuate significantly from quarter to quarter. Historically, revenues have been stronger in the first and second fiscal quarters due to the overall increase in moving activity during the spring and summer months. The fourth fiscal quarter is generally weakest, due to a greater potential for adverse weather conditions and other factors that are not necessarily seasonal. As a result, our operating results for a quarterly period are not necessarily indicative of operating results for an entire year.
 
We obtain our rental trucks from a limited number of manufacturers.
 
 
In the last ten years, we purchased most of our rental trucks from Ford Motor Company and General Motors Corporation. Although we believe that we could obtain alternative sources of supply for our rental trucks, termination of one or both of our relationships with these suppliers could have a material adverse effect on our business, financial condition or results of operations for an indefinite period of time or we may not be able to obtain rental trucks under similar terms, if at all.
 
A.M Best financial strength ratings are crucial to our life insurance business.
 
 
A.M. Best downgraded Oxford and its subsidiaries during AMERCO’s restructuring to C+. Upon AMERCO’s emergence from bankruptcy in March 2004, Oxford and its subsidiaries were upgraded to B-. The ratings were again upgraded in October 2004 to B, in October 2005 to B+, and in November 2006 Oxford and Christian Fidelity were upgraded to B++ with a stable outlook. Prior to AMERCO’s restructuring, Oxford was rated B++. Financial strength ratings are important external factors that can affect the success of Oxford’s business plans. Accordingly, if Oxford’s ratings, relative to its competitors, do not continue to improve, Oxford may not be able to retain and attract business as currently planned.
 
We bear certain risks related to our notes receivable from SAC Holdings.
 
 
At March 31, 2007, we held approximately $203.7 million of notes receivable from SAC Holdings, of which $75.1 million is with SAC Holding II and has been eliminated in our Consolidated Financial Statements. SAC Holdings is highly leveraged with significant indebtedness to others. We hold various junior unsecured notes of SAC Holdings. If SAC Holdings is unable to meet its obligations to its senior lenders, it could trigger a default of its obligations to us. In such an event of default, we could suffer a loss to the extent the value of the underlying collateral of SAC Holdings is inadequate to repay SAC Holding’s senior lenders and our junior unsecured notes. We cannot assure you that SAC Holdings will not default on its loans to its senior lenders or that the value of SAC Holdings assets upon liquidation would be sufficient to repay us in full.

9


 
We are highly leveraged.
 
 
As of March 31, 2007 we had total debt outstanding of $1,181.2 million. Although we believe that additional leverage can be supported by the Company’s operations, our existing debt could impact us in the following ways:
 
·  
require us to allocate a considerable portion of cash flows from operations to debt service payments
 
·  
limit our ability to obtain additional financing
 
·  
place us at a disadvantage compared to our competitors who may have less debt
 
Our ability to make payments on our debt depends upon our ability to maintain and improve our operating performance and generate cash flow. To some extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, some of which are beyond our control. If we are unable to generate sufficient cash flow from operations to service our debt and meet our other cash needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. If we must sell our assets, it may negatively affect our ability to generate revenue. In addition, we may incur additional debt that would exacerbate the risks associated with our indebtedness.
 
We operate in a highly regulated industry and changes in existing regulations or violations of existing or future regulations could have a material adverse effect on our operations and profitability.
 
 
Our truck and trailer rental business is subject to regulation by various federal, state and foreign governmental entities. Specifically, the U.S. Department of Transportation and various state and federal agencies exercise broad powers over our motor carrier operations, safety, and the generation, handling, storage, treatment and disposal of waste materials. In addition, our storage business is also subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. The failure to adhere to these laws and regulations may adversely affect our ability to sell or rent such property or to use the property as collateral for future borrowings. Compliance with changing regulations could substantially impair real property and equipment productivity and increase our costs.
 
Item 1B. Unresolved Staff Comments
 
 
There were no unresolved staff comments at March 31, 2007.
 
Item 2. Properties
 
 
The Company, through its legal subsidiaries, owns property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and storage space as well as providing office space for the Company. Such facilities exist throughout the United States and Canada. The Company also manages storage facilities owned by others. The Company operates nearly 1,450 U-Haul retail centers of which 498 are managed for other owners, and operates 13 manufacturing and assembly facilities. We also operate over 245 fixed site-repair facilities located throughout the United States and Canada.
 
SAC Holdings owns property, plant and equipment that are utilized in the sale of moving supplies, rental of self-storage rooms and U-Haul equipment. Such facilities exist throughout the United States and Canada. We manage the storage facilities under property management agreements whereby the management fees are consistent with management fees received by U-Haul for other properties owned by unrelated parties and previously managed by us.
 
 

10


 
Item 3. Legal Proceedings
 
 
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 30, 2007, the Court heard oral argument on Defendants’ Motions to Dismiss and requested supplemental briefing. The supplemental briefs were filed on May 14, 2007.
 
Environmental
 
 
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management, that none of these suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss.
 
Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
 
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO’s financial position or operating results. Real Estate expects to spend approximately $7.6 million in total through 2011 to remediate these properties.
 
Other
 
 
The Company is named as a defendant in various other litigation and claims arising out of the normal course of business. In management’s opinion none of these other matters will have a material effect on the Company’s financial position and results of operations.
 
 

11


 
Item 4. Submission of Matters to a Vote of Security Holders
 
 
No matter was submitted to a vote of the security holders of AMERCO or U-Haul during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise.
 
PART II
 
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
As of March 31, 2007 there were approximately 3,300 holders of record of the common stock. AMERCO’s common stock is listed on NASDAQ Global Select Market under the trading symbol “UHAL”. The number of shareholders is derived using internal stock ledgers and utilizing Mellon Investor Services Stockholder listings.
 
The following table sets forth the high and the low sales price of the common stock of AMERCO for the periods indicated:
 

       
 Year Ended March 31,
 
       
2007
 
2006
 
 
         
High
   
Low
   
High
   
Low
 
First quarter 
       
$
106.95
 
$
79.71
 
$
56.10
 
$
42.75
 
Second quarter 
       
$
105.35
 
$
66.22
 
$
63.61
 
$
52.80
 
Third quarter 
       
$
96.89
 
$
71.81
 
$
73.68
 
$
54.60
 
Fourth quarter 
       
$
89.96
 
$
59.83
 
$
101.24
 
$
65.45
 
 
The common stock of U-Haul is wholly-owned by AMERCO. As a result, no active trading market exists for the purchase and sale of such common stock.
 
Dividends
 
AMERCO does not have a formal dividend policy. The Board of Directors of AMERCO periodically considers the advisability of declaring and paying dividends in light of existing circumstances.
 
U-Haul has not declared cash dividends to AMERCO during the three most recent fiscal years. On January 1, 2006, U-Haul paid a non-cash dividend to AMERCO in the form of a reduction in an intercompany payable.
 
See Note 20 “Statutory Financial Information of Insurance Subsidiaries” of the “Notes to Consolidated Financial Statements” for a discussion of certain statutory restrictions on the ability of the insurance subsidiaries to pay dividends to AMERCO.
 
See Note 11 “Stockholders Equity” of the “Notes to Consolidated Financial Statements” for a discussion of AMERCO’s preferred stock.
 
Performance Graph
 
The following graph compares the cumulative total stockholder return on the Company’s Common Stock for the period March 31, 2002 through March 31, 2007 with the cumulative total return on the Dow Jones US Equity Market and the Dow Jones US Transportation Average. The comparison assumes that $100 was invested on March 31, 2002 in the Company’s Common Stock and in each of comparison indices. The graph reflects the closing price of the Common stock trading on NASDAQ on March 31, 2003, 2004, 2005, 2006, and 2007.
 
12

 
13

 
Issuer Purchases of Equity Securities
 
On September 13, 2006, the Company announced that its Board had authorized the Company to repurchase up to $50.0 million of its Common Stock. The stock may be repurchased by the Company from time to time on the open market between September 13, 2006 and October 31, 2007. On March 9, 2007, the Board authorized an increase in the Company’s common stock repurchase program to a total aggregate amount, net of brokerage commissions, of $115.0 million (which amount is inclusive of the $50.0 million common stock repurchase program approved by the Board in 2006). As with the original program, the Company may repurchase stock from time to time on the open market until October 31, 2007. The extent to which the Company repurchases its shares and the timing of such purchases will depend upon market conditions and other corporate considerations. The purchases will be funded from available working capital. During the fourth quarter of fiscal 2007, the Company repurchased 739,291 shares.
 
The repurchases made by the Company were as follows:


Period
 
Total # of Shares Repurchased
 
Average Price Paid per Share (1)
 
Total # of Shares Repurchased as Part of Publicly Announced Plan
 
Total $ of Shares Repurchased as Part of Publicly Announced Plan
 
Maximum $ of Shares That May Yet be Repurchased Under the Plan
 
   
January 1 - 31, 2007
   
-
   
-
   
-
   
-
   $
50,000,000
 
February 1 - 28, 2007
   
268,653
 
$
68.37
   
268,653
 
$
18,368,840
   $
31,631,160
 
March 1 - 31, 2007 (2)
   
470,638
 
$
65.31
   
470,638
 
$
30,737,262
   $
65,893,898
 
Fourth Quarter Total
   
739,291
 
$
66.42
   
739,291
 
$
49,106,102
       
 
(1) Represents weighted average purchase price for the periods represented.
 
(2) On March 9, 2007, the Board authorized an increase in the Company's common stock repurchase program to a total aggregate amount, net of brokerage commissions, of $115.0 million (which amount is inclusive of the $50.0 million common stock repurchase program approved by the Board in 2006).
 

14


 
Item 6. Selected Financial Data
 
 
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and related notes in this Annual Report on Form 10-K.
 
Listed below is selected financial data for AMERCO and consolidated entities for each of the last five years ended March 31:
 

   
 Year Ended March 31,
 
   
 2007
 
2006
 
2005
 
2004
 
2003
 
   
 (In thousands, except share and per share data)
 
Summary of Operations:
                      
Self-moving equipment rentals
 
$
1,476,579
 
$
1,503,569
 
$
1,437,895
 
$
1,381,208
 
$
1,293,732
 
Self-storage revenues
   
126,424
   
119,742
   
114,155
   
247,640
   
238,938
 
Self-moving and self-storage products and service sales
   
224,722
   
223,721
   
206,098
   
232,965
   
223,677
 
Property management fees
   
21,154
   
21,195
   
11,839
   
259
   
89
 
Life insurance premiums
   
120,399
   
118,833
   
126,236
   
145,082
   
158,719
 
Property and casualty insurance premiums
   
24,335
   
26,001
   
24,987
   
92,036
   
149,206
 
Net investment and interest income
   
61,093
   
53,094
   
56,739
   
38,281
   
40,731
 
Other revenue
   
30,891
   
40,471
   
30,172
   
38,523
   
36,252
 
Total revenues
   
2,085,597
   
2,106,626
   
2,008,121
   
2,175,994
   
2,141,344
 
                                 
Operating expenses
   
1,080,897
   
1,080,990
   
1,122,197
   
1,179,996
   
1,182,222
 
Commission expenses
   
177,008
   
180,101
   
172,307
   
147,010
   
138,652
 
Cost of sales
   
117,648
   
113,135
   
105,309
   
111,906
   
115,115
 
Benefits and losses
   
118,725
   
117,160
   
140,343
   
217,447
   
248,349
 
Amortization of deferred policy acquisition costs
   
17,138
   
24,261
   
28,512
   
39,083
   
37,681
 
Lease expense
   
149,044
   
142,781
   
151,354
   
160,727
   
166,101
 
Depreciation, net of (gains) losses on disposal
   
189,589
   
142,817
   
121,103
   
148,813
   
137,446
 
Restructuring expense
   
-
   
-
   
-
   
44,097
   
6,568
 
Total costs and expenses
   
1,850,049
   
1,801,245
   
1,841,125
   
2,049,079
   
2,032,134
 
                                 
Earnings from operations
   
235,548
   
305,381
   
166,996
   
126,915
   
109,210
 
Interest expense
   
(82,756
)
 
(69,481
)
 
(73,205
)
 
(121,690
)
 
(148,131
)
Fees and amortization on early extinguishment of debt (b)
   
(6,969
)
 
(35,627
)
 
-
   
-
   
-
 
Litigation settlement, net of costs, fees and expenses
   
-
   
-
   
51,341
   
-
   
-
 
Pretax earnings (loss)
   
145,823
   
200,273
   
145,132
   
5,225
   
(38,921
)
Income tax benefit (expense)
   
(55,270
)
 
(79,119
)
 
(55,708
)
 
(8,077
)
 
13,935
 
Net earnings (loss)
   
90,553
   
121,154
   
89,424
   
(2,852
)
 
(24,986
)
Less: Preferred stock dividends
   
(12,963
)
 
(12,963
)
 
(12,963
)
 
(12,963
)
 
(12,963
)
Earnings (loss) available to common shareholders
 
$
77,590
 
$
108,191
 
$
76,461
 
$
(15,815
)
$
(37,949
)
Net earnings (loss) per common share basic and diluted
 
$
3.72
 
$
5.19
 
$
3.68
 
$
(0.76
)
$
(1.82
)
Weighted average common shares outstanding: Basic and diluted
   
20,838,570
   
20,857,108
   
20,804,773
   
20,749,998
   
20,824,618
 
Cash dividends declared and accrued
                               
Preferred stock
 
$
12,963
 
$
12,963
 
$
12,963
 
$
12,963
 
$
12,963
 
Balance Sheet Data:
                               
Property, plant and equipment, net
   
1,897,071
   
1,535,165
   
1,354,468
   
1,451,805
   
1,946,317
 
Total assets
   
3,523,048
   
3,367,218
   
3,116,173
   
3,394,748
   
3,832,372
 
Capital leases
   
-
   
-
   
-
   
99,607
   
137,031
 
AMERCO's notes and loans payable
   
1,181,165
   
965,634
   
780,008
   
862,703
   
940,063
 
SAC Holdings II notes and loans payable, non-recourse to AMERCO (a)
   
74,887
   
76,232
   
77,474
   
78,637
   
466,781
 
Stockholders' equity
   
718,098
   
695,604
   
572,839
   
503,846
   
327,448
 
                                 
(a) The amount for fiscal 2003 includes SAC Holding and SAC Holding II.
                       
(b) Includes the write-off of debt issuance costs of $7.0 million in fiscal 2007 and $14.4 million in fiscal 2006.
     

15


Listed below is selected financial data for U-Haul International, Inc. for each of the last five years ended March 31:
 

   
Year Ended March 31,
 
   
2007
 
2006
 
2005
 
2004
 
2003
 
   
(In thousands)
 
Summary of Operations:
                     
Self-moving equipment rentals
 
$
1,476,579
 
$
1,503,569
 
$
1,437,895
 
$
1,380,991
 
$
1,293,686
 
Self-storage revenues
   
104,725
   
99,060
   
94,431
   
118,335
   
109,985
 
Self-moving and self-storage products and service sales
   
208,677
   
207,119
   
191,078
   
182,327
   
174,853
 
Property management fees
   
23,951
   
23,988
   
14,434
   
12,974
   
12,431
 
Net investment and interest income
   
29,294
   
24,894
   
22,030
   
21,504
   
29,358
 
Other revenue
   
31,403
   
39,303
   
27,489
   
35,580
   
18,378
 
Total revenues
   
1,874,629
   
1,897,933
   
1,787,357
   
1,751,711
   
1,638,691
 
                                 
Operating expenses
   
1,085,619
   
1,085,602
   
1,100,737
   
1,062,695
   
1,029,774
 
Commission expenses
   
186,233
   
189,599
   
181,315
   
176,165
   
166,334
 
Cost of sales
   
110,163
   
105,872
   
98,877
   
87,430
   
93,735
 
Lease expense
   
149,649
   
143,344
   
151,937
   
159,869
   
165,020
 
Depreciation, net of (gains) losses on disposal
   
180,560
   
131,803
   
114,038
   
125,093
   
112,815
 
Total costs and expenses
   
1,712,224
   
1,656,220
   
1,646,904
   
1,611,252
   
1,567,678
 
                                 
Earnings from operations
   
162,405
   
241,713
   
140,453
   
140,459
   
71,013
 
Interest income (expense)
   
(114,051
)
 
(14,383
)
 
15,687
   
8,560
   
(9,991
)
Fees and amortization on early extinguishment of debt
   
(302
)
 
-
   
-
   
-
   
-
 
Pretax earnings
   
48,052
   
227,330
   
156,140
   
149,019
   
61,022
 
Income tax expense
   
(17,948
)
 
(87,910
)
 
(59,160
)
 
(52,992
)
 
(21,211
)
Net earnings
 
$
30,104
 
$
139,420
 
$
96,980
 
$
96,027
 
$
39,811
 
Balance Sheet Data:
                               
Property, plant and equipment, net
 
$
1,231,932
 
$
913,871
 
$
796,361
 
$
875,729
 
$
736,499
 
Total assets
   
1,729,904
   
1,505,813
   
1,516,286
   
1,452,361
   
1,235,497
 
Capital leases
   
-
   
-
   
-
   
99,607
   
14,793
 
Notes and loans payable
   
406,458
   
212,133
   
-
   
-
   
-
 
Stockholders' equity (deficit) (a)
   
(336,705
)
 
(354,481
)
 
701,198
   
601,514
   
499,380
 
                                 
(a) Fiscal 2006 includes a non-cash dividend to AMERCO in the amount of $1,200,000,000.
                 

 
 
 

16


 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 
General
 
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with the overall strategy of AMERCO, followed by a description of our operating segments and the strategy of our operating segments to give the reader an overview of the goals of our business and the direction in which our businesses and products are moving. This is followed by a section entitled the “Critical Accounting Policies and Estimates” that we believe is important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our results of operations for fiscal 2007 compared with fiscal 2006, and for fiscal 2006 compared with fiscal 2005 beginning with an overview. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the sections entitled “Liquidity and Capital Resources” and “Disclosures about Contractual Obligations and Commercial Commitments.” We conclude this MD&A by discussing our outlook for fiscal 2008.
 
This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”, “Item 6: Selected Financial Data” and “Item 8: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, as discussed under the caption “Cautionary Statements Regarding Forward-Looking Statements”, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly under the section “Item 1A: Risk Factors”. Our actual results may differ materially from these forward-looking statements.
 
AMERCO has a fiscal year that ends on the 31st of March for each year that is referenced. Our insurance company subsidiaries have fiscal years that end on the 31st of December for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2006, 2005 and 2004 correspond to fiscal 2007, 2006 and 2005 for AMERCO. The operating results and financial position of AMERCO’s consolidated insurance operations are determined as of December 31st of each year.
 
Overall Strategy
 
Our overall strategy is to maintain our leadership position in the North American “do-it-yourself” moving and storage industry. We accomplish this by providing a seamless and integrated supply chain to the “do-it-yourself” moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul with our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.
 
Our primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities and related moving and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage rooms available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our growing eMove capabilities.
 
RepWest is focused on providing and administering property and casualty insurance to U-Haul, its customers, its independent dealers and affiliates.
 
Oxford is focused on long-term capital growth through direct writing and reinsuring of annuity, life and Medicare supplement products primarily in the senior marketplace. Oxford is pursuing increased direct writing through acquisitions of insurance companies, expanded distribution channels and product development. In 2005, Oxford determined that it would no longer pursue growth in the credit life and disability market. We believe this will enable Oxford to focus more on its core senior population demographic.

17


 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage (AMERCO, U-Haul and Real Estate), Property and Casualty Insurance, Life Insurance and SAC Holding II (see Note 1 “Basis of Presentation”, Note 21 “Financial Information by Geographic Area” and Note 21A “Consolidating Financial Information by Industry Segment” to the “Notes to Consolidated Financial Statements” included in this Form 10-K.)
 
Moving and Storage Operating Segment
 
 
Our Moving and Storage Operating Segment consists of the rental of trucks, trailers, specialty rental items and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
With respect to our truck, trailer, specialty rental items and self-storage rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.
 
U-Haul brand self-moving related products and services, such as boxes, pads and tape allow our customers to, among other things, protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-yourself” moving and storage customer in mind.
 
AMERCO is committed to be being a responsible corporate citizen and is furthering its program to Reduce, Replenish and Sustain. Our truck and trailer rental business is the means by which our customers can reduce their environmental footprint through the sharing of equipment with other like-minded consumers. Additionally, the Company is launching new programs to advance our Sustainability initiative including U-Car Share, partnerships for the planting of trees, and our Box Exchange program.
 
eMove is an online marketplace that connects consumers to over 3,900 independent Moving Help™ and over 2,900 independent Self - Storage Affiliates. Our network of customer-rated affiliates provides pack and load help, cleaning help, self-storage and similar services, all over North America.
 
An individual or a company can connect to the eMove network by becoming an eMove Moving Help® Affiliate or an eMove Storage Affiliate™. Moving Helpers assist customers with packing, loading, cleaning and unloading their truck or storage unit. The Storage Affiliate program enables independent self-storage facilities to expand their reach by connecting into a centralized 1-800 and internet reservation system, and for a fee, receive an array of services including web-based management software, Secured Online Affiliated Rentals (S.O.A.R®), co-branded rental trucks, savings on insurance, credit card processing and more.
 
With over 100,000 unedited reviews of independent Affiliates, the marketplace has facilitated thousand of Moving Help® and Self-Storage transactions all over North America. We believe that acting as an intermediary, with little added investment, serves the customer in a cost effective manner. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.
 
Property and Casualty Insurance Operating Segment
 
 
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. We continue to focus on increasing the penetration of these products. The business plan for RepWest includes offering property and casualty products in other U-Haul related programs.
 
Life Insurance Operating Segment
 
 
Oxford provides life and health insurance products primarily to the senior market through the direct writing or reinsuring of annuities, life insurance, and Medicare supplement policies. Additionally, Oxford administers the self-insured employee health and dental plans for Arizona employees of the Company.

18


 
SAC Holding II Operating Segment
 
 
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).
 
Critical Accounting Policies and Estimates
 
The Company’s financial statements have been prepared in accordance with the accounting principles generally accepted in the United States. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Note 3 “Accounting Policies” to the “Notes to Consolidated Financial Statements” in “Item 8: Financial Statements and Supplementary Data” of this Form 10-K summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements and related disclosures. Certain accounting policies require us to make difficult and subjective judgments and assumptions, often as a result of the need to make estimates of matters that are inherently uncertain.
 
Below we have set forth, with a detailed description, the accounting policies that we deem most critical to us and that require management’s most difficult and subjective judgments. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptions that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions; such differences may be material.
 
We also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following:
 
Principles of Consolidation
 
The Company applies FIN 46(R), “Consolidation of Variable Interest Entities” and ARB 51 in its principles of consolidation. FIN 46(R) addresses arrangements where a company does not hold a majority of the voting or similar interests of a variable interest entity (VIE). A company is required to consolidate a VIE if it is determined it is the primary beneficiary. ARB 51 addresses the policy when a company owns a majority of the voting or similar rights and exercises effective control.
 
As promulgated by FIN 46(R), a VIE is not self-supportive due to having one or both of the following conditions: a) it has an insufficient amount of equity for it to finance its activities without receiving additional subordinated financial support or b) its owners do not hold the typical risks and rights of equity owners. This determination is made upon the creation of a variable interest and can be re-assessed should certain changes in the operations of a VIE, or its relationship with the primary beneficiary trigger a reconsideration under the provisions of FIN 46(R). After a triggering event occurs the most recent facts and circumstances are utilized in determining whether or not a company is a variable interest entity, which other company(s) have a variable interest in the entity, and whether or not the company’s interest is such that it is the primary beneficiary.
 
The consolidated financial statements for fiscal 2007, 2006 and 2005 include the accounts of AMERCO, its wholly-owned subsidiaries and SAC Holding II.
 
In fiscal 2003 and fiscal 2002, SAC Holding Corporation and SAC Holding II (together, “SAC Holdings”) were considered special purpose entities and were consolidated based on the provisions of Emerging Issues Task Force (EITF) Issue No. 90-15. In fiscal 2004, the Company applied FIN 46(R) to its interests in SAC Holdings. Initially, the Company concluded that SAC Holdings were variable interest entities (VIE’s) and that the Company was the primary beneficiary. Accordingly, the Company continued to include SAC Holdings in its consolidated financial statements.

19


 
In February 2004, SAC Holding Corporation restructured the indebtedness of three subsidiaries and then distributed its interest in those subsidiaries to its sole shareholder. This triggered a requirement to reassess AMERCO’s involvement with those subsidiaries, which led to the conclusion that based on current contractual and ownership interests between AMERCO and this entity, AMERCO ceased to have a variable interest in those three subsidiaries at that date.
 
Separately, in March 2004, SAC Holding Corporation restructured its indebtedness, triggering a similar reassessment of SAC Holding Corporation that led to the conclusion that SAC Holding Corporation was not a VIE and that AMERCO ceased to be the primary beneficiary of SAC Holding Corporation and its remaining subsidiaries. This conclusion was based on SAC Holding Corporation’s ability to fund its own operations and execute its business plan without any future subordinated financial support.
 
Accordingly, at the dates AMERCO ceased to have a variable interest and ceased to be the primary beneficiary of SAC Holding Corporation and its current or former subsidiaries, it deconsolidated those entities. The deconsolidation was accounted for as a distribution of SAC Holding Corporations interests to the sole shareholder of the SAC entities. Because of AMERCO’s continuing involvement with SAC Holding Corporation and its current and former subsidiaries, the distributions do not qualify as discontinued operations as defined by SFAS No. 144.
 
It is possible that SAC Holding Corporation could take actions that would require us to re-determine whether SAC Holding Corporation has become a VIE or whether we have become the primary beneficiary of SAC Holding Corporation. Should this occur, we could be required to consolidate some or all of SAC Holding Corporation with our financial statements.
 
Similarly, SAC Holding II could take actions that would require us to re-determine whether it is a VIE or whether we continue to be the primary beneficiary of our variable interest in SAC Holding II. Should we cease to be the primary beneficiary, we would be required to deconsolidate some or all of our variable interest in SAC Holding II from our financial statements.
 
Recoverability of Property, Plant and Equipment
 
 
Property, plant and equipment are stated at cost. Interest expense incurred during the initial construction of buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes using the straight-line or an accelerated method based on a declining balance formula over the following estimated useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. The Company follows the deferral method of accounting based in the AICPA’s Airline Guide for major overhauls in which engine overhauls are capitalized and amortized over five years and transmission overhauls are capitalized and amortized over three years. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses on dispositions of property, plant and equipment are netted against depreciation expense when realized. Equipment depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal, i.e., no gains or losses. In determining the depreciation rate, historical disposal experience, holding periods and trends in the market for vehicles are reviewed.
 
We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets is shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If asset residual values are determined to be recoverable, but the useful lives are shorter or longer than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.
 
During the fourth quarter of fiscal 2007, based on economic market analysis, the Company decreased the estimated residual value of certain rental trucks. The effect of the change decreased pre-tax earnings for fiscal 2007 by $2.0 million. The in-house analysis of truck sales compared such factors as the truck model, size, age and average residual value of units sold. Based on the analysis, the estimated residual values of these vehicles were decreased to approximately 20% of historic cost. The adjustment reflects management’s best estimate of the estimated residual value of the rental trucks.

20


 
Starting in fiscal 2006 the Company acquired a significant number of moving trucks via purchase rather than lease. Management performed an analysis of the expected economic value of new rental trucks and determined that additions to the fleet resulting from purchase should be depreciated on an accelerated method based upon a declining formula. The salvage value and useful life assumptions of the rental truck fleet remain unchanged. Under the declining balances method (2.4 times declining balance) the book value of a rental truck is reduced 16%, 13%, 11%, 9%, 8%, 7%, and 6% during years one through seven, respectively and then reduced on a straight line basis an additional 10% by the end of year fifteen. Whereas, a standard straight line approach would reduce the book value by approximately 5.3% per year over the life of the truck. For the affected equipment, the accelerated depreciation was $33.2 million greater than what it would have been if calculated under a straight line approach for fiscal 2007 and $4.0 million for fiscal 2006.
 
We typically sell our used vehicles at one of our sales centers throughout North America, on our web site at trucksales.uhaul.com or by phone at 1-866-404-0355. Although we intend to sell our used vehicles for prices approximating book value, the extent to which we realize a gain or loss on the sale of used vehicles is dependent upon various factors including the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and depreciation rates with respect to the vehicle.
 
Insurance Reserves
 
 
Liabilities for life insurance and certain annuity and health policies are established to meet the estimated future obligations of policies in force, and are based on mortality, morbidity and withdrawal assumptions from recognized actuarial tables which contain margins for adverse deviation. In addition, liabilities for health, disability and other policies include estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred, but not yet reported. Liabilities for annuity contracts consist of contract account balances that accrue to the benefit of the policyholders.
 
Insurance reserves for RepWest and U-Haul take into account losses incurred based upon actuarial estimates. These estimates are based on past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation. Due to the nature of underlying risks and the high degree of uncertainty associated with the determination of the liability for future policy benefits and claims, the amounts to be ultimately paid to settle liabilities cannot be precisely determined and may vary significantly from the estimated liability.
 
A consequence of the long tail nature of the assumed reinsurance and the excess workers compensation lines of insurance that were written by RepWest is that it takes a number of years for claims to be fully reported and finally settled.
 
Impairment of Investments
 
 
For investments accounted for under SFAS No. 115, in determining if and when a decline in market value below amortized cost is other-than-temporary, management makes certain assumptions or judgments in its assessment including but not limited to: ability and intent to hold the security, quoted market prices, dealer quotes or discounted cash flows, industry factors, financial factors, and issuer specific information such as credit strength. Other-than-temporary impairment in value is recognized in the current period operating results. The Company’s insurance subsidiaries recognized $1.4 million in other-than-temporary impairments for fiscal 2007, $5.3 million for fiscal 2006 and $4.3 million for fiscal 2005.
 
Income Taxes
 
 
The Company’s tax returns are periodically reviewed by various taxing authorities. Despite our belief that all of our tax treatments are supportable, the final outcome of these audits may cause changes that could materially impact our financial results. Our current effective tax rate is approximately 37.9%.

21


 
AMERCO files a consolidated tax return with all of its legal subsidiaries, except for Dallas General Life Insurance Company (“DGLIC”) which will file on a stand alone basis. SAC Holding Corporation and its legal subsidiaries and SAC Holding II Corporation and its legal subsidiaries file consolidated tax returns, which are in no way associated with AMERCO’s consolidated returns.
 
Adoption of New Accounting Pronouncements
 
 
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans - an amendment of SFAS 87, 88, 106 and 132(R), which requires companies to recognize a net liability or asset to report the over-funded or under-funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets and recognize changes in funded status in the year in which the changes occur through other comprehensive income. The funded status to be measured is the difference between plan assets at fair value and the benefit obligation. This Statement requires that gains and losses and prior service costs or credits, net of tax, that arise during the period be recognized as a component of other comprehensive income and not as components of net periodic benefit cost.
 
We adopted the balance sheet provisions of SFAS 158, as required, at March 31, 2007. As a result the Company recorded after tax unrecognized losses of $0.2 million to accumulated other comprehensive income in fiscal 2007. As discussed in Note 14 “Employee Benefit Plans” to the Consolidated Financial Statements, the Company previously used December 31 as the measurement date to measure the assets and obligations of its post retirement and post employment benefits plans. SFAS 158 requires the Company to perform the measurements at year end. The portion of the net periodic cost associated with the three month measurement lag was $0.1 million, after tax. This was recorded as an adjustment to retained earnings in fiscal 2007.
 
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108 “Considering the Effects of Prior Year Misstatements in Current Year Financial Statements”, which provides interpretive guidance on how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. There was diversity in practice, with the two commonly used methods to quantify misstatements being the “rollover” method (which primarily focuses on the income statement impact of misstatements) and the “iron curtain” method (which focuses on the cumulative amount by which the current year balance sheet is misstated and may not prevent significant misstatements in the income statement). SAB 108 requires registrants to use a dual approach whereby both of these methods are considered in evaluating the materiality of financial statement errors. Prior materiality assessments were reconsidered using both the rollover and iron curtain methods.
 
Effective March 31, 2007 the Company adopted SAB 108 and recorded a correction in the fourth quarter of fiscal 2007 related to prepaid expenses on leased equipment. In analyzing this error we determined that it was not material to our statement of earnings in any single quarter or annual period; however, the cumulative adjustment necessary would have been material in the current period. In accordance with SAB 108, the Company adjusted its beginning retained earnings balance for fiscal 2007 and its financial results for the first three quarters of fiscal 2007 for this adjustment. The Company determined that the adjustment would not be material in any specific period and therefore did not restate historical financial statements.
 
The error was related to rental equipment originally leased during periods between fiscal 2000 and fiscal 2002. The rental equipment was sold to the lessor at less than its book value and then subsequently leased back to the Company via an operating lease. The difference between the sales price to the lessor and the book value prior to the sale was deferred and amortized over the life of the equipment. Per SFAS 28 the amortization period should have been over the term of the lease. The Company quantified the error and in fiscal 2007 changed its accounting treatment for prepaid expenses on sales - leaseback vehicle transactions to ensure that all new instances would be accounted for properly.

22


 
Recent Accounting Pronouncements
 
 
In June 2006, the FASB issued a standard that addresses accounting for income taxes: FIN 48, Accounting for Uncertainty in Income Taxes. Among other things, FIN 48 requires applying an audit sustainability standard of “more likely than not” related to the recognition and de-recognition of tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that the adoption will have on its Consolidated Financial Statements. The cumulative effect of applying the provisions of FIN 48, if any, will be reported as an adjustment to the opening balance of the Companies retained earnings at April 1, 2007.
 
In September 2006, the FASB issued SFAS 157, Fair Value Measurements which establishes how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS 157 are effective for us in April 2008. The Company is currently evaluating the impact of this statement on our Consolidated Financial Statements.
 
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Liabilities, including an amendment of SFAS 115. This statement allows for a company to irrevocably elect fair value as the measurement attribute for certain financial assets and financial liabilities. Changes in the fair value of such assets are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The provision of SFAS 159 is effective for us in April 2008. The Company is currently evaluating the impact of this statement on our Consolidated Financial Statements.
 
23

Results of Operations
 
AMERCO and Consolidated Entities
 
 
Fiscal 2007 Compared with Fiscal 2006
 
 
Listed below on a consolidated basis are revenues for our major product lines for fiscal 2007 and fiscal 2006:
 

   
Year Ended March 31,
 
   
2007
 
2006
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,476,579
 
$
1,503,569
 
Self-storage revenues
   
126,424
   
119,742
 
Self-moving and self-storage product and service sales
   
224,722
   
223,721
 
Property management fees
   
21,154
   
21,195
 
Life insurance premiums
   
120,399
   
118,833
 
Property and casualty insurance premiums
   
24,335
   
26,001
 
Net investment and interest income
   
61,093
   
53,094
 
Other revenue
   
30,891
   
40,471
 
Consolidated revenue
 
$
2,085,597
 
$
2,106,626
 
               

 
During fiscal 2007, self-moving equipment rentals decreased $27.0 million, compared with fiscal 2006 with the majority of the variance occurring during the second half of the year. The Company finished fiscal 2007 with increases in one-way transactions along with increases in the average inventory of the truck fleet. However, offsetting these factors were a decrease in average revenue per transaction primarily due to one-way pricing, the lack of certain mid-size trucks during the spring and summer months of fiscal 2007 and decreased fleet utilization. The Company’s response to competitive pricing issues has further lowered self-moving rental revenues. The Company now has a better inventory of certain mid-size trucks and is attempting to improve revenue per transaction; however, if these issues continue our revenues may continue to be negatively impacted in the future.
 
Self-storage revenues increased $6.7 million in fiscal 2007, compared with fiscal 2006 largely due to improved pricing. During fiscal 2007, the Company has increased rooms and square footage available primarily through build-outs at existing facilities.
 
Sales of self-moving and self-storage products and service sales revenues increased $1.0 million in fiscal 2007, compared with fiscal 2006. The Company continues to improve its visibility as a leading provider of propane, moving supplies and towing accessories and offer new products and services in an effort to increase sales results.
 
Other revenues decreased $9.6 million in fiscal 2007, compared with fiscal 2006. Fiscal 2006 included several non-recurring items.
 
Premiums at RepWest decreased $1.7 million with increases in U-Haul related premiums offset by reductions in other lines.
 
Oxford’s premium revenues increased approximately $1.6 million primarily due to an increase in Medicare supplement premiums resulting from the acquisition of DGLIC.
 
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,085.6 million for fiscal 2007, compared with $2,106.6 million for fiscal 2006.

24


 
Listed below are revenues and earnings from operations at each of our four operating segments for fiscal 2007 and fiscal 2006, the insurance companies years ended are December 31, 2006 and 2005.
 

   
Year Ended March 31,
 
   
2007
 
2006
 
   
(In thousands)
 
Moving and storage
         
Revenues
 
$
1,875,860
 
$
1,900,468
 
Earnings from operations
   
217,937
   
292,774
 
Property and casualty insurance
           
Revenues
   
38,486
   
37,358
 
Earnings from operations
   
5,741
   
1,144
 
Life insurance
             
Revenues
   
148,820
   
148,080
 
Earnings from operations
   
14,521
   
13,933
 
SAC Holding II
             
Revenues
   
46,603
   
46,239
 
Earnings from operations
   
13,854
   
13,643
 
Eliminations
             
Revenues
   
(24,172
)
 
(25,519
)
Earnings (loss) from operations
   
(16,505
)
 
(16,113
)
Consolidated Results
             
Revenues
   
2,085,597
   
2,106,626
 
Earnings from operations
   
235,548
   
305,381
 
 

 
Total costs and expenses increased $48.8 million in fiscal 2007, compared with fiscal 2006. This is due primarily to increases in depreciation expense associated with the acquisition of new trucks and the fleet rotation. Beginning in the second half of fiscal 2006 the Company began utilizing debt to finance the majority of new truck purchases rather than operating lease arrangements which were used primarily during the previous ten years. While the Company generates a cash flow benefit from utilizing the depreciation deduction for income taxes as compared to what the lease expense would have been, the consolidated statement of operations reflects an increase in depreciation expense greater than what the corresponding lease expense would have been had we leased this equipment instead. For additional information on the Company’s depreciation policy refer to “Critical Accounting Policies and Estimates”.
 
As a result of the aforementioned changes in revenues and expenses, earnings from operations decreased to $235.5 million for fiscal 2007, compared with $305.4 million for fiscal 2006.
 
Interest expense for fiscal 2007 was $89.7 million, compared with $105.1 million in fiscal 2006. The interest expense related to the increase in average borrowings was partially offset by a reduction in the average borrowing rate resulting from the refinancing activities in fiscal 2006. The second quarter of fiscal 2007 included a one-time, non-recurring charge of $7.0 million before taxes related to the full amortization of deferred debt issuance costs related to the Real Estate Loan that was amended. The refinancing related charge had the effect of decreasing on a non-recurring basis, earnings for the year ended March 31, 2007 by $0.33 per share before taxes, in which the tax effect was approximately $0.13 per share. Fiscal 2006 results included a one-time, non-recurring charge of $35.6 million before taxes which includes fees for early extinguishment of debt of $21.2 million and the write-off of $14.4 million of debt issuance costs. The refinancing costs had the effect of decreasing, on a non-recurring basis, earnings for the year ended March 31, 2006 by $1.71 per share before taxes, in which the tax effect was approximately $0.63 per share.
 
Income tax expense was $55.3 million in fiscal 2007, compared with $79.1 million in fiscal 2006.
 
Dividends accrued on our Series A preferred stock were $13.0 million in both fiscal 2007 and 2006, respectively.

25


 
As a result of the above mentioned items, net earnings available to common shareholders were $77.6 million in fiscal 2007, compared with $108.2 million in fiscal 2006.
 
The weighted average common shares outstanding: basic and diluted were 20,838,570 in fiscal 2007 and 20,857,108 in fiscal 2006.
 
Basic and diluted earnings per share in fiscal 2007 were $3.72, compared with $5.19 in fiscal 2006.
 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below on a consolidated basis are revenues for our major product lines for fiscal 2006 and fiscal 2005:
 

   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
119,742
   
114,155
 
Self-moving and self-storage product and service sales
   
223,721
   
206,098
 
Property management fees
   
21,195
   
11,839
 
Life insurance premiums
   
118,833
   
126,236
 
Property and casualty insurance premiums
   
26,001
   
24,987
 
Net investment and interest income
   
53,094
   
56,739
 
Other revenue
   
40,471
   
30,172
 
Consolidated revenue
 
$
2,106,626
 
$
2,008,121
 
               

 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks rotated out of the fleet.
 
Self-storage revenues increased $5.6 million for fiscal 2006, compared with fiscal 2005 as occupancy rates increased period over period.
 
Sales of self-moving and self-storage products and service sales increased $17.6 million for fiscal 2006, compared with fiscal 2005 generally following the growth in self-moving equipment rentals. Support sales items, hitches, and propane all had increases for the year.
 
RepWest continued to exit from non U-Haul related lines of business. However, premium revenues increased $1.0 million for fiscal 2006, compared with fiscal 2005 due to increases in retrospective premiums related to U-Haul business in fiscal 2006. Additionally, fiscal 2005 included the commutation of a non U-Haul related reinsurance contract reducing premium revenues.
 
Oxford’s premium revenues declined $7.4 million primarily as a result of decreased credit and Medicare supplement business, offset by growth in life insurance premiums.
 
Net investment and interest income decreased $3.6 million for fiscal 2006, compared with fiscal 2005 due primarily to declining invested asset balances at the insurance companies.
 
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,106.6 million for fiscal 2006, compared with $2,008.1 million for fiscal 2005.

26


 
Listed below are revenues and earnings (loss) from operations at each of our four operating segments for fiscal 2006 and fiscal 2005; for the insurance companies years ended are December 31, 2005 and 2004:

   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Moving and storage
         
Revenues
 
$
1,900,468
 
$
1,791,667
 
Earnings from operations
   
292,774
   
165,985
 
Property and casualty insurance
             
Revenues
   
37,358
   
41,417
 
Earnings (loss) from operations
   
1,144
   
(14,814
)
Life insurance
             
Revenues
   
148,080
   
159,484
 
Earnings from operations
   
13,933
   
2,065
 
SAC Holding II
             
Revenues
   
46,239
   
43,172
 
Earnings from operations
   
13,643
   
10,466
 
Eliminations
             
Revenues
   
(25,519
)
 
(27,619
)
Earnings (loss) from operations
   
(16,113
)
 
3,294
 
Consolidated Results
             
Revenues
   
2,106,626
   
2,008,121
 
Earnings from operations
   
305,381
   
166,996
 
               

 
Total costs and expenses decreased $39.9 million for fiscal 2006, compared with fiscal 2005. Total costs and expenses for both insurance companies decreased $43.3 million due primarily to reductions in benefits and losses. Fiscal 2005 included a $10.6 million charge for litigation at Oxford not present in fiscal 2006. Increases in operating costs associated with the improved business volume at Moving and Storage were offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs.
 
In our second quarter of fiscal 2006, hurricanes Katrina and Rita struck the Gulf Coast of the United States causing business interruption to a number of our operating facilities. We identified customers impacted by the hurricanes and our rapid response teams provided a variety of solutions to divert operations to alternate facilities and restore operations where possible. We lost approximately 150 trucks and 150 trailers during and after the devastation caused by these hurricanes. We maintain property and business interruption insurance coverage to mitigate the financial impact of these types of catastrophic events. Our insurance deductible is $500,000 and was recorded in our second quarter of fiscal 2006.
 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are fully restored and claims are filed.
 
As a result of the aforementioned changes in revenues and expenses, earnings from operations improved to $305.4 million for fiscal 2006, compared with $167.0 million for fiscal 2005.
 
Interest expense for fiscal 2006 was $105.1 million, compared with $73.2 million in fiscal 2005. Fiscal 2006 results included a one-time, non-recurring charge of $35.6 million before taxes which includes fees for early extinguishment of debt of $21.2 million and the write-off of $14.4 million of debt issuance costs. The expense related to the increase in average borrowings was partially offset by a reduction in the average borrowing rate resulting from the refinancing activities in fiscal 2006. The refinancing costs had the effect of decreasing, on a non-recurring basis, earnings for the year ended March 31, 2006 by $1.71 per share before taxes, in which the tax effect was approximately $0.63 per share.

27


 
During the third quarter of fiscal 2005, the Company settled our litigation against our former auditor and received a settlement (net of attorneys’ fees and costs) of $51.3 million before taxes. The settlement had the effect of increasing, on a non-recurring basis, earnings for the year ended March 31, 2005 by $2.47 per share before taxes, in which the tax effect was approximately $0.91 per share.
 
Income tax expense was $79.1 million in fiscal 2006, compared with $55.7 million in fiscal 2005.
 
Dividends accrued on our Series A preferred stock were $13.0 million in both fiscal 2006 and 2005, respectively.
 
As a result of the above mentioned items, net earnings available to common shareholders were $108.2 million in fiscal 2006, compared with $76.5 million in fiscal 2005.
 
The weighted average common shares outstanding: basic and diluted were 20,857,108 in fiscal 2006 and 20,804,773 in fiscal 2005.
 
Basic and diluted earnings per share in fiscal 2006 were $5.19, compared with $3.68 in fiscal 2005.

28


 
Moving and Storage
 
 
Fiscal 2007 Compared with Fiscal 2006
 
 
Listed below are revenues for the major product lines at our Moving and Storage Operating Segment for fiscal 2007 and fiscal 2006:
   
Year Ended March 31,
 
   
2007
 
2006
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,476,579
 
$
1,503,569
 
Self-storage revenues
   
106,498
   
100,873
 
Self-moving and self-storage product and service sales
   
208,677
   
207,119
 
Property management fees
   
23,951
   
23,988
 
Net investment and interest income
   
34,161
   
30,025
 
Other revenue
   
25,994
   
34,894
 
Moving and Storage revenue
 
$
1,875,860
 
$
1,900,468
 
               
 

 
During fiscal 2007, self-moving equipment rentals decreased $27.0 million, compared with fiscal 2006 with the majority of the variance occurring during the second half of the year. The Company finished fiscal 2007 with increases in one-way transactions along with increases in the average inventory of the entire fleet. However, offsetting these factors were a decrease in average revenue per transaction primarily due to one-way pricing, the lack of certain mid-size trucks during the spring and summer months of fiscal 2007 and decreased fleet utilization. The Company’s response to competitive pricing issues has further lowered self-moving rental revenues. The Company now has a better inventory of certain mid-size trucks and is attempting to improve revenue per transaction; however, if these issues continue our revenues may continue to be negatively impacted in the future.
 
Self-storage revenues increased $5.6 million for fiscal 2007, compared with fiscal 2006 primarily due to improved pricing. The Company has increased the number of rooms and square footage available period over period through the expansion of existing facilities and the acquisition of new facilities.
 
Other revenues decreased $8.9 million for fiscal 2007, compared with fiscal 2006. Fiscal 2006 included several non-recurring items. Net investment and interest income increased $4.1 million primarily due to increases in interest on invested cash and higher interest rates.
 
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements for Moving and Storage represent Company-owned locations only. Self-storage data for our owned storage locations is as follows:
   
Year Ended March 31,
 
   
2007
 
2006
 
   
(In thousands, except occupancy rate)
 
Room count as of March 31
   
127
   
123
 
Square footage as of March 31
   
10,062
   
9,592
 
Average number of rooms occupied
   
108
   
107
 
Average occupancy rate based on room count
   
86.6
%
 
87.9
%
Average square footage occupied
   
8,653
   
8,516
 
 

 
Total costs and expenses increased $50.3 million for fiscal 2007, compared with fiscal 2006. Increases in depreciation, lease, licensing and freight costs resulting from the acquisition of new trucks and the rotation of the fleet were partially offset by reductions in maintenance and repair.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations decreased to $217.9 million in fiscal 2007, compared with $292.8 million for fiscal 2006.

29


 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below are revenues for our major product lines at our Moving and Storage Operating Segment for fiscal 2006 and fiscal 2005:
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
100,873
   
96,202
 
Self-moving and self-storage product and service sales
   
207,119
   
191,078
 
Property management fees
   
23,988
   
14,434
 
Net investment and interest income
   
30,025
   
29,902
 
Other revenue
   
34,894
   
22,156
 
Moving and Storage revenue
 
$
1,900,468
 
$
1,791,667
 
 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks rotated out of the fleet.
 
Self-storage revenues increased $4.7 million for fiscal 2006, compared with fiscal 2005 generally in line with the increases in occupancy rates. Average occupancy based on room count has increased 5.5% in fiscal 2006, compared with fiscal 2005.
 
Sales of self-moving and self-storage products and service increased $16.0 million for fiscal 2006, compared with fiscal 2005. Retail sales generally increase in line with moving equipment rentals. In fiscal 2006 we have seen increases beyond this trend due to improved customer demand for towing accessories and propane. U-Haul is the largest single retail provider of towing accessories in the United States through our Company owned and managed locations. The Company continues to improve its visibility as a provider of propane and towing accessories.
 
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidating financial statements for Moving and Storage represent Company-owned locations only. Self-storage data for our owned storage locations is as follows:
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands, except occupancy rate)
 
Room count as of March 31
   
123
   
127
 
Square footage as of March 31
   
9,592
   
10,003
 
Average number of rooms occupied
   
107
   
108
 
Average occupancy rate based on room count
   
87.9
%
 
82.4
%
Average square footage occupied
   
8,516
   
8,514
 
 
Total costs and expenses increased $2.7 million for fiscal 2006, compared with fiscal 2005. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Operating expenses decreased $26.1 million for fiscal 2006, compared with fiscal 2005. Increases in operating costs associated with the improved business volume were more than offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs. Overall total cost and expense increases were less than revenue increases for fiscal 2006.

30


 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are restored and claims are filed.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $292.8 million in fiscal 2006, compared with $166.0 million for fiscal 2005.
 
U-Haul International, Inc.
 
 
Fiscal 2007 Compared with Fiscal 2006
 
 
Listed below are revenues for the major product lines at U-Haul International, Inc. for fiscal 2007 and fiscal 2006:
   
Year Ended March 31,
 
   
2007
 
2006
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,476,579
 
$
1,503,569
 
Self-storage revenues
   
104,725
   
99,060
 
Self-moving and self-storage product and service sales
   
208,677
   
207,119
 
Property management fees
   
23,951
   
23,988
 
Net investment and interest income
   
29,294
   
24,894
 
Other revenue
   
31,403
   
39,303
 
U-Haul International, Inc. revenue
 
$
1,874,629
 
$
1,897,933
 
 
During fiscal 2007, self-moving equipment rentals decreased $27.0 million, compared with fiscal 2006 with the majority of the variance occurring during the second half of the year. The Company finished fiscal 2007 with increases in one-way transactions along with increases in the average inventory of the entire fleet. However, offsetting these factors were a decrease in average revenue per transaction primarily due to one-way pricing, the lack of certain mid-size trucks during the spring and summer months of fiscal 2007 and decreased fleet utilization. The Company’s response to competitive pricing issues has further lowered self-moving rental revenues. The Company now has a better inventory of certain mid-size trucks and is attempting to improve revenue per transaction; however, if these issues continue our revenues may continue to be negatively impacted in the future.
 
Self-storage revenues increased $5.7 million for fiscal 2007, compared with fiscal 2006 due largely to improved pricing. The Company has increased the number of rooms and square footage available period over period through the expansion of existing facilities and the acquisition of new facilities.
 
Sales of self-moving and self-storage products and service sales increased by $1.6 million for fiscal 2007, compared with fiscal 2006. 
 
Total costs and expenses increased $56.0 million for fiscal 2007, compared with fiscal 2006. This is primarily due to increases in lease and depreciation expenses related to the rotation of the rental fleet. Reductions in maintenance and repair expense were partially offset by the cost of re-imaging portions of the existing rental fleet along with freight and licensing costs.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations decreased to $162.4 million in fiscal 2007, compared with $241.7 million for fiscal 2006.

31


 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below are revenues for the major product lines at U-Haul International, Inc. for fiscal 2006 and fiscal 2005:
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
99,060
   
94,431
 
Self-moving and self-storage product and service sales
   
207,119
   
191,078
 
Property management fees
   
23,988
   
14,434
 
Net investment and interest income
   
24,894
   
22,030
 
Other revenue
   
39,303
   
27,489
 
U-Haul International, Inc. revenue
 
$
1,897,933
 
$
1,787,357
 
 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks rotated out of the fleet.
 
Self-storage revenues increased $4.6 million for fiscal 2006, compared with fiscal 2005 generally in line with the increases in occupancy rates. Average occupancy based on room count has increased 5.5% in fiscal 2006, compared with fiscal 2005.
 
Sales of self-moving and self-storage products and service sales increased $16.0 million for fiscal 2006, compared with fiscal 2005. Retail sales generally increase in line with moving equipment rentals. In fiscal 2006 we have seen increases beyond this trend due to improved customer demand for towing accessories and propane. U-Haul is the largest single retail provider of towing accessories in the United States through our Company owned and managed locations. The Company continues to improve its visibility as a provider of propane and towing accessories. Self-moving and storage related retail products continue to improve as we have increased our product offerings.
 
Total costs and expenses increased $9.3 million for fiscal 2006, compared with fiscal 2005. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Operating expenses decreased $15.1 million for fiscal 2006, compared with fiscal 2005. Increases in operating costs associated with the improved business volume were more than offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs. Depreciation expense increased $17.8 million for fiscal 2006, compared with fiscal 2005 primarily due to buy-outs of leases, new truck purchases and certain residual value adjustments on the rental trucks. The buy-outs of the leases are the primary reason for the $8.6 million decrease in lease expense for fiscal 2006, compared with fiscal 2005. Overall total cost and expense increases were less than revenue increases for fiscal 2006.
 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are fully restored as claims are filed.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $241.7 million in fiscal 2006, compared with $140.5 million for fiscal 2005.

32


 
Republic Western Insurance Company
 
 
2006 Compared with 2005
 
 
Net premiums were $24.3 million and $26.0 million for the years ended December 31, 2006 and 2005, respectively. U-Haul related premiums were $22.0 million and $20.2 million for the years ended December 31, 2006 and 2005, respectively. Other lines of business were $2.3 million and $5.8 million for the years ended December 31, 2006 and 2005, respectively.
 
Net investment income was $14.2 million and $11.4 million for the years ended December 31, 2006 and 2005, respectively. The increase is due to an increase in short-term rates and sale of real estate.
 
Benefits and losses incurred were $21.9 million and $22.6 million for the years ended December 31, 2006 and 2005, respectively.
 
Amortization of deferred acquisition costs were $2.1 million and $2.9 million for the years ended December 31, 2006 and 2005, respectively. The decrease is due to decreased premium writings.
 
Operating expenses were $8.8 million and $10.8 million for years ended December 31, 2006 and 2005, respectively. The decrease is due to a reduction of general administrative expenses due to the exit of the non U-Haul lines of business.
 
Earnings from operations were $5.7 million and $1.1 million for years ended December 31, 2006 and 2005, respectively.
 
2005 Compared with 2004
 
 
Net premiums were $26.0 million and $25.0 million for the years ended December 31, 2005 and 2004, respectively. U-Haul related premiums were $20.2 million and $18.9 million for the years ended December 31, 2005 and 2004, respectively. Other lines of business were $5.8 million and $6.1 million for the years ended December 31, 2005 and 2004, respectively.
 
Net investment income was $11.4 million and $16.4 million for the years ended December 31, 2005 and 2004, respectively. The reduction was due to a decrease in RepWest’s invested asset base and gains on capital assets sold in 2004.
 
Benefits and losses incurred were $22.6 million and $39.7 million for the years ended December 31, 2005 and 2004, respectively. The decrease resulted from reduced exposure to non U-Haul policies combined with the absence of approximately $8.5 million of incurred losses in 2004 due to hurricane claims.
 
Amortization of deferred acquisition costs were $2.9 million and $4.7 million for the years ended December 31, 2005 and 2004, respectively. The decreases are due to a reduction of in-force business related to the exit of non U-Haul lines of business.
 
Operating expenses were $10.8 million and $11.8 million for the years ended December 31, 2005 and 2004, respectively. The decrease was due to a reduction of general administrative expenses resulting from the exit of the non U-Haul lines of business.
 
Earnings (loss) from operations were $1.1 million and ($14.8) million for the years ended December 31, 2005 and 2004, respectively.

33


 
The following table illustrates the change in unpaid loss and loss adjustment expenses. The first line represents reserves as originally reported at the end of the stated year. The second section, reading down, represents cumulative amounts paid as of the end of successive years with respect to that reserve. The third section, reading down, represents revised estimates of the original recorded reserve as of the end of successive years. The last section compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be totaled.
   
Unpaid Loss and Loss Adjustment Expenses
 
                                               
   
December 31,
 
   
1996
 
1997
 
1998
 
1999
 
2000
 
2001
 
2002
 
2003
 
2004
 
2005
 
2006
 
   
(In thousands)
 
Unpaid Loss and Loss Adjustment Expenses
 
$
332,674
 
$
384,816
 
$
344,748
 
$
334,858
 
$
382,651
 
$
448,987
 
$
399,447
 
$
416,259
 
$
380,875
 
$
346,928
 
$
288,783
 
Paid (Cumulative) as of:
                                                                   
One year later
   
89,336
   
103,752
   
82,936
   
117,025
   
130,471
   
130,070
   
100,851
   
73,384
   
44,677
   
40,116
   
-
 
Two years later
   
161,613
   
174,867
   
164,318
   
186,193
   
203,605
   
209,525
   
164,255
   
114,246
   
83,230
   
-
   
-
 
Three years later
   
208,168
   
216,966
   
218,819
   
232,883
   
255,996
   
266,483
   
201,346
   
151,840
   
-
   
-
   
-
 
Four years later
   
232,726
   
246,819
   
255,134
   
264,517
   
299,681
   
295,268
   
233,898
   
-
   
-
   
-
   
-
 
Five years later
   
250,312
   
269,425
   
274,819
   
295,997
   
320,629
   
322,191
   
-
   
-
   
-
   
-
   
-
 
Six years later
   
263,645
   
282,598
   
297,354
   
314,281
   
341,543
   
-
   
-
   
-
   
-
   
-
   
-
 
Seven years later
   
274,249
   
300,814
   
311,963
   
331,385
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Eight years later
   
289,614
   
314,322
   
327,141
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Nine years later
   
298,449
   
326,805
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Ten years later
   
309,945
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                     
Reserved Re-estimated as of:
                                                                   
One year later
   
354,776
   
357,733
   
339,602
   
383,264
   
433,222
   
454,510
   
471,029
   
447,524
   
388,859
   
326,386
       
Two years later
   
342,164
   
361,306
   
371,431
   
432,714
   
454,926
   
523,624
   
480,713
   
456,171
   
368,756
   
-
       
Three years later
   
346,578
   
369,598
   
429,160
   
437,712
   
517,361
   
500,566
   
521,319
   
435,549
   
-
   
-
       
Four years later
   
349,810
   
398,899
   
413,476
   
480,200
   
543,554
   
571,045
   
502,922
   
-
   
-
   
-
       
Five years later
   
376,142
   
398,184
   
443,696
   
524,548
   
558,765
   
569,104
   
-
   
-
   
-
   
-
       
Six years later
   
369,320
   
428,031
   
477,975
   
520,675
   
559,873
   
-
   
-
   
-
   
-
   
-
       
Seven years later
   
396,197
   
450,728
   
485,228
   
527,187
   
-
   
-
   
-
   
-
   
-
   
-
       
Eight years later
   
423,928
   
461,082
   
496,484
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Nine years later
   
418,177
   
469,869
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Ten years later
   
417,435
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Cumulative Redundancy (Deficiency)
 
$
(84,761
)
$
(85,053
)
$
(151,736
)
$
(192,329
)
$
(177,222
)
$
(120,117
)
$
(103,475
)
$
(19,290
)
$
12,119
 
$
20,542
       
Retro Premium Recoverable
   
1,582
   
3,037
   
(1,879
)
 
6,797
   
5,613
   
21,756
   
7,036
   
374
   
2,233
   
-
       
Re-estimated Reserve: Amount (Cumulative)
 
$
(83,179
)
$
(82,016
)
$
(153,615
)
$
(185,532
)
$
(171,609
)
$
(98,361
)
$
(96,439
)
$
(18,916
)
$
14,352
 
$
20,542
       
 


34


 
Activity in the liability for unpaid losses and loss adjustment expenses for RepWest is summarized as follows:
 

   
Year Ended December 31,
 
   
2006
 
2005
 
2004
 
   
(In thousands)
 
Balance at January 1
 
$
346,928
 
$
380,875
 
$
416,259
 
Less: reinsurance recoverable
   
181,388
   
189,472
   
177,635
 
Net balance at January 1
   
165,540
   
191,403
   
238,624
 
Incurred related to:
                   
Current year
   
6,006
   
6,429
   
17,960
 
Prior years
   
15,895
   
16,161
   
21,773
 
Total incurred
   
21,901
   
22,590
   
39,733
 
Paid related to:
                   
Current year
   
3,492
   
3,774
   
13,570
 
Prior years
   
40,116
   
44,679
   
73,384
 
Total paid
   
43,608
   
48,453
   
86,954
 
Net balance at December 31
   
143,833
   
165,540
   
191,403
 
Plus: reinsurance recoverable
   
144,950
   
181,388
   
189,472
 
Balance at December 31
 
$
288,783
 
$
346,928
 
$
380,875
 
 
The liability for incurred losses and loss adjustment expenses (net of reinsurance recoverable of $145.0 million) decreased by $21.7 million in 2006. The decrease is a result of eliminating unprofitable programs.

35


 
Oxford Life Insurance Company
 
 
2006 Compared with 2005
 
 
Net premiums were $121.6 million and $120.4 million for the years ended December 31, 2006 and 2005, respectively. Medicare supplement premiums increased by $10.6 million primarily due to the acquisition of DGLIC. The Company stopped writing new credit insurance business in 2006 and as a result, credit insurance premiums decreased by $9.1 million. Other income was $4.7 million and $5.8 million for the years ended December 31, 2006 and 2005 respectively. This decrease was the result of decreased surrender charge income of $0.5 million and a decrease in administrative income of $0.6 million.
 
Net investment income was $22.5 million and $22.0 million for the years ended December 31, 2006 and 2005, respectively. The increase was primarily due to a reduction in realized losses on disposals from 2005, offset by a net reduction in invested assets. Investment yields were consistent between the two years.
 
Benefits incurred were $88.3 million and $85.7 million, for the years ended December 31, 2006 and 2005, respectively. This increase was primarily a result of a $3.8 million increase in Medicare supplement benefits due to the acquisition of DGLIC, partially offset by a slightly improved loss ratio. Credit insurance benefits decreased $4.4 million due to decreased exposure. Other health benefits increased $1.1 million during the current period due to an adjustment for current claim trends. Life insurance benefits increased $1.4 million due to increased sales.
 
Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $15.1 million and $21.4 million for the years ended December 31, 2006 and 2005, respectively. During the fourth quarter of 2005 and 2006, the Company made adjustments to the assumptions for expected future profits for the annuity business. These included changes to the assumptions for lapse rates, interest crediting and investment returns. Amortization expense was reduced by $4.7 million during 2006 as a result of these changes, including $1.3 million in the fourth quarter of 2006. The credit business had a decrease of amortization of $3.2 million due to decreased business. VOBA amortization increased $0.7 million due to the acquisition of DGLIC. DAC amortization in the life segment increased due to increased new business.
 
Operating expenses were $30.9 million and $27.0 million for the years ended December 31, 2006 and 2005, respectively. The increase is primarily due to the acquisition of DGLIC.
 
Earnings from operations were $14.5 million and $13.9 million for the years ended December 31, 2006 and 2005, respectively.
 
2005 Compared with 2004
 
 
Net premiums were $120.4 million and $127.7 million for the years ended December 31, 2005 and 2004, respectively. Medicare supplement premiums decreased by $5.7 million due to lapses on closed lines being greater than new business written on active lines. Credit insurance premiums decreased $3.8 million. Oxford is no longer writing credit insurance. Oxford expects the majority of the existing credit policies to earn out over the next three years. Life premiums increased $1.6 million primarily due to increased sales from the final expense product. Annuitizations increased $0.4 million, while other health premiums increased slightly. Other revenue decreased $2.5 million in the current year, compared to the prior year primarily due to decreased surrender charge income.
 
Net investment income was $22.0 million and $23.5 million for the years ended December 31, 2005 and 2004, respectively. The decrease was primarily due to realized losses on the sale of investments in the current year. Investment yields were consistent between the two years.
 
Benefits and losses incurred were $85.7 million and $91.5 million for the years ended December 31, 2005 and 2004, respectively. This decrease was primarily a result of a $5.4 million decrease in Medicare supplement benefits due to reduced exposure and a slightly improved loss ratio. All other lines combined for a $0.4 million decrease.
 
Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $21.4 million and $23.8 million for the years ended December 31, 2005 and 2004, respectively. These costs are amortized for life and health policies as the premium is earned over the term of the policy; and for deferred annuities in relation to interest spreads. Annuity amortization decreased $1.9 million from 2004 primarily due to reduced surrender activity. Other segments combined for a $0.5 million decrease primarily due to a decline in new business volume.