U-Haul 2008 Annual Report Download - page 79

AMERCO AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Note 10: Interest on Borrowings
Interest Expense
Expense’ s associated with loans outstanding was as follows:
2008 2007 2006
Interest expense $ 92,997 $ 75,714 $ 61,285
Capitalized interest (996) (596) (151)
Amortization of transaction costs 5,287 3,960 3,871
Interest expense (income) resulting from derivatives 645 (2,669) (1,655)
Write-off of transactions costs related to
early extinguishment of debt - 6,969 14,384
Fees on early extinguishment of debt - - 21,243
Total AMERCO interest expense 97,933 83,378 98,977
SAC Holding II interest expense 7,537 13,062 12,840
Less: Intercompany transactions (4,050) (7,035) (6,709)
Total SAC Holding II interest expense 3,487 6,027 6,131
Total $ 101,420 $ 89,405 $ 105,108
Year Ended March 31,
(In thousands)
Interest paid in cash by AMERCO amounted to $89.8 million, $72.9 million and $59.8 million for fiscal 2008, 2007 and
2006, respectively. Early extinguishment fees paid in cash by AMERCO was $21.2 million in fiscal 2006.
The Company manages exposure to changes in market interest rates. The Company’ s use of derivative instruments is
limited to highly effective interest rate swaps to hedge the risk of changes in cash flows (future interest payments)
attributable to changes in LIBOR swap rates, the designated benchmark interest rate being hedged on certain of our
LIBOR-indexed variable-rate debt. The interest rate swaps effectively fix the Company’ s interest payments on certain
LIBOR-indexed variable-rate debt. The Company monitors its positions and the credit ratings of its counterparties and does
not anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading
purposes.
On June 8, 2005, the Company entered into separate interest rate swap agreements 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, that were designated as
cash flow hedges effective July 1, 2005. These swap agreements were cancelled on August 18, 2006 in conjunction with
our amendment of the Real Estate Loan and we entered into a new interest rate swap agreement for $300.0 million of our
variable-rate debt over a twelve-year term effective on August 18, 2006. As of August 18, 2006, a net gain of
approximately $6.0 million related to the two cancelled swaps was included in other comprehensive income (loss). As the
variable-rate debt was replaced, it is probable that the original forecasted transaction (future interest payments) will
continue to occur. Therefore the net derivative gain related to the two cancelled swaps shall continue to be reported in other
comprehensive income and be reclassified into earnings when the original forecasted transaction affects earnings consistent
with the term of the original designated hedging relationship. For the year ended March 31, 2008, the Company reclassified
$2.1 million of the net derivative gain to interest income. The Company estimates that $1.3 million of the existing net gains
will be reclassified into earnings within the next 12 months.
On November 15, 2005, the Company entered into a forward starting interest rate swap agreement for $142.3 million of
our variable-rate debt over a six-year term that became effective on May 10, 2006. This swap was designated as a cash flow
hedge effective May 31, 2006.
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