dec10-q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 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.
 
 
amerco logo 
 
1-11255
 
AMERCO
88-0106815
 
(A Nevada Corporation)
 
 
1325 Airmotive Way, Ste. 100
 
 
Reno, Nevada 89502-3239
 
 
Telephone (775) 688-6300
 
     


 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R  No £
 
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer.  See definition of an “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £                                                                            Accelerated filer R                                                       Non-accelerated filer £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes £ No R
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R  No £
 
20,059,314 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 1, 2008.



TABLE OF CONTENTS

   
Page No.
 
PART I FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5 - 32
Item 2.
33 – 50
Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                                                                
50 – 51
Item 4.
Controls and Procedures                                                                                                                
51 – 52
     
 
PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings                                                                                                                
52
Item 1A.
Risk Factors                                                                                                                
52 - 53
Item 2.
Unregistered Sales of Equity Securities andUse of Proceeds                                                                                                                
53
Item 3.
Defaults Upon Senior Securities                                                                                                                
53
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                
53
Item 5.
Other Information                                                                                                                
53
Item 6.
Exhibits                                                                                                                 
54




PART I.  FINANCIAL INFORMATION
 
ITEM 1.  Financial Statements
 

AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
ASSETS
           
Cash and cash equivalents
  $ 203,723     $ 75,272  
Reinsurance recoverables and trade receivables, net
    179,848       184,617  
Notes and mortgage receivables, net
    1,988       1,669  
Inventories, net
    62,150       67,023  
Prepaid expenses
    39,613       52,080  
Investments, fixed maturities and marketable equities
    655,189       681,801  
Investments, other
    166,063       178,699  
Deferred policy acquisition costs, net
    38,447       44,514  
Other assets
    161,294       95,123  
Related party assets
    299,232       245,179  
      1,807,547       1,625,977  
Property, plant and equipment, at cost:
               
Land
    206,994       202,917  
Buildings and improvements
    849,515       802,289  
Furniture and equipment
    317,727       301,751  
Rental trailers and other rental equipment
    206,644       200,208  
Rental trucks
    1,716,853       1,604,123  
SAC Holding II - property, plant and equipment
    -       80,349  
      3,297,733       3,191,637  
Less: Accumulated depreciation
    (1,315,937 )     (1,294,566 )
Total property, plant and equipment
    1,981,796       1,897,071  
Total assets
  $ 3,789,343     $ 3,523,048  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Liabilities:
               
Accounts payable and accrued expenses
  $ 269,293     $ 251,197  
AMERCO's notes and loans payable
    1,427,257       1,181,165  
SAC Holding II notes and loans payable, non-recourse to AMERCO
    -       74,887  
Policy benefits and losses, claims and loss expenses payable
    764,519       768,751  
Liabilities from investment contracts
    350,698       386,640  
Other policyholders' funds and liabilities
    10,475       10,563  
Deferred income
    9,547       16,478  
Deferred income taxes
    144,699       113,170  
Related party liabilities
    -       2,099  
Total liabilities
    2,976,488       2,804,950  
Commitments and contingencies (Notes 3, 6 and 7)
               
Stockholders' equity:
               
Series preferred stock, with or without par value, 50,000,000 shares authorized:
               
Series A preferred stock, with no par value, 6,100,000 shares authorized;
               
6,100,000 shares issued and outstanding as of December 31 and March 31, 2007
    -       -  
Series B preferred stock, with no par value, 100,000 shares authorized; none
               
issued and outstanding as of December 31 and March 31, 2007
    -       -  
Series common stock, with or without par value, 150,000,000 shares authorized:
               
Series A common stock of $0.25 par value, 10,000,000 shares authorized;
               
none issued and outstanding as of December 31 and March 31, 2007
    -       -  
Common stock of $0.25 par value, 150,000,000 shares authorized; 41,985,700
               
issued as of December 31 and March 31, 2007
    10,497       10,497  
Additional paid-in capital
    418,848       375,412  
Accumulated other comprehensive loss
    (40,817 )     (41,779 )
Retained earnings
    932,703       849,300  
Cost of common shares in treasury, net (21,926,386 shares as of
               
December 31, 2007 and 21,440,387 as of March 31, 2007)
    (501,165 )     (467,198 )
Unearned employee stock ownership plan shares
    (7,211 )     (8,134 )
Total stockholders' equity
    812,855       718,098  
Total liabilities and stockholders' equity
  $ 3,789,343     $ 3,523,048  
 

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

1


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Quarter Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 329,905     $ 328,149  
Self-storage revenues
    29,630       31,765  
Self-moving and self-storage products and service sales
    43,211       46,351  
Property management fees
    6,925       5,914  
Life insurance premiums
    27,757       29,454  
Property and casualty insurance premiums
    7,738       6,555  
Net investment and interest income
    16,044       12,799  
Other revenue
    7,458       5,631  
Total revenues
    468,668       466,618  
                 
Costs and expenses:
               
Operating expenses
    269,099       271,891  
Commission expenses
    41,531       39,316  
Cost of sales
    26,677       24,970  
Benefits and losses
    25,290       31,461  
Amortization of deferred policy acquisition costs
    2,687       4,220  
Lease expense
    34,010       36,481  
Depreciation, net of (gains) losses on disposals
    61,015       50,017  
Total costs and expenses
    460,309       458,356  
                 
Earnings from operations
    8,359       8,262  
Interest expense
    (25,227 )     (22,131 )
Pretax loss
    (16,868 )     (13,869 )
Income tax benefit
    6,474       4,389  
Net loss
    (10,394 )     (9,480 )
Less: Preferred stock dividends
    (3,241 )     (3,241 )
Loss available to common shareholders
  $ (13,635 )   $ (12,721 )
Basic and diluted loss per common share
  $ (0.69 )   $ (0.61 )
Weighted average common shares outstanding: Basic and diluted
    19,746,237       20,922,433  
 

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

2



 
AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Nine Months Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except share and per share amounts)
 
Revenues:
           
Self-moving equipment rentals
  $ 1,165,783     $ 1,181,103  
Self-storage revenues
    94,754       94,612  
Self-moving and self-storage products and service sales
    174,420       175,718  
Property management fees
    14,865       13,747  
Life insurance premiums
    84,881       91,493  
Property and casualty insurance premiums
    20,986       18,407  
Net investment and interest income
    46,832       41,900  
Other revenue
    24,862       22,563  
Total revenues
    1,627,383       1,639,543  
                 
Costs and expenses:
               
Operating expenses
    827,420       814,078  
Commission expenses
    142,891       142,457  
Cost of sales
    95,268       88,734  
Benefits and losses
    80,159       90,909  
Amortization of deferred policy acquisition costs
    9,870       14,671  
Lease expense
    101,205       111,238  
Depreciation, net of (gains) losses on disposals
    161,026       132,775  
Total costs and expenses
    1,417,839       1,394,862  
                 
Earnings from operations
    209,544       244,681  
Interest expense
    (76,493 )     (61,656 )
Amortization of fees on early extinguishment of debt
    -       (6,969 )
Pretax earnings
    133,051       176,056  
Income tax expense
    (51,219 )     (69,624 )
Net earnings
    81,832       106,432  
Less: Preferred stock dividends
    (9,723 )     (9,723 )
Earnings available to common shareholders
  $ 72,109     $ 96,709  
Basic and diluted earnings per common share
  $ 3.64     $ 4.62  
Weighted average common shares outstanding: Basic and diluted
    19,820,107       20,910,089  
 

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

 

3


AMERCO AND CONSOLIDATED ENTITIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Nine Months Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
 Cash flow from operating activities:
           
 Net earnings
  $ 81,832     $ 106,432  
 Adjustments to reconcile net earnings to cash provided by operations:
               
 Depreciation
    170,184       133,571  
 Amortization of deferred policy acquisition costs
    9,870       14,671  
 Change in provision for loss on trade receivables
    75       202  
 Change in provision for gain on mortgage notes
    (29 )     (30 )
 Change in provision for inventory reserves
    2,371       -  
 Net gain on sale of real and personal property
    (9,158 )     (796 )
 Net loss on sale of investments
    375       1,615  
 Write-off of unamortized debt issuance costs
    -       6,969  
 Deferred income taxes
    9,760       15,451  
 Net change in other operating assets and liabilities:
               
Reinsurance recoverables and trade receivables
    4,816       18,841  
Inventories
    1,586       (3,082 )
Prepaid expenses
    12,196       4,325  
Capitalization of deferred policy acquisition costs
    (3,894 )     (4,192 )
Other assets
    1,040       2,487  
Related party assets
    35,003       40,279  
Accounts payable and accrued expenses
    5,366       15,145  
Policy benefits and losses, claims and loss expenses payable
    (3,038 )     (16,758 )
Other policyholders' funds and liabilities
    (88 )     1,622  
Deferred income
    (6,246 )     (2,359 )
Related party liabilities
    (9,131 )     (23,634 )
 Net cash provided by operating activities
    302,890       310,759  
                 
 Cash flows from investing activities:
               
 Purchases of:
               
Property, plant and equipment
    (440,328 )     (455,598 )
Short term investments
    (171,918 )     (171,177 )
Fixed maturities investments
    (56,505 )     (74,194 )
Equity securities
    (27 )     -  
Real estate
    (3,404 )     -  
Mortgage loans
    (12,522 )     (9,550 )
 Proceeds from sale of:
               
Property, plant and equipment
    134,099       71,668  
Short term investments
    192,974       199,080  
Fixed maturities investments
    77,773       71,181  
Cash received in excess of purchase for company acquired
    -       1,235  
Equity securities
    46       -  
Preferred stock
    5,625       225  
Real estate
    784       9,542  
Mortgage loans
    6,394       4,835  
Payments from notes and mortgage receivables
    89       752  
 Net cash used by investing activities
    (266,920 )     (352,001 )
                 
 Cash flows from financing activities:
               
Borrowings from credit facilities
    487,626       321,189  
Principal repayments on credit facilities
    (244,108 )     (64,383 )
Debt issuance costs
    (11,876 )     (2,323 )
Leveraged Employee Stock Ownership Plan - repayments from loan
    923       895  
Treasury stock repurchases
    (33,966 )     -  
Securitization deposits
    (60,764 )     -  
Preferred stock dividends paid
    (9,723 )     (9,723 )
Investment contract deposits
    13,864       12,634  
Investment contract withdrawals
    (49,806 )     (59,353 )
 Net cash provided by financing activities
    92,170       198,936  
                 
 Effects of exchange rate on cash
    311       (22 )
                 
 Increase in cash equivalents
    128,451       157,672  
 Cash and cash equivalents at the beginning of period
    75,272       155,459  
 Cash and cash equivalents at the end of period
  $ 203,723     $ 313,131  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
1.       Basis of Presentation
 
      The third fiscal quarter for AMERCO ends on the 31st of December for each year that is referenced. Our insurance company subsidiaries have a third quarter that ends on the 30th of September for each year that is referenced. They have been consolidated on that basis. Our insurance companies’ financial reporting processes conform to calendar year reporting as required by state insurance departments. Management believes that consolidating their calendar year into our fiscal year financial statements does not materially affect the financial position or results of operations. The Company discloses any material events occurring during the intervening period. Consequently, all references to our insurance subsidiaries’ years 2007 and 2006 correspond to the Company’s fiscal years 2008 and 2007.
 
Accounts denominated in non-U.S. currencies have been re-measured into U.S. dollars. Certain amounts reported in previous years have been reclassified to conform to the current presentation.
 
The condensed consolidated balance sheet as of December 31, 2007 includes the accounts of AMERCO and its wholly-owned subsidiaries. The condensed consolidated balance sheet as of March 31, 2007 includes the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holding II and its subsidiaries (“SAC Holding II”). The related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2008 include the accounts of AMERCO and its wholly-owned subsidiaries and for SAC Holding II only through October 2007. The related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2007 include the accounts of AMERCO and its wholly-owned subsidiaries and for SAC Holding II. See the Description of Operating Segments following for additional information on SAC Holding II.
 
The condensed consolidated balance sheet as of December 31, 2007 and the related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2008 and 2007 are unaudited.
 
In our opinion, all adjustments necessary for the fair presentation of such condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The information in this 10-Q should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the AMERCO 2007 Form 10-K.
 
Intercompany accounts and transactions have been eliminated.
 
Description of Legal Entities
 
AMERCO, a Nevada corporation (“AMERCO”), is the holding company for:
 
U-Haul International, Inc. (“U-Haul”),
 
Amerco Real Estate Company (“Real Estate”),
 
Republic Western Insurance Company (“RepWest”), and
 
Oxford Life Insurance Company (“Oxford”).
 
Unless the context otherwise requires, the term “Company,” “we,” “us” or “our” refers to AMERCO and its legal subsidiaries.

5


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II.
 
Moving and Storage operations include AMERCO, U-Haul and Real Estate and the wholly-owned subsidiaries of U-Haul and Real Estate and consist of the rental of trucks and trailers, sales of moving supplies, sales of towing accessories, sales of propane, the rental of self-storage spaces to the “do-it-yourself” mover and management of self-storage properties owned by others. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
Property and Casualty Insurance includes RepWest and its wholly-owned subsidiaries. RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. RepWest also underwrites components of the Safemove, Safetow and Safestor protection packages to U-Haul customers.
 
Life Insurance includes Oxford and its wholly-owned subsidiaries. Oxford originates and reinsures annuities, ordinary life and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for Arizona employees of the Company.
 
SAC Holding Corporation and its subsidiaries, and SAC Holding II Corporation and its subsidiaries, collectively referred to as “SAC Holdings”, own self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain SAC Holdings’ properties entitling AMERCO to potential future income based on the financial performance of these properties. With respect to SAC Holding II, AMERCO was considered the primary beneficiary of these contractual interests prior to November 2007. Consequently, for those reporting periods prior to November 2007 we included the results of SAC Holding II in the consolidated financial statements of AMERCO, as required by FIN 46(R).
 
Substantially all of the equity interest of SAC Holdings is controlled by Blackwater Investments Inc. (“Blackwater”), wholly-owned by Mark V. Shoen, a significant shareholder and executive officer of AMERCO. In November 2007, Blackwater contributed additional capital to its wholly-owned subsidiary, SAC Holding II. This contribution was determined by us to be material with respect to the capitalization of SAC Holding II; therefore, triggering a requirement under FIN 46(R) for us to reassess the Company’s involvement with those subsidiaries. This required reassessment led to the conclusion that the Company was no longer the primary beneficiary of SAC Holding II as of the date of Blackwater’s contribution. Accordingly, the Company deconsolidated this entity. The deconsolidation, effective October 31, 2007 was accounted for as a distribution of the Company’s interests to Blackwater, the sole shareholder of SAC Holding II. Because of the Company’s continuing involvement with SAC Holding II, the distributions do not qualify as discontinued operations as defined by SFAS 144.
 
2. Earnings (loss) per Share
 
Net earnings (loss) for purposes of computing earnings (loss) per common share are net earnings (loss) less preferred stock dividends. Preferred stock dividends include accrued dividends of AMERCO.
 
The weighted average common shares outstanding listed above exclude post-1992 shares of the employee stock ownership plan that have not been committed to be released. The unreleased shares net of shares committed to be released were 306,846 and 356,774 as of December 31, 2007 and December 31, 2006, respectively.
 
6,100,000 shares of preferred stock have been excluded from the weighted average shares outstanding calculation because they are not common stock and they are not convertible into common stock.

6


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
3. Borrowings
 
Long-Term Debt
 
Long-term debt was as follows:
 
               
December 31,
   
March 31,
 
   
2008 Rate (a)
   
Maturities
   
2007
   
2007
 
               
(Unaudited)
       
               
(In thousands)
 
Real estate loan (amortizing term)
    6.93 %  
2018
    $ 287,500     $ 295,000  
Real estate loan (revolving credit)
    -    
2018
      -       -  
Senior mortgages
    5.19% - 5.75 %  
2015
      517,338       521,332  
Construction loan (revolving credit)
    6.75 %  
2009
      21,700       -  
Working capital loan (revolving credit)
    -    
2008
      -       -  
Fleet loans (amortizing term)
    6.11% - 7.42 %     2012-2014       307,192       364,833  
Fleet loans (securitization)
    5.40% - 5.56 %     2010-2014       293,527       -  
Fleet loan (revolving credit)
    -    
2011
      -       -  
Total AMERCO notes and loans payable
                  $ 1,427,257     $ 1,181,165  
                                 
(a) Interest rate as of December 31, 2007, including the effect of applicable hedging instruments
         
 

 
Real Estate Backed Loans
 
Real Estate Loan
 
Amerco Real Estate Company and certain of its subsidiaries and U-Haul Company of Florida are borrowers under a Real Estate Loan. The lender is Merrill Lynch Commercial Finance Corp. and has a final maturity date of August 2018. The loan is comprised of a term loan facility with initial availability of $300.0 million and a revolving credit facility with an availability of $200.0 million. As of December 31, 2007 the outstanding balance on the Real Estate Loan was $287.5 million, with no portion of the revolver drawn down. U-Haul International, Inc. is a guarantor of this loan.
 
The amortizing term portion of the Real Estate Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity.  The revolving credit portion of the Real Estate Loan requires monthly interest payments when drawn, with the unpaid loan balance and any accrued and unpaid interest due at maturity.  The Real Estate Loan is secured by various properties owned by the borrowers.
 
The interest rate, per the provisions of the amended Loan Agreement, is the applicable London Inter-Bank Offer Rate (“LIBOR”) plus the applicable margin. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.50%, the sum of which was 6.74%. The applicable margin ranges from 1.50% to 2.00%. The rate on the term facility portion of the loan is hedged with an interest rate swap fixing the rate at 6.93% based on current margin.
 
The default provisions of the Real Estate Loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.

7


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Senior Mortgages
 
Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under certain senior mortgages. The lenders for these senior mortgages are Merrill Lynch Mortgage Lending, Inc. and Morgan Stanley Mortgage Capital, Inc. These senior mortgages loan balances as of December 31, 2007 were in the aggregate amount of $458.2 million and are due July 2015. The Senior Mortgages require average monthly principal and interest payments of $3.0 million with the unpaid loan balance and accrued and unpaid interest due at maturity. These senior mortgages are secured by certain properties owned by the borrowers. The interest rates, per the provisions of these senior mortgages, are 5.68% per annum for the Merrill Lynch Mortgage Lending Agreement and 5.52% per annum for the Morgan Stanley Mortgage Capital Agreement. Amerco Real Estate Company and U-Haul International, Inc. have provided limited guarantees of these senior mortgages. The default provisions of these senior mortgages include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
Various subsidiaries of the Company are borrowers under the mortgage backed loans that we also classify as senior mortgages. These loans are secured by certain properties owned by the borrowers. The loan balance of these notes totals $59.1 million as of December 31, 2007. Maturity dates begin in 2009 with the majority maturing in 2015. Rates for these loans range from 5.19% to 5.75%. The loans require monthly principal and interest payments with the balances due upon maturity. The default provisions of the loans include non-payment of principal or interest and other standard reporting and change-in-control covenants. There are limited restrictions regarding our use of the funds.
 
Construction / Working Capital Loans
 
Amerco Real Estate Company and a subsidiary of U-Haul International, Inc. entered into a revolving credit construction loan with MidFirst Bank effective June 29, 2006. The maximum amount that can be drawn at any one time is $40.0 million.  The final maturity is June 2009. As of December 31, 2007 the outstanding balance was $21.7 million.
 
The Construction Loan requires monthly interest only payments with the principal and any accrued and unpaid interest due at maturity. The loan can be used to develop new or existing storage properties. The loan is secured by the properties being constructed. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. At December 31, 2007 the applicable LIBOR was 5.25% and the margin was 1.50%, the sum of which was 6.75%. U-Haul International, Inc. is a guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Amerco Real Estate Company is a borrower under an asset backed working capital loan. The lender is JP Morgan Chase Bank and the facility was originally in the amount of $20.0 million. The loan is secured by certain properties owned by the borrower. On September 5, 2007, the loan was amended to increase the availability to $35.0 million. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin of 1.50%. The loan agreement provides for revolving loans, subject to the terms of the loan agreement with final maturity in November 2008, subject to a one year extension. The loan requires monthly interest payments with the unpaid loan balance and accrued and unpaid interest due at maturity. U-Haul International, Inc. and AMERCO are the guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants. At December 31, 2007 the facility was fully available.
 
Fleet Loans
 
Rental Truck Amortizing Loans
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is Merrill Lynch Commercial Finance Corp. The Company’s outstanding balance at December 31, 2007 was $101.0 million and the final maturity is April 2012.

8


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The Merrill Lynch Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The Merrill Lynch Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.50% and 1.75%. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.75%, the sum of which was 6.99%. The interest rate is hedged with an interest rate swap fixing the rate at 6.81% based on the current margin. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is BTMU Capital Corporation (“BTMU”). The Company’s outstanding balance at December 31, 2007 was $113.4 million, and the final maturity is October 2012.
 
The BTMU Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The BTMU Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.25% and 1.75%. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.75%, the sum of which was 6.99%. The interest rate is hedged with an interest rate swap fixing the rate at 7.32% based on the current margin. AMERCO and U-Haul International, Inc. are guarantors of the loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is Bayerische Hypo-und Vereinsbank AG (“HVB”). The Company’s outstanding balance at December 31, 2007 was $33.7 million and its final maturity is July 2013.
 
The HVB Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The HVB Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 1.25% and 1.75%. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.75%, the sum of which was 6.99%. The interest rate is hedged with an interest rate swap fixing the rate at 7.42% based on the current margin. U-Haul International, Inc. is a guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lender is U.S. Bancorp Equipment Finance, Inc. (“U.S. Bank”). The Company’s outstanding balance at December 31, 2007 was $25.0 million and its final maturity is February 2014.
 
The U.S. Bank Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The U.S. Bank Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 0.900% and 1.125%. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.125%, the sum of which was 6.37%. The interest rate is hedged with an interest rate swap fixing the rate at 6.37% based on the current margin. AMERCO and U-Haul International, Inc. are guarantors of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under an amortizing term loan. The lenders are HSBC Bank US, NA and KBC Bank, NV (“HSBC/KBC”). The Company’s outstanding balance at December 31, 2007 was $34.0 million and its final maturity is March 2014.
 
The HSBC/KBC Rental Truck Amortizing Loan requires monthly principal and interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The HSBC/KBC Rental Truck Amortizing Loan was used to purchase new trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin between 0.900% and 1.125%. At December 31, 2007 the applicable LIBOR was 5.24% and the applicable margin was 1.125%, the sum of which was 6.37%. The interest rate is hedged with an interest rate swap fixing the rate at 6.11% based on the current margin. AMERCO is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.

9


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Rental Truck Securitizations
 
U-Haul S Fleet and its subsidiaries (collectively, “USF”) issued a $217.0 million asset-backed note (“Box-Truck Note”) and a $86.6 million asset-backed note (“Cargo Van/Pickup Note”) on June 1, 2007. USF is a bankruptcy-remote special purpose entity wholly-owned by U-Haul International, Inc. The net proceeds from these securitized transactions will be used to finance new box truck, cargo van and pickup truck purchases throughout fiscal 2008. U.S. Bank, NA acts as the trustee for this securitization.
 
The Box Truck Note has a fixed interest rate of 5.56% with an estimated final maturity of February 2014. At December 31, 2007 the outstanding balance was $206.9 million. $35.3 million remains in a prefunding account, available to acquire new box trucks through the end of fiscal 2008. The note is secured by the box trucks being purchased and operating cash flows associated with their operation. The unused portion of this facility has been recorded as “Other assets” on our balance sheet.
 
The Cargo Van/Pickup Note has a fixed interest rate of 5.40% with an estimated final maturity of May 2010. At December 31, 2007 the outstanding balance was $86.6 million. $7.7 million is available in a purchase account, available to acquire new cargo vans and pickup trucks. The note is secured by the cargo vans and pickup trucks being purchased and the operating cash flows associated with their operation. The unused portion of this facility has been recorded as “Other assets” on our balance sheet.
 
The Box Truck Note and Cargo Van/Pickup Note have the benefit of financial guaranty insurance policies through Ambac Assurance Corporation. These policies guarantee the timely payment of interest on and the ultimate payment of the principal of the notes.
 
The Box Truck Note and the Cargo Van/Pickup Note are subject to certain covenants with respect to liens, additional indebtedness of the special purpose entities, the disposition of assets and other customary covenants of bankruptcy-remote special purpose entities. The default provisions of the notes include non-payment of principal or interest and other standard reporting and change in control covenants.
 
Revolving Credit Agreement
 
U-Haul International, Inc. and several of its subsidiaries are borrowers under a revolving credit facility. The lender is Merrill Lynch Commercial Finance Corp. The maximum amount that can be drawn is $100.0 million with a final maturity of 2011. As of December 31, 2007, the facility was fully available.
 
The revolving credit agreement requires monthly interest payments, with the unpaid loan balance and accrued and unpaid interest due at maturity. The revolving credit agreement is secured by various older rental trucks. The interest rate, per the provision of the Loan Agreement, is the applicable LIBOR plus a margin. U-Haul International, Inc. is the guarantor of this loan. The default provisions of the loan include non-payment of principal or interest and other standard reporting and change-in-control covenants.
 
Annual Maturities of AMERCO Consolidated Notes and Loans Payable
 
The annual maturities of AMERCO consolidated long-term debt as of December 31, 2007 for the next five years and thereafter is as follows:
 
   
Year Ending December 31,
 
   
2008
   
2009
   
2010
   
2011
   
2012
   
Thereafter
 
   
(Unaudited)
 
   
(In thousands)
 
Notes payable, secured
  $ 112,948     $ 117,230     $ 155,710     $ 81,823     $ 133,027     $ 826,519  
 


10


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
4. Interest on Borrowings
 
Interest Expense
 
Expenses associated with loans outstanding were as follows:
 
   
Quarter Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $ 23,531     $ 20,531  
Capitalized interest
    (227 )     (150 )
Amortization of transaction costs
    1,451       787  
Interest income resulting from derivatives
    (14 )     (552 )
Total AMERCO interest expense
    24,741       20,616  
SAC Holding II interest expense
    1,070       3,265  
Less: Intercompany transactions
    584       1,750  
Total SAC Holding II interest expense
    486       1,515  
Total
  $ 25,227     $ 22,131  
 

   
Nine Months Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands)
 
Interest expense
  $ 71,027     $ 56,419  
Capitalized interest
    (832 )     (321 )
Amortization of transaction costs
    3,846       3,161  
Interest income resulting from derivatives
    (1,035 )     (2,153 )
Amortization of transaction costs related to early extinguishment of debt
    -       6,969  
Total AMERCO interest expense
    73,006       64,075  
SAC Holding II interest expense
    7,537       9,865  
Less: Intercompany transactions
    4,050       5,315  
Total SAC Holding II interest expense
    3,487       4,550  
Total
  $ 76,493     $ 68,625  
 

 
Interest paid in cash by AMERCO amounted to $22.6 million and $20.9 million for the third quarters of fiscal 2008 and 2007, respectively.
 
Interest paid in cash by AMERCO (excluding any fees from the early extinguishment of debt) amounted to $68.6 million and $54.1 million for the first nine months of fiscal 2008 and 2007, respectively.
 
The exposure to market risk for changes in interest rates relates primarily to our variable rate debt obligations. We have used interest rate swap and interest rate cap agreements to provide for matching the gain or loss recognition on the hedging instrument with the recognition of the changes in the cash flows associated with the hedged asset or liability attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. As of December 31, 2007, the Company had approximately $616.4 million of variable rate debt obligations of which all but $21.7 million had interest rate swap agreements associated with them for the purpose of mitigating interest rate risk.

11


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
On June 8, 2005, the Company entered into separate interest rate swap contracts for $100.0 million of our variable rate debt over a three year term and for $100.0 million of our variable rate debt over a five year term, which were designated as cash flow hedges effective July 1, 2005. These swap contracts were cancelled on August 16, 2006 in conjunction with our amendment of the Real Estate Loan and we entered into new interest rate swap contracts for $300.0 million of our variable rate debt over a twelve year term effective on August 18, 2006. On May 13, 2004, the Company entered into separate interest rate cap contracts for $200.0 million of our variable rate debt over a two year term and for $50.0 million of our variable rate debt over a three year term; however effective July 11, 2005 when the Real Estate Loan was paid down by $222.4 million the cash flow hedge designations for these contracts were removed. The $200.0 million interest rate cap contract expired on May 17, 2006 and the $50.0 million interest rate cap contract expired on May 17, 2007. On November 15, 2005, the Company entered into a forward starting interest rate swap contract for $142.3 million of a variable rate debt over a six year term that started on May 10, 2006. On June 21, 2006, the Company entered into a forward starting interest rate swap contract for $50.0 million of our variable rate debt over a seven year term that started on July 10, 2006. On June 9, 2006, the Company entered into a forward starting interest rate swap contract for $144.9 million of a variable rate debt over a six year term that started on October 10, 2006. On February 9, 2007, the Company entered into an interest rate swap contract for $30.0 million of our variable rate debt over a seven year term that started on February 12, 2007. On March 8, 2007, the Company entered into two separate interest rate swap contracts each for $20.0 million of our variable rate debt over a seven year term that started on March 10, 2007. These interest rate swap agreements were designated cash flow hedges on their effective dates.
 
For the periods presented all changes in the interest rate caps fair value (including changes in the option’s time value), are recorded to earnings.
 
The hedging relationship of the interest rate swap agreements is not considered to be perfectly effective.  Therefore, for each reporting period an effectiveness test is performed. For the portion of the change in the interest rate swaps fair value deemed effective, this is charged to accumulated other comprehensive income. The remaining ineffective portion is charged to interest expense for the period. For the nine months ended December 31, 2007 and December 31, 2006, the Company recorded interest income related to these swap agreements of $1.0 million and $2.2 million, respectively, all of which represented the ineffective component of the swaps that impacted earnings during the period.
 


12


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Interest Rates
 
Interest rates and Company borrowings were as follows:
 
   
Revolving Credit Activity
 
   
Quarter Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the quarter
    6.47 %     7.08 %
Interest rate at the end of the quarter
    6.75 %     7.10 %
Maximum amount outstanding during the quarter
  $ 41,700     $ 90,000  
Average amount outstanding during the quarter
  $ 35,830     $ 90,000  
Facility fees
  $ 192     $ 57  
 

   
Revolving Credit Activity
 
   
Nine Months Ended December 31,
 
   
2007
   
2006
 
   
(Unaudited)
 
   
(In thousands, except interest rates)
 
Weighted average interest rate during the first nine months
    6.58 %     6.97 %
Interest rate at the end of the first nine months
    6.75 %     7.10 %
Maximum amount outstanding during the first nine months
  $ 138,700     $ 90,000  
Average amount outstanding during the first nine months
  $ 78,576     $ 90,000  
Facility fees
  $ 326     $ 171  
 

 
5. Comprehensive Income (Loss)
 
A summary of the accumulated other comprehensive income (loss) components, net of tax, were as follows:
 
   
Foreign Currency Translation
   
Unrealized Gain (Loss) on Investments
   
Fair Market Value of Cash Flow Hedge
   
FASB Statement No. 158 Adjustment
   
Accumulated Other Comprehensive Income (Loss)
 
   
(Unaudited)
 
   
(In thousands)
 
Balance at March 31, 2007
  $ (36,166 )   $ (355 )   $ (5,105 )   $ (153 )   $ (41,779 )
Foreign currency translation
    12,430       -       -       -       12,430  
Unrealized gain on investments
    -       819       -       -       819  
Change in fair market value of cash flow hedge
    -       -       (12,287 )     -       (12,287 )
Balance at December 31, 2007
  $ (23,736 )   $ 464     $ (17,392 )   $ (153 )   $ (40,817 )
 

 
Total comprehensive income, net of taxes, for the nine months ended December 31, 2007 and 2006 were $82.8 million and $94.7 million, respectively.

13


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
6. Contingent Liabilities and Commitments
 
The Company leases a portion of its rental equipment and certain of its facilities under operating leases with terms that expire at various dates substantially through 2012, with the exception of one land lease expiring in 2034. At December 31, 2007, AMERCO has guaranteed $170.1 million of residual values for these rental equipment assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions. At the expiration of each equipment lease, the Company has the option to renew the lease, purchase the asset for fair market value, or sell the asset to a third party on behalf of the lessor. AMERCO has been leasing equipment since 1987 and has experienced no material losses relating to these types of residual value guarantees.
 
Lease commitments for leases having terms of more than one year were as follows:
 
   
Property,
Plant and
Equipment
   
Rental
Equipment
   
Total
 
   
(Unaudited)
 
         
(In thousands)
       
Year-ended December 31:
                 
2008
  $ 12,439     $ 112,448     $ 124,887  
2009
    12,065       99,548       111,613  
2010
    11,706       81,635       93,341  
2011
    11,564       64,115       75,679  
2012
    10,726       49,550       60,276  
Thereafter
    20,633       42,468       63,101  
Total
  $ 79,133     $ 449,764     $ 528,897  
 


14


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
7. Contingencies
 
Shoen
 
On September 24, 2002, Paul F. Shoen filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al., CV02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as defendants. AMERCO is named a nominal defendant for purposes of the derivative action. The complaint alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC Holdings prior to the filing of the complaint. The complaint seeks a declaration that such transfers are void as well as unspecified damages. On October 28, 2002, AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed Motions to Dismiss the complaint. In addition, on October 28, 2002, Ron Belec filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al., CV 02-06331 and on January 16, 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et al., CV 03-00386. Two additional derivative suits were also filed against these parties. These additional suits are substantially similar to the Paul F. Shoen derivative action. The five suits assert virtually identical claims. In fact, three of the five plaintiffs are parties who are working closely together and chose to file the same claims multiple times. These lawsuits alleged that the AMERCO Board lacked independence. The court consolidated all five complaints before dismissing them on May 28, 2003. 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. Plaintiffs appealed and, on July 13, 2006, the Nevada Supreme Court reviewed and remanded the claim to the trial court for proceedings consistent with its ruling, allowing the plaintiffs to file an amended complaint and plead in addition to substantive claims, demand futility. On November 8, 2006, the nominal plaintiffs filed an Amended Complaint. On December 22, 2006, the defendants filed Motions to Dismiss. Briefing was concluded on February 21, 2007. On March 29, 2007, the Court denied AMERCO’s motion to dismiss regarding the issue of demand futility. On March 30, 2007, the Court heard oral argument on the remainder of the Defendants’ Motions to Dismiss and requested supplemental briefing. The supplemental briefs were filed on May 14, 2007. In September and October of 2007, the defendants filed Motions For Judgment on the Pleadings or, In the Alternative, Summary Judgment. On December 14, 2007, Judge Adams denied AMERCO’s Motion for Judgment on the Pleadings stating that, due to allegations made by Plaintiff, judgment as a matter of law was not appropriate at this time.
 
Environmental
 
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management, that none of these suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss.
 
Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
 
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO’s financial position or operating results. Real Estate expects to spend approximately $7.6 million in total through 2011 to remediate these properties.

15


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Other
 
The Company is named as a defendant in various other litigation and claims arising out of the normal course of business. In management’s opinion none of these other matters will have a material effect on the Company’s financial condition and ongoing results of operations.
 
8. Related Party Transactions
 
AMERCO has engaged in related party transactions and has continuing related party interests with certain major stockholders, directors and officers of the consolidated group as disclosed below. Management believes that the transactions described below and in the related notes were consummated on terms equivalent to those that would prevail in arm’s-length transactions.
 
SAC Holdings was established in order to acquire self-storage properties. These properties are being managed by the Company pursuant to management agreements. The sale of self-storage properties by the Company to SAC Holdings has in the past provided significant cash flows to the Company.
 
Management believes that its sales of self-storage properties to SAC Holdings has provided a unique structure for the Company to earn moving equipment rental revenues and property management fee revenues from the SAC Holdings self-storage properties that the Company manages.
 
During the first nine months of fiscal 2008, subsidiaries of the Company held various junior unsecured notes of SAC Holdings. Substantially all of the equity interest of SAC Holdings is controlled by Blackwater. Blackwater is wholly-owned by Mark V. Shoen, a significant shareholder and executive officer of AMERCO. The Company does not have an equity ownership interest in SAC Holdings. The Company recorded interest income of $14.0 million and $14.6 million, and received cash interest payments of $14.9 million and $40.7 million, from SAC Holdings during the first nine months of fiscal 2008 and 2007, respectively.  The cash interest payments for the first nine months of fiscal 2007 included a payment to significantly reduce the outstanding interest receivable from SAC Holdings. The largest aggregate amount of notes receivable outstanding during the first nine months of fiscal 2008 was $203.7 million and the aggregate notes receivable balance at December 31, 2007 was $198.3 million. In accordance with the terms of these notes, SAC Holdings may repay the notes without penalty or premium.
 
Interest accrues on the outstanding principal balance of junior notes of SAC Holdings that the Company holds at a 9.0% rate per annum. A fixed portion of that basic interest is paid on a monthly basis. Additional interest can be earned on notes totaling $122.2 million of principal depending upon the amount of remaining basic interest and the cash flow generated by the underlying property. This amount is referred to as the “cash flow-based calculation.”
 
To the extent that this cash flow-based calculation exceeds the amount of remaining basic interest, contingent interest would be paid on the same monthly date as the fixed portion of basic interest. To the extent that the cash flow-based calculation is less than the amount of remaining basic interest, the additional interest payable on the applicable monthly date is limited to the amount of that cash flow-based calculation. In such a case, the excess of the remaining basic interest over the cash flow-based calculation is deferred. In addition, subject to certain contingencies, the junior notes provide that the holder of the note is entitled to receive a portion of the appreciation realized upon, among other things, the sale of such property by SAC Holdings. To date, no excess cash flows related to these arrangements have been earned or paid.
 
During the first nine months of fiscal 2008, AMERCO and U-Haul held various junior notes with Private Mini Storage Realty L.P. (“Private Mini”). The equity interests of Private Mini are ultimately controlled by Blackwater.  The Company recorded interest income of $3.8 million and $3.7 million during the first nine months of fiscal 2008 and 2007, and received cash interest payments of $3.7 million, from Private Mini during the first nine months of both fiscal 2008 and 2007, respectively. The balance of notes receivable from Private Mini at December 31, 2007 was $69.4 million. The largest aggregate amount outstanding during fiscal 2008 was $70.1 million.

16


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
The Company currently manages the self-storage properties owned or leased by SAC Holdings, Mercury Partners, L.P. (“Mercury”), Four SAC Self-Storage Corporation (“4 SAC”), Five SAC Self-Storage Corporation (“5 SAC”), Galaxy Investments, L.P. (“Galaxy”) and Private Mini pursuant to a standard form of management agreement, under which the Company receives a management fee of between 4% and 10% of the gross receipts plus reimbursement for certain expenses. The Company received management fees, exclusive of reimbursed expenses, of $19.4 million and $17.0 million from the above mentioned entities during the first nine months of fiscal 2008 and 2007, respectively. This management fee is consistent with the fee received for other properties the Company previously managed for third parties. SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini are substantially controlled by Blackwater. Mercury is substantially controlled by Mark V. Shoen. James P. Shoen, a significant shareholder and director of AMERCO, has an interest in Mercury.
 
The Company leases space for marketing company offices, vehicle repair shops and hitch installation centers from subsidiaries of SAC Holdings, 5 SAC and Galaxy. Total lease payments pursuant to such leases were $1.5 million and $2.0 million for the first nine months of fiscal 2008 and 2007, respectively. The terms of the leases are similar to the terms of leases for other properties owned by unrelated parties that are leased to the Company.
 
At December 31, 2007, subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini acted as U-Haul independent dealers. The financial and other terms of the dealership contracts with the aforementioned companies and their subsidiaries are substantially identical to the terms of those with the Company’s other independent dealers whereby commissions are paid by the Company based upon equipment rental revenues. For the first nine months of fiscal 2008 and 2007, the Company paid the above mentioned entities $28.7 million and $29.2 million, respectively in commissions pursuant to such dealership contracts.
 
These agreements and notes with subsidiaries of SAC Holdings, 4 SAC, 5 SAC, Galaxy and Private Mini, excluding Dealer Agreements, provided revenue of $30.2 million, expenses of $1.5 million and cash flows of $62.5 million during the first nine months of fiscal 2008. Revenues and commission expenses related to the Dealer Agreements were $135.1 million and $28.7 million, respectively.
 
In prior years, U-Haul sold various properties to SAC Holdings at prices in excess of U-Haul’s carrying values resulting in gains which U-Haul deferred and treated as additional paid-in capital. The transferred properties have historically been stated at the original cost basis as the gains were eliminated in consolidation. In March 2004, a portion of these deferred gains were recognized and treated as contributions from a related party in the amount of $111.0 million as a result of the deconsolidation of SAC Holding Corporation. In November 2007, the remaining portion of these deferred gains were recognized and treated as contributions from a related party in the amount of $46.1 million as a result of the deconsolidation of SAC Holding II Corporation.
 
On September 1, 2007, SAC Holding Corporation issued a promissory note to U-Haul. As part of the note, the Company reclassified $20.0 million of deferred interest due from SAC Holding Corporation to a note receivable. The note accrues interest at 9.0% per annum with interest payments due monthly and a final maturity in 2019.
 
During the second quarter of fiscal 2008, the Company received $20.1 million from SAC Holding Corporation as full repayment for one of its junior notes.

    In December 2007, Real Estate paid cash for the purchase of a parcel of bare land from 5 SAC for $0.5 million.

17


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Related Party Assets
 

   
December 31,
   
March 31,
 
   
2007
   
2007
 
   
(Unaudited)
       
   
(In thousands)
 
Private Mini notes, receivables and interest
  $ 73,184     $ 71,785  
Oxford note receivable from SAC Holding Corporation
    -       5,040  
U-Haul notes receivable from SAC Holding Corporation
    198,288       123,578  
U-Haul interest receivable from SAC Holding Corporation
    4,267       23,361  
U-Haul receivable from SAC Holding Corporation
    18,215       16,596  
U-Haul receivable from Mercury
    5,242       4,278  
Other
    36       541  
    $ 299,232     $ 245,179  
 

 
9. Consolidating Financial Information by Industry Segment
 
AMERCO has four reportable segments. They are Moving and Storage, Property and Casualty Insurance, Life Insurance and SAC Holding II. Management tracks revenues separately, but does not report any separate measure of the profitability for rental vehicles, rentals of self-storage spaces and sales of products that are required to be classified as a separate operating segment and accordingly does not present these as separate reportable segments. Deferred income taxes are shown as liabilities on the condensed consolidating statements.
 
The condensed consolidated balance sheet as of December 31, 2007 includes the accounts of AMERCO and its wholly-owned subsidiaries. The condensed consolidated balance sheet as of March 31, 2007 includes the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holding II. The related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2008 include the accounts of AMERCO and its wholly-owned subsidiaries and for SAC Holding II only through October 2007. The related condensed consolidated statements of operations for the third quarter and the first nine months and the cash flows for the first nine months ended fiscal 2007 include the accounts of AMERCO and its wholly-owned subsidiaries and for SAC Holding II. See the Description of Operating Segments following for additional information on SAC Holding II.
 
 
AMERCO’s four reportable segments are:
 
 
(a)
Moving and Storage, comprised of AMERCO, U-Haul, and Real Estate and the subsidiaries of U-Haul and Real Estate
 
 
(b)
Property and Casualty Insurance, comprised of RepWest and its wholly-owned subsidiaries
 
 
(c)
Life Insurance, comprised of Oxford and its wholly-owned subsidiaries
 
 
(d)
SAC Holding II and its subsidiaries (through October 2007)
 
The information includes elimination entries necessary to consolidate AMERCO, the parent, with its subsidiaries and SAC Holding II and its subsidiaries through October 2007.
 
Investments in subsidiaries are accounted for by the parent using the equity method of accounting.
 


18


AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
9. Financial Information by Consolidating Industry Segment:
 
Consolidating balance sheets by industry segment as of December 31, 2007 are as follows:
 
   
Moving & Storage
   
AMERCO Legal Group
 
   
AMERCO
   
U-Haul
   
Real Estate
   
Eliminations
     
Moving & Storage
Consolidated
   
Property & Casualty Insurance (a)
   
Life
Insurance (a)
   
Eliminations
     
AMERCO
Consolidated
 
   
(Unaudited)
 
   
(In thousands)
 
Assets:
     
Cash and cash equivalents
  $ 30     $ 190,393     $ 24     $ -       $ 190,447     $ 6,288     $ 6,988     $ -       $ 203,723  
Reinsurance recoverables and trade receivables, net
    -       17,742       27       -         17,769       151,271       10,808       -         179,848  
Notes and mortgage receivables, net
    -       1,209       779       -         1,988       -       -       -         1,988  
Inventories, net
    -       62,150       -       -         62,150       -       -       -         62,150  
Prepaid expenses
    -       39,479       134       -         39,613       -       -       -         39,613  
Investments, fixed maturities and marketable equities
    -       -       -       -         -       150,459       504,730       -         655,189  
Investments, other
    -       966       13,910       -         14,876       74,001       77,186       -         166,063  
Deferred policy acquisition costs, net
    -       -       -       -         -       45       38,402       -         38,447  
Other assets
    8       127,600       30,887       -         158,495       2,087       712       -         161,294  
Related party assets
    1,195,114       242,708       210       (1,133,486 )
(c)
    304,546       6,905       -       (12,219 )
(c)
    299,232  
      1,195,152       682,247       45,971       (1,133,486 )       789,884       391,056       638,826       (12,219 )       1,807,547  
                                                                             
Investment in subsidiaries
    (192,410 )     -       -       483,667  
(b)
    291,257       -       -       (291,257 )
(b)
    -  
                                                                             
Property, plant and equipment, at cost:
                                                                           
Land
    -       43,945       163,049       -         206,994       -       -       -         206,994  
Buildings and improvements
    -       125,199       724,316       -         849,515       -       -       -         849,515  
Furniture and equipment
    7,053       292,581       18,093       -         317,727       -       -       -         317,727  
Rental trailers and other rental equipment
    -       206,644       -       -         206,644       -       -       -         206,644  
Rental trucks
    -       1,716,853       -       -         1,716,853       -       -       -         1,716,853  
      7,053       2,385,222       905,458       -         3,297,733       -       -       -         3,297,733  
Less:  Accumulated depreciation
    (1,137 )     (1,009,715 )     (305,085 )     -         (1,315,937 )     -       -       -         (1,315,937 )
Total property, plant and equipment
    5,916       1,375,507       600,373       -         1,981,796       -       -       -         1,981,796  
Total assets
  $ 1,008,658     $ 2,057,754     $ 646,344     $ (649,819 )     $ 3,062,937     $ 391,056     $ 638,826     $ (303,476 )     $ 3,789,343  
                                                                             
(a)  Balances as of September 30, 2007
                                                                           
(b) Eliminate investment in subsidiaries
                                                                           
(c) Eliminate intercompany receivables and payables
                                                                     
 


19


 

AMERCO AND CONSOLIDATED ENTITIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Consolidating balance sheets by industry segment as of December 31, 2007 are as follows:
 
   
Moving & Storage
   
AMERCO Legal Group
 
   
AMERCO
   
U-Haul
   
Real Estate
   
Eliminations
     
Moving & Storage
Consolidated
   
Property & Casualty Insurance (a)
   
Life
Insurance (a)
   
Eliminations
     
AMERCO
Consolidated
 
   
(Unaudited)
 
   
(In thousands)
 
Liabilities:
                                                         
Accounts payable and accrued expenses
  $ 1,521     $ 256,794     $ 5,534     $ -       $ 263,849     $ -     $ 5,444     $ -       $ 269,293  
AMERCO's notes and loans payable
    -       649,359       777,898       -         1,427,257       -       -       -         1,427,257  
Policy benefits and losses, claims and loss expenses payable
    -       355,293       -       -         355,293       270,732       138,494       -         764,519  
Liabilities from investment contracts
    -       -       -       -         -       -       350,698       -         350,698  
Other policyholders' funds and liabilities
    -       -       -       -         -       8,157       2,318       -         10,475  
Deferred income
    -       9,547       -       -         9,547       -       -       -         9,547  
Deferred income taxes
    187,071       -       -       -         187,071       (37,893 )     (4,479 )     -         144,699  
Related party liabilities
    -       1,095,516       45,035       (1,133,486 )
(c)
    7,065       1,983       3,171       (12,219 )
(c)
    -  
Total liabilities
    188,592       2,366,509       828,467       (1,133,486 )       2,250,082       242,979       495,646       (12,219 )       2,976,488  
                                                                             
Stockholders' equity:
                                                                           
Series preferred stock:
                                                                           
Series A preferred stock
    -       -       -       -         -       -       -       -         -  
Series B preferred stock
    -       -       -       -         -       -       -       -         -  
Series A common stock
    -       -       -       -         -       -       -       -         -  
Common stock
    10,497       540       1       (541 )
(b)
    10,497       3,300       2,500       (5,800 )
(b)
    10,497  
Additional paid-in capital
    418,848       121,230       147,481       (268,711 )
(b)
    418,848       86,121       26,271       (112,392 )
(b)
    418,848  
Accumulated other comprehensive income (loss)
    (40,817 )     (41,282 )     -       41,282  
(b)
    (40,817 )     73       391       (464 )
(b)
    (40,817 )
Retained earnings (deficit)
    932,703       (382,032 )     (329,605 )     711,637  
(b)
    932,703       58,583       114,018       (172,601 )
(b)
    932,703  
Cost of common shares in treasury, net
    (501,165 )     -       -       -         (501,165 )     -       -       -         (501,165 )
Unearned employee stock  ownership plan shares
    -       (7,211 )     -       -         (7,211 )     -       -       -         (7,211 )
Total stockholders' equity (deficit)
    820,066       (308,755 )     (182,123 )     483,667         812,855       148,077       143,180       (291,257 )       812,855  
Total liabilities and stockholders' equity
  $ 1,008,658     $ 2,057,754     $ 646,344     $ (649,819 )     $ 3,062,937     $ 391,056     $ 638,826     $ (303,476 )     $ 3,789,343  
                                                                             
(a)  Balances as of September 30, 2007
                                                                           
(b) Eliminate investment in subsidiaries