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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K-Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1998
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission Registrant, State of Incorporation I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
0-7862 AMERCO 88-0106815
(A Nevada Corporation)
1325 Airmotive Way, Suite 100
Reno, Nevada 89502-3239
Telephone (702) 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:
Name of Each Exchange
Registrant Title of Class on Which Registered
- ---------- -------------- ---------------------
AMERCO Series A 8 1/2% New York Stock Exchange
Preferred Stock
U-Haul International, Inc. None
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Class
---------- --------------
AMERCO Common
U-Haul International, Inc. None
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 X 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. [ ]
22,614,087 shares of AMERCO Common Stock, $0.25 par value, were
outstanding at June 29, 1998. The aggregate market value of AMERCO
Common Stock held by non-affiliates (i.e., stock held by persons other
than officers and directors of AMERCO or those persons who are parties
to a stockholder agreement relating to 13,975,862 shares of AMERCO
Common Stock, was $259,146,750. The aggregate market value was
computed using the closing price for the Common Stock trading on
Nasdaq on June 22, 1998.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01
par value, were outstanding at June 29, 1998. None of these shares
were held by non-affiliates. U-Haul International, Inc. meets the
conditions set forth in General Instructions (I)(1)(a) and (b) of Form
10-K and is therefore filing this Form with the reduced disclosure
format.
Portions of AMERCO's Proxy Statement relating to its
Annual Meeting of Stockholders to be held on August 28, 1998, are
incorporated by reference in Part III hereof.
2
TABLE OF CONTENTS
PAGE NO.
PART I
ITEM 1. BUSINESS...................................... 3
A. THE COMPANY.............................. 3
B. HISTORY.................................. 3
C. MOVING AND STORAGE OPERATIONS............ 3
D. INSURANCE OPERATIONS..................... 6
ITEM 2. PROPERTIES.................................... 11
ITEM 3. LEGAL PROCEEDINGS............................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.............................. 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS............... 12
ITEM 6. SELECTED FINANCIAL DATA....................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.......................................... 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE ................................... 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANTS............................... 26
ITEM 11. EXECUTIVE COMPENSATION........................ 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................... 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................. 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K............. 27
3
PART I
ITEM 1. BUSINESS
A. THE COMPANY
AMERCO, a Nevada corporation (AMERCO or Company), is the
holding company for U-Haul International, Inc. (U-Haul), Amerco
Real Estate Company (AREC), Republic Western Insurance Company
(RWIC) and Oxford Life Insurance Company (Oxford). Throughout this
Form 10-K, unless the context otherwise requires, the term
"Company" includes all of the Company's subsidiaries. The
Company's principal executive offices are located at 1325 Airmotive
Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number
of the Company is (702) 688-6300. As used in this Form 10-K, all
references to a fiscal year refer to the Company's fiscal year
ended March 31 of that year. RWIC and Oxford have been
consolidated on the basis of calendar years ended December 31.
Accordingly, all references to the years 1997, 1996 and 1995
correspond to the Company's fiscal years 1998, 1997 and 1996,
respectively. The Company's three primary industry segments are
represented by Moving and Storage Operations (U-Haul and AREC),
Property and Casualty Insurance (RWIC) and Life Insurance (Oxford).
See Note 20 of Notes to Consolidated Financial Statements in Item 8
for financial information regarding the industry segments.
Moving and Storage Operations
Moving and self-storage operations consist of the rental of
trucks, automobile-type trailers and self-storage space to the
do-it-yourself mover under the registered tradename
U-Haul throughout the United States and Canada.
AREC owns approximately 90% of the Company's real estate
assets, including the Company's U-Haul Center and Storage
locations.
Property and Casualty Insurance
RWIC originates and reinsures property and casualty-type
insurance products for various market participants, including
independent third parties, the Company's customers and the Company.
Life Insurance
Oxford originates and reinsures life, health and annuity-type
insurance products and administers the Company's self-insured
employee health and dental plans.
On November 21, 1997, Oxford purchased all of the issued and
outstanding shares of Encore Financial, Inc. and its subsidiaries
(Encore). Encore's primary subsidiary is North American Insurance
Company (NAI) (domiciled in Wisconsin), its premium volume is
primarily derived from the sale of credit life and disability
products. NAI's subsidiary, North American Fire & Casualty
Insurance Company is a property and casualty company domiciled in
Louisiana. On November 24, 1997, Oxford purchased all of the
issued and outstanding shares of Safe Mate Life Insurance Company
(domiciled in Texas), its premium volume is derived from the sale
of credit life and disability products.
B. HISTORY
The Company was founded in 1945 under the name "U-Haul Trailer
Rental Company". From 1945 to 1974, the Company rented trailers
and, starting in 1959, trucks on a one-way and
In-Town basis through independent dealers.
Since 1974, the Company has developed a network of Company-owned
rental centers (U-Haul Centers) through which U-Haul rents its trucks
and trailers and provides related products and services
(e.g., the sale and installation of hitches, as well as the sale of
boxes and moving supplies). At March 31, 1998, the Company's distribution
network included 1,200 U-Haul Centers and 14,500 independent dealers.
C. MOVING AND STORAGE OPERATIONS
Business Strategies
The Company's present business strategy remains focused on do-
it-yourself moving and self-storage customers. The Company
believes that customer access, in terms of truck or trailer
availability and proximity of rental locations, is critical to its
success. Under the U-Haul name, this strategy is to offer, in an
integrated manner over an extensive and geographically diverse
network of 15,700 Company-owned Centers and independent dealers, a
wide range of products and services to do-it-yourself moving and
self-storage customers.
4
Moving Operations
U-Haul has a variety of product offerings. Rental trucks have
been designed with do-it-yourself customers in mind, and may
include features such as Low Decks, air
conditioning, power steering, automatic transmissions,
Gentle-Ride Suspensions, AM/FM cassette stereo
systems and over-the-cab storage. Aerodynamically designed U-Haul
trailers are suited to the low profile of many newly manufactured
automobiles. As of March 31, 1998, the U-Haul rental equipment fleet
consisted of 90,000 trucks, 83,000 trailers and 16,000 tow dollies.
Additionally, the Company provides support rental items such
as furniture pads, hand trucks, Appliance Dollies
TRADEMARK>, Utility Dollies, mirrors,
tow bars, tow dollies and bumper hitches. The
Company also sells boxes, tape and packaging materials, and rents
additional items such as floor polishers and carpet cleaning
equipment at its U-Haul Center locations. U-Haul Centers also sell
and install hitches and towing systems, and sell propane.
U-Haul offers protection packages such as (i)
"Safemove", which provides moving customers
with a damage waiver, cargo protection and medical and life
coverage and (ii) "Safestor", which provides
self-storage rental customers with various types of protection for
their goods in storage.
Independent dealers receive U-Haul equipment on a consignment
basis and are paid a commission on gross revenues generated from
their rentals. The Company maintains contracts with its independent
dealers that typically may be canceled upon 30 days written notice
by either party.
A high percentage of the Company's rental revenue is derived
from do-it-yourself movers. Moving rentals include: (i)
In-Town rentals, where the equipment is returned
to the originating U-Haul location and (ii) one-way rentals, where the
equipment is returned to a U-Haul location in another city.
The U-Haul truck and trailer rental business tends to be
seasonal, with proportionally more transactions and revenues
generated in the spring and summer months than during the balance
of the year.
The Company designs and manufactures its truck van boxes,
trailers and various other support rental equipment items. The
Company's equipment is designed to achieve high safety standards,
simplicity of operation, reliability, convenience, durability and
fuel economy. Truck chassis are manufactured by both foreign and
domestic truck manufacturers. These chassis receive certain post-
delivery modifications and are joined with van boxes at seven
Company-owned manufacturing and assembly facilities in the United
States.
The Company services and maintains its trucks and trailers
through an extensive preventive-maintenance program, generally
performed at Company-owned facilities located at or near U-Haul
Centers. Major repairs are performed either by the chassis
manufacturers' dealers or by Company-owned repair shops, and the
Company takes advantage of manufacturers' warranties.
Self-Storage Business
U-Haul entered the self-storage business in 1974 and since
then has increased the rentable square footage of its storage
locations through the acquisition of existing facilities and new
construction. In addition, the Company has entered into management
agreements to manage self-storage properties owned by others. The
Company has also entered into a strategic and financial partnership
with Private Mini Storage Realty, L.P., a Texas-based operator of
45 self-storage properties.
Through over 800 Company-owned or managed storage locations in
the United States and Canada, the Company offers for rent more than
26.1 million square feet of self-storage space. The Company's self-
storage facility locations range in size up to 149,000 square feet
of storage space, with individual storage spaces in sizes from 16
square feet to 400 square feet or larger.
The primary market for storage rooms is the storage of
household goods. With the addition of over 8,900 storage rooms
during fiscal 1998, average occupancy rates were 83.0%, with modest
seasonal variation. During fiscal 1998 and fiscal 1997, delinquent
rentals as a percentage of total storage rentals were approximately
6% in each year. The Company considers this rate to be
satisfactory.
5
Competition
The do-it-yourself moving truck and trailer rental market is
highly competitive and dominated by national operators in both the
In-Town and one-way markets. During the past
year, two major competitors combined. Budget Rent-A-Car acquired
TRS (Ryder Truck Rentals) as a subsidiary. Management believes that
there are two distinct users of rental trucks: commercial users and
do-it-yourself users. As noted above, the Company focuses on the
do-it-yourself mover. The Company believes that the principal
competitive factors are convenience of rental locations,
availability of quality rental equipment and price.
The self-storage industry is highly competitive. The top
three national firms, including the Company, Public Storage and
Storage USA, account for only 11% of total industry square footage.
Convenience, customer service and price are the key competitive
factors. Efficient management of occupancy, delinquency and
expenses are the key profitability factors.
Employees
For the period ended March 31, 1998, the Company's non-
seasonal work force consisted of 14,000 employees.
Amerco Real Estate Operations
AREC has responsibility for actively marketing properties
available for sale or lease. AREC is also responsible for managing
any environmental risks associated with the Company's real estate.
Environmental Matters
The environment is protected by many federal, state and local
laws. Environmental laws impact the way the Company stores and
disposes of various petroleum products (including gasoline, fuel
oil and waste oil), tires, batteries and other materials used in
the rental, maintenance and manufacturing of its rental fleets.
Since fiscal 1990, the Company has incurred environmental-related
expenditures of approximately $37.0 million primarily for removal
and disposal fees and remediation of over 3,000 underground storage
tanks. There are approximately 200 underground storage tanks
remaining.
The Company has been named as a "potentially responsible party"
with respect to disposal of hazardous waste at 16 federal and two
state superfund sites located in 14 states. The Company has entered
into settlements for 15 of the sites for de minimus amounts. One of
these sites has been disputed by the Company with no response for
over five years, a second is in dispute over statute of limitations
restrictions and a third is too recent to be assessed.
A subsidiary of U-Haul owns one property located within two
different state hazardous substance sites in the State of
Washington. The property is located in Yakima, Washington and is
believed to contain elevated levels of pesticide and other
contaminants as a result of onsite operations conducted by one or
more former owners. The State of Washington has designated the
property as a state hazardous substance site known as the "Yakima
Valley Spray Site", and has named the subsidiary, U-Haul Co. of
Inland Northwest (Inland Northwest) as a "potentially liable party"
(PLP) under state law with respect to this site. An enforcement
order has been issued to Inland Northwest to conduct a remedial
investigation and feasibility study (RI/FS) of the site. While the
state has not, as yet, named any other PLPs at this site, several
other parties are participating in the RI/FS as the result of
litigation brought by Inland Northwest. This RI/FS group retained
an environmental consultant to perform the work and the RI/FS
consultant costs are being shared with Inland Northwest paying 20%
of the costs. The state has accepted the RI, but the FS has not
been completed due to the disputes over the determination of
cleanup levels for the site. The state has indicated that, because
it wants actual remediation to begin at the site in 1998, it plans
on issuing an enforcement order to Inland Northwest concerning the
conduct of remediation even though the FS has not been completed.
No agreement has been negotiated, as of this time, between Inland
Northwest and other parties with respect to allocation of costs of
remediation or of the state's oversight costs at this site. The
process of site assessment and cleanup at the Yakima Valley Spray
Site is ongoing and, based upon the information currently
available, Inland Northwest is unable to reasonably assess the
potential future costs, but the costs could be substantial.
6
In addition, Inland Northwest has been named by the State of
Washington as a PLP along with over 100 other PLPs with respect to
another state-listed hazardous substance site known as the "Yakima
Railroad Area". The Yakima Valley Spray Site is located within the
Yakima Railroad Area. Inland Northwest has been notified that the
Yakima Railroad Site involves potential groundwater contamination
in an area of approximately two square miles. Inland Northwest has
contested its designation as a PLP at this site, but, at the date
hereof, no formal ruling has been issued in this matter.
In February 1992, the State of Washington issued an
enforcement order to Inland Northwest and eight other parties
requiring an interim remedial action and the provision of bottled
water to households that obtain drinking water from wells within
the Yakima Railroad Area. Without conceding any liability, Inland
Northwest and several of the other PLPs implemented a bottled water
program. Over the past five years, Inland Northwest has incurred
an average annual expense of $720 for the bottled water program.
Utilizing grants of approximately $6.0 million from the Washington
Department of Ecology (WDOE), the local governments have expanded
the existing municipal water system throughout the Yakima Railroad
Area and have connected many of the residences receiving bottled
water to the municipal water supply. WDOE has reserved its rights
concerning recovery of the funds for the municipal water system
expansion.
In addition, WDOE is conducting additional investigations of
the scope and extent of contamination within the Yakima Railroad
Area. One facet of this involves the sampling of all existing
monitoring wells within the area, including those at the Yakima
Valley Spray Site. WDOE issued an enforcement order to Inland
Northwest regarding such additional sampling. The Company expects
there will be costs associated with remedial measures to address
the regional groundwater contamination issue. The process of site
assessment on the Yakima Railroad Area is ongoing and, based upon
the information currently available to Inland Northwest, Inland
Northwest is unable to reasonably assess the potential
investigation and clean-up costs, but the costs could be
substantial. Moreover, the investigative and remedial costs
incurred by the State can be imposed upon Inland Northwest and any
other PLP as a joint and several liability. At the date of this
report, other than the imposition of the bottled water program and
ordering of site-specific actions at individual properties within
the Yakima Railroad Area, there has been no formal indication from
the State of Washington of its intentions regarding future cost
recoveries at the Yakima Railroad Area.
Based upon the information currently available to the Company,
compliance with the environmental laws and its share of
investigation and cleanup costs of the hazardous waste sites, the
Company is not expecting to incur losses with respect to the sites
that would have a material adverse effect on the Company's
financial position or operating results.
D. INSURANCE OPERATIONS
Business Strategies
RWIC's principal business strategy is to provide specialty
personal and commercial insurance and reinsurance products and
services. RWIC focuses on selected regional and under-served
markets in predominantly non-urban areas. RWIC keeps distribution
expenses low by using a network of independent agents and brokers
working directly with underwriters in the home office. RWIC also
capitalizes on its knowledge of moving and rental markets. This
knowledge was gained through its years of insuring U-Haul and its
customers. RWIC provides insurance products to rental equipment
stores, self-storage facilities and rental vehicle operators.
These products include Commercial Multi-Peril lines, Business
Owners Programs, Commercial Auto and Umbrella Liability.
Oxford's business strategy is long-term capital growth through
direct writing of annuity, credit and accident and health products.
In the past, Oxford experienced significant growth by selectively
reinsuring certain life and annuity products. Currently, Oxford is
pursuing a growth strategy of increased direct writing via
acquisitions, expanded distribution channels and product
enhancement and diversity. The acquisition of North American
Insurance Company and Safe Mate Life Insurance Company in 1997
represents a significant movement toward this long-term goal.
Through these acquisitions, Oxford obtained significant
distribution channels and administrative capabilities.
7
Property and Casualty
RWIC's underwriting activities consist of three basic areas:
U-Haul and U-Haul-affiliated underwriting, direct underwriting and
assumed reinsurance underwriting. U-Haul underwritings include
coverage for U-Haul and U-Haul employees and U-Haul-affiliated
underwritings consist primarily of coverage for U-Haul customers.
For the year ended December 31, 1997, approximately 39.7% of RWIC's
written premiums resulted from U-Haul and U-Haul-affiliated
underwriting activities. RWIC's direct underwriting is done
through company-employed underwriters and selected general agents.
The products provided include liability coverage for rental vehicle
lessees, storage rental properties and coverage for commercial
multiple peril and excess workers' compensation. RWIC's assumed
reinsurance underwriting is done via broker markets.
RWIC's liability for unpaid losses is based on estimates of
the ultimate cost of settling claims reported prior to the end of
the accounting period, estimates of reinsurers and estimates of
incurred but not reported losses which are based on RWIC's
experience and insurance industry historical experience. Unpaid
loss adjustment expenses are based on historical ratios of loss
adjustment expenses paid to losses paid.
The liability for unpaid claims and unpaid claims expenses
represents estimates of the amount necessary to settle all claims
as of the statement date. Both unreported claims and incurred but
not reported claims are included in the liability. RWIC updates
the liability estimate as additional facts regarding claim costs
become available. These estimates are subject to uncertainty and
variation due to numerous factors including, but not limited to,
court decisions, economic conditions and public attitudes. In
estimating reserves, no attempt is made to isolate inflation from
the combined effect of other factors including inflation. Unpaid
losses and unpaid loss expenses are not discounted.
RWIC's unpaid loss and loss expenses are certified annually by
an independent actuarial consulting firm as required by state
regulation.
Activity in the liability for unpaid claims and claim
adjustment expenses is summarized as follows:
1997 1996 1995
---------------------------
(in thousands)
Balance at January 1 $ 332,674 341,981 329,741
Less reinsurance recoverable 60,319 73,873 74,663
---------------------------
Net balance at January 1 272,355 268,108 255,078
Incurred related to:
Current year 132,291 112,394 114,110
Prior years 23,192 11,527 8,292
---------------------------
Total incurred 155,483 123,921 122,402
Paid related to:
Current year 28,972 30,633 22,576
Prior years 89,336 89,041 86,796
---------------------------
Total paid 118,308 119,674 109,372
Net balance at December 31 309,530 272,355 268,108
Plus reinsurance recoverable 75,286 60,319 73,873
---------------------------
Balance at December 31 $ 384,816 332,674 341,981
===========================
As a result of changes in estimates of insured events in prior
years, the provision for unpaid loss and loss adjustment expenses
(net of reinsurance recoveries of $35.2 million) increased by $23.2
million in 1997 due to higher than anticipated losses and related
expenses for claims associated with assumed reinsurance and certain
other business written on a direct basis.
The table on page 10 illustrates the change in unpaid loss and
loss adjustment expenses. The first line shows the reserves as
originally reported at the end of the stated year. The second
section, reading down, shows the cumulative amounts paid as of the
end of successive years with respect to that reserve. The third
section, reading down, shows 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 summed.
8
The operating results of the property and casualty insurance
industry, including RWIC, are subject to significant fluctuations.
Factors which may influence this include premium rate competition,
catastrophic and unpredictable events (including man-made and
natural disasters), general economic and social conditions,
interest rates, investment returns, changes in tax laws, regulatory
developments and the ability to accurately estimate liabilities for
unpaid losses and loss adjustment expenses. Additionally, there
may be other unforeseen events that affect the profitability of
property and casualty insurance companies.
Life Insurance
Oxford underwrites life, health and annuity insurance, both as
a direct writer and as an assuming reinsurer. Oxford's direct
writings principally related to the underwriting of credit life and
disability insurance accounted for 18.3% of Oxford's premiums for
the year ended December 31, 1997. Oxford's other direct lines are
related to group life and disability coverage issued to employees
of the Company accounted for 8.8% of Oxford's premiums for the year
ended December 31, 1997. In addition, Oxford administers the
Company's self-insured group health and dental plans. Oxford's
reinsurance assumed lines accounted for 56.2% of premiums for the
year ended December 31, 1997, include individual life insurance,
annuities, credit life and disability insurance. These reinsurance
arrangements are entered into with unaffiliated reinsurers. Prior
to 1997, direct premiums included travel accident products
reinsured from RWIC.
Oxford's subsidiaries, North American Insurance Company and
Safe Mate Life Insurance Company, underwrite credit life and
disability insurance. Premiums from these subsidiaries are
included in Oxford's premiums from the acquisition dates through
December 31, 1997 and account for 16.7% of Oxford's premiums.
Investments
The Company's insurance operations investments must comply
with the insurance laws of the State of domicile. These laws
prescribe the type, quality and concentration of investments that
may be made. Moreover, in order to be considered an acceptable
reinsurer by cedents and intermediaries, a reinsurer must offer
financial security. The quality and liquidity of invested assets
are important considerations in determining such security.
The investment philosophies of RWIC and Oxford emphasize
protection of principal through the purchase of investment grade
fixed-income securities. Approximately 94% of RWIC's and 97% of
Oxford's fixed-income securities consist of investment grade
securities. The maturity distributions are designed to provide
sufficient liquidity to meet future cash needs.
Reinsurance
The Company's insurance operations assume and cede insurance
from and to other insurers and members of various reinsurance pools
and associations. Reinsurance arrangements are utilized to provide
greater diversification of risk and to minimize exposure on large
risks. However, the original insurer retains primary liability to
the policyholder should the assuming insurer not be able to meet
its obligations under the reinsurance agreements.
Regulation
The Company's insurance operations are subject to
comprehensive regulation throughout the United States. The
regulation extends to such matters as licensing companies and
agents, restricting the types, quality or quantity of investments,
regulating capital and surplus and actuarial reserve maintenance,
setting solvency standards, filing of annual and other reports on
financial position, and regulating trade practices. State laws
also regulate transactions and dividends between an insurance
company and its parent or affiliates, and generally require prior
approval or notification for any change in control of the insurance
subsidiary.
In the past few years, the insurance and reinsurance
regulatory framework has been subjected to increased scrutiny by
the National Association of Insurance Commissioners (the NAIC),
state legislatures, insurance regulators and the United States
Congress. These regulators are considering increased regulations,
with an emphasis on insurance company investment and solvency
issues. Legislation has been introduced in Congress that could
result in the federal government assuming some role in the
regulation of the insurance industry. It is not possible to
predict the future impact of changing state and federal regulation
on the operations of RWIC and Oxford.
RWIC and Oxford have adopted the NAIC minimum risk-based
capitalization (RBC) requirements for insurance companies. As of
December 31, 1997, RWIC and Oxford are in compliance with these
requirements. NAI is also in compliance with the NAIC RBC
requirements but triggered a State of Wisconsin RBC Company Action
Level Event. Oxford intends to cure the non-compliance by
9
December 31, 1998 through improved operating performance and/or capital
restructuring. The Company Action Level Event has no impact on the
Company's financial position or results of operations.
Competition
The highly competitive insurance industry includes a large
number of property and casualty insurance companies and life
insurance companies. Some of the insurance companies are owned by
stockholders and others are owned by policyholders (mutual). Many
competitors have been in business for a longer period of time or
possess substantially greater financial resources. Competition in
the insurance business is based upon price, product design and
services rendered to producers and policyholders.
10
Unpaid Loss and Loss Adjustment Expenses
December 31
- ---------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Unpaid Loss and Loss
Adjustment Expenses: $168,688 199,380 207,939 226,324 236,019 238,762 314,482 329,741 341,981 332,674 384,816
Paid (Cumulative)
as of:
One year later 49,681 59,111 50,992 55,128 65,532 83,923 70,382 86,796 89,041 89,336
Two years later 91,597 89,850 87,850 97,014 105,432 123,310 115,467 139,247 150,001
Three years later 110,834 114,979 116,043 120,994 126,390 153,030 146,640 173,787
Four years later 129,261 133,466 132,703 133,338 143,433 173,841 166,068
Five years later 142,618 145,864 142,159 144,764 153,730 181,677
Six years later 152,579 153,705 151,227 152,424 160,875
Seven years later 158,531 161,498 158,043 157,979
Eight years later 165,021 167,224 162,038
Nine years later 170,411 170,749
Ten years later 173,978
Reserve Reestimated
as of:
One year later 187,663 200,888 206,701 229,447 231,779 251,450 321,058 338,033 353,508 354,776
Two years later 190,715 202,687 206,219 221,450 224,783 254,532 323,368 340,732 369,852
Three years later 194,280 203,343 199,925 211,998 223,403 253,844 309,936 349,459
Four years later 195,917 199,304 198,986 207,642 214,854 231,536 317,687
Five years later 195,203 200,050 197,890 200,629 198,320 239,888
Six years later 196,176 198,001 194,601 189,601 210,872
Seven years later 196,770 197,112 189,175 200,556
Eight years later 196,072 195,522 199,075
Nine years later 196,169 204,442
Ten years later 205,135
Cumulative Redundancy
(Deficiency) $(36,447) (5,062) 8,864 25,768 25,147 (1,126) (3,205) (19,718) (27,871) (22,102)
Retro Premium
Recoverable $ (1,168) - 10 - 3,140 2,226 (105) 13,956 13,582 19,880
Reestimated Reserve:
Amount (Cumulative) $(37,615) (5,062) 8,874 25,768 28,287 1,100 (3,310) (5,762) (14,289) (2,222)
11
ITEM 2. PROPERTIES
The Company and its subsidiaries own property, plant and equipment
that are utilized in the manufacture, repair and rental of U-Haul equipment
and that provide offices for the Company. Such facilities exist throughout
the United States and Canada. The majority of land and buildings used by
U-Haul is owned in fee and is substantially unencumbered. U-Haul also
manages storage facilities owned by others. In addition, U-Haul owns
certain real estate not currently used in its operations. U-Haul operates
1,200 U-Haul Centers (including Company-owned storage locations), manages
145 storage centers and operates 12 manufacturing and assembly facilities.
The Company also operates 125 repair facilities located at or near a U-Haul
Center.
ITEM 3. LEGAL PROCEEDINGS
See Note 14 of Notes to Consolidated Financial Statements in Item 8
for disclosure of the action in the Superior Court of the State of Arizona,
Maricopa County, entitled Samuel W. Shoen, M.D., et al. v. Edward J. Shoen,
-------------------------------------------------
et al., No. CV88-20139, instituted August 2, 1988 and the resulting
- -------
bankruptcy proceedings (the "Shoen Litigation").
On September 7, 1995, Paul F. Shoen, major stockholder of the Company
and a director, filed a complaint in the Ninth Judicial District Court of
the State of Nevada, Douglas County, entitled Paul F. Shoen v. AMERCO, Case
-----------------------
No. 95-CV-0227. The complaint, as amended on March 9, 1998, alleges that
by failing to reimburse him for expenses, including attorneys' fees and
other charges, incurred by him in the Shoen Litigation and the subsequent
bankruptcy proceedings, the Company breached his indemnification agreement
with the Company. Mr. Shoen alleges that the Company has caused damages of
no less than $297,183 as of September 7, 1995, and seeks additional amounts
to be alleged at trial. The Company has denied the allegations and
believes it has valid defenses against his claims. Paul F. Shoen filed a
motion for partial summary judgment on November 15, 1995, and the Company
filed an opposition and cross-motion for partial summary judgment on
December 11, 1995. This matter was heard on November 12, 1996, and both
motions were denied.
In the normal course of business, the Company is a defendant in a
number of suits and claims. The Company is also a party to several
administrative proceedings arising from state and local provisions that
regulate the removal and/or clean-up of underground fuel storage tanks. It
is the opinion of management that none of the suits, claims or proceedings
involving the Company, individually or in the aggregate, are expected to
result in a material loss. See "Item 1. Business - Environmental
Matters".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the
fourth quarter of the fiscal year covered by this report, through the
solicitation of proxies or otherwise.
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of June 26, 1998, there were approximately 4,500 holders of record
of the Company's Common Stock.
The Company's Common Stock has been traded on Nasdaq National Market
(Nasdaq) since November 1994 under the symbol "UHAL". The following table
sets forth the high and low closing prices of the common stock of AMERCO
trading on Nasdaq for the periods indicated.
For the Years Ended March 31,
---------------------------------------------
1998 1997
---------------------------------------------
High Low High Low
---------------------------------------------
First quarter 32 23 1/2 28 1/4 19 1/2
Second quarter 31 7/8 26 1/2 41 21 1/2
Third quarter 35 7/8 24 1/2 48 1/2 33 1/2
Fourth quarter 31 24 1/4 38 1/2 24 1/2
The Company has not declared any cash dividends to common stockholders
for the two most recent fiscal years.
The Company does not have a formal dividend policy. The Company's
Board of Directors periodically considers the advisability of declaring and
paying dividends in light of existing circumstances. See Note 19 of Notes
to Consolidated Financial Statements in Item 8 for a discussion of certain
statutory restrictions on the ability of the Company's insurance
subsidiaries to pay dividends to the Company.
See Note 15 of Notes to Consolidated Financial Statements in Item 8
for a discussion of the Company's non-cash dividends. See Note 6 of Notes
to Consolidated Financial Statements in Item 8 for a discussion of changes
to common shares outstanding.
The common stock of U-Haul is wholly-owned by the Company. As a
result, no active trading market exists for the purchase and sale of such
common stock. No cash dividends were declared to the Company by U-Haul
during the two most recent fiscal years.
13
AMERCO AND CONSOLIDATED SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended March 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
(in thousands, except per share data and ratios)
Summary of Operations:
Rental and net sales $ 1,195,634 1,146,751 1,107,782 1,067,916 972,930
Premiums and net investment income 214,308 213,024 200,238 177,733 162,151
---------- --------- --------- --------- ---------
1,409,942 1,359,775 1,308,020 1,245,649 1,135,081
---------- --------- --------- --------- ---------
Operating expenses
and cost of sales (4) (9) 991,365 964,300 902,673 785,358 724,082
Benefits, losses and amortization of
deferred acquisition costs 208,607 194,768 174,646 159,236 149,686
Depreciation, net (5) 69,655 66,742 83,989 148,018 131,371
---------- --------- --------- --------- ---------
1,269,627 1,225,810 1,161,308 1,092,612 1,005,139
---------- --------- --------- --------- ---------
Earnings from operations 140,315 133,965 146,712 153,037 129,942
Interest expense, net 64,016 50,437 50,486 59,581 63,440
---------- --------- --------- --------- ---------
Pretax earnings from operations 76,299 83,528 96,226 93,456 66,502
Income tax expense (27,643) (29,344) (35,832) (33,424) (19,853)
---------- --------- --------- --------- ---------
Earnings from operations before
extraordinary loss on early
extinguishment of debt and
cumulative effect of change
in accounting principle 48,656 54,184 60,394 60,032 46,649
Extraordinary loss on early
extinguishment of debt, net (6) (13,672) (2,319) - - (3,370)
Cumulative effect of change in
accounting principle, net (8) - - - - (3,095)
---------- --------- --------- --------- ---------
Net earnings $ 34,984 51,865 60,394 60,032 40,184
========== ========= ========= ========= =========
Earnings from operations before
extraordinary loss on early
extinguishment of debt and cumulative
effect of change in accounting
principle per common share (2) (3) (7) $ 1.28 1.44 1.33 1.23 1.06
Net earnings per common share (2) (3) (7) .66 1.35 1.33 1.23 .89
Weighted average common shares
outstanding (2) (7) 21,896,101 25,479,651 35,736,335 38,190,552 38,664,063
Cash dividends declared:
Preferred stock 20,766 16,875 12,964 12,964 4,753
Common stock - - - - 3,147
Ratio of earnings to fixed charges (1) 1.56 1.64 1.89 1.87 1.64
14
AMERCO AND CONSOLIDATED SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA, continued
For the Years Ended March 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
(in thousands)
Balance Sheet Data:
Total property, plant and
equipment, net $ 1,275,756 1,247,066 1,316,715 1,274,246 1,174,236
Total assets 2,913,277 2,718,994 2,823,407 2,605,989 2,344,442
Notes and loans payable 1,025,323 983,550 998,220 881,222 723,764
Stockholders' equity (7) 595,059 602,320 649,548 686,784 651,787
(1) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consists of pretax earnings from operations plus total fixed
charges excluding interest capitalized during the period and "fixed
charges" consists of interest expense, preferred stock dividends,
capitalized interest, amortization of debt expense and discounts and one-
third of the Company's annual rental expense (which the Company believes
is a reasonable approximation of the interest factor of such rentals).
(2) Reflects the adoption of Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" for the year ended March
31, 1995.
(3) Earnings and net earnings per common share were computed after giving
effect to the dividends on the Company's Series B floating rate stock for
the years ended March 31, 1998 and 1997.
(4) Reflects the adoption of Statement of Position 93-7, "Reporting on
Advertising Costs" during the year ended March 31, 1996.
(5) Reflects the change in estimated residual value during the years ended
March 31, 1998 and 1996.
(6) See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations".
(7) Reflects the acquisition of treasury shares acquired pursuant to the
Shoen Litigation as discussed in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Stockholder
Litigation".
(8) Reflects the adoption of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits other than
Pensions".
(9) Reflects the adoption of Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" during
the year ended March 31, 1998.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward looking statements. Additional
written or oral forward-looking statements may be made by the
Company from time to time in filings with the Securities and
Exchange Commission or otherwise. Such forward-looking statements
are within the meaning of that term in Section 27A of the
Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended. Such statements may include, but not be limited
to, projections of revenues, income or loss, estimates of capital
expenditures, plans for future operations, products or services and
financing needs or plans, 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. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying
the forward looking statements. The following disclosures, as well
as other statements in the Company's report and in the Notes to the
Company's Consolidated Financial Statements, describe factors,
among others, that could contribute to or cause such differences,
or that could affect the Company's stock price.
General
For financial statement preparation, the Company's insurance
subsidiaries report on a calendar year basis while the Company
reports on a fiscal year basis ending March 31. Accordingly, with
respect to the Company's insurance subsidiaries, any reference to
the years 1997, 1996 and 1995 correspond to the Company's fiscal
years 1998, 1997 and 1996, respectively. There have been no events
related to such subsidiaries between January 1 and March 31 of
1998, 1997 or 1996 that would materially affect the Company's
consolidated financial position or results of operations as of and
for the fiscal years ended March 31, 1998, 1997 and 1996,
respectively.
Information on industry segments is incorporated by reference
to "Item 8. Financial Statements and Supplementary Data - Notes 1,
19 and 20 of Notes to Consolidated Financial Statements". The
notes discuss the principles of consolidation, summarized
consolidated financial information and industry segment and
geographic area data, respectively. In consolidation, all
intersegment premiums are eliminated and the benefits, losses and
expenses are retained by the insurance companies.
Results of Operations
Fiscal Year Ended March 31, 1998 Versus Fiscal Year Ended March 31,
1997
Moving and Storage Operations
Revenues consist of rental revenues and net sales.
Rental revenue increased by $44.9 million, approximately 4.6%,
to $1,018.7 million in fiscal 1998. This increase primarily
reflects the growth in truck rental revenues which benefited from
transactional growth and higher average revenue per transaction.
Net sales revenues were $176.9 million in fiscal 1998, which
represents an increase of approximately 2.3% as compared to fiscal
1997 net sales of $173.0 million. Revenue growth from the sale of
moving support items (i.e. boxes, etc.) and propane resulted in a
$5.6 million increase during the current year.
Cost of sales was virtually unchanged at $101.6 million in
fiscal 1998, as compared to $103.8 million in fiscal 1997. Lower
material costs associated with the sale of propane offset increased
costs in other areas.
16
Operating expenses increased to $896.0 million during fiscal
1998 from $871.1 million in fiscal 1997, an increase of
approximately 2.9%. Increased property values and business
activity contributed to a $4.9 million increase in taxes. Lease
expense contributed an increase of $3.9 million to reflect new
leasing activity within the rental fleet and storage facilities.
Increased rental business contributed to a $3.9 million increase in
liability insurance. A reduction in expense offsets(credits)
caused an increase in operating expenses of $6.1 million. All
other operating expenses increased in the aggregate by $6.1
million.
Depreciation expense for the year was $69.7 million, as
compared to $66.7 million in the prior year. This increase
reflects a $6.2 million reduction in gains from the disposition of
property, plant and equipment offset by an increase in depreciation
expense of buildings and non-rental equipment.
Property and Casualty
RWIC gross premium writings for the year ended December 31,
1997 were $174.2 million as compared to $167.8 million for 1996.
This represents an increase of $6.4 million, or 3.8%. As in prior
periods, the rental industry market accounts for a significant
share of total premiums, 52.4% and 46.3% for the years ended
December 31, 1997 and 1996, respectively. These writings include
U-Haul customers, fleetowners and U-Haul as well as other rental
industry insureds with similar characteristics. RWIC underwrites
professional reinsurance via broker markets and the percentage of
total premiums in this area for 1997 remained consistent with 1996
at 29.1% and 29.2%, respectively. RWIC continues its direct
multiple peril coverage of various commercial properties and
business in 1997 with premiums accounting for 13.3% of the total
gross premiums for the year ended December 31, 1997 as compared to
10.7% for 1996. The increase is the result of planned business
expansion. Premium writings in selected general agency lines were
5.2% of total gross written premiums for the period ended December
31, 1997 as compared to 13.8% for 1996. This decrease resulted
from the cancellation of a general agency agreement in November
1996.
Net earned premiums decreased $0.6 million, or 0.4%, to $155.9
million for the year ended December 31, 1997, compared with
premiums of $156.5 million for 1996. General agency earnings
decreased $3.1 million offset by a $2.5 million increase in direct
multiple peril, assumed treaty reinsurance and rental industry
segments. The $3.1 million decrease in the general agency lines is
attributable to the cancellation of an agency agreement in November
1996. The $2.5 million increase is due to a $1.3 million increase
in the assumed treaty reinsurance line attributable to the
reporting of unearned premiums from brokers, an increase of $0.6
million due to the expansion of the direct multiple peril line and
an increase of $0.6 million in rental industry markets.
Net investment income was $31.3 million for the year ended
December 31, 1997, an increase of 2.3% over 1996 net investment
income of $30.6 million. The increase resulted from enhanced yield
provided by an increased investment in preferred stock.
Underwriting expenses incurred were $186.5 million for the
year ended December 31, 1997, an increase of $17.7 million, or
10.5%, over 1996. Comparable underwriting expenses incurred for
the year ended December 31, 1996 were $168.8 million. The increase
is attributed to increased losses and loss adjustment expenses
incurred and general underwriting expenses offset by a decrease in
net commission expense. Losses and loss adjustment expenses
incurred increased $31.6 million in the general agency, rental
industry and assumed treaty reinsurance lines offset by a decrease
in the direct multiple peril markets. Approximately $31.0 million
of the losses and loss adjustment expenses incurred increase is
attributable to all programs and results from an increase in
liabilities for unpaid claims due to estimated future losses on
current and prior business, a component of losses and loss
adjustment expenses incurred. The liability for unpaid losses is
based on the estimated ultimate cost of settling claims reported
prior to the end of the accounting period, estimates received from
ceding reinsurers and estimates for unreported losses based on the
historical experience of RWIC, supplemented by insurance industry
historical experience. Unpaid loss adjustment expenses are based
on historical ratios of loss adjustment expenses paid to losses
paid. Unpaid loss and loss expenses are not discounted. Net
commission expense decreased $15.7 million due to the recognition
of contingent commissions on reinsurance agreements for the general
agency and the assumed reinsurance treaty lines. All other
underwriting expenses increased in the aggregate of $1.8 million.
17
RWIC completed the year ended December 31, 1997 with income
before tax expense of $0.7 million as compared to $18.3 million for
the same period ended December 31, 1996. This represents a
decrease of $17.6 million, or 96.2% over 1996. Increased
underwriting expenses (including losses and loss adjustment
expenses incurred) were the primary cause for the reduction in
income before taxes.
Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $16.7 million for the year ended December 31,
1997, a decrease of $3.6 million or 17.7% over 1996 and accounted
for 56.2% of Oxford's premiums in 1997. These premiums are
primarily from term life insurance and deferred annuity contracts
that have matured. Decreases in premiums are primarily due to
decreased policyholder renewals on term life insurance and
decreased annuitizations on deferred annuity contracts.
Premiums from Oxford's direct lines before intercompany
eliminations were $8.1 million in 1997, an increase of $0.6 million
or 8.0% from the prior year. This increase in direct premium is
primarily attributable to an increase in life and disability
coverage for the Company's employees. Oxford's direct business
related to group life and disability coverage issued to employees
of the Company accounted for 8.8% of premiums for the year ended
December 31, 1997. Other direct lines, including the credit
business, accounted for approximately 18.3% of Oxford's premiums in
1997. Premiums from Oxford's subsidiaries, acquired in November,
1997, were $4.9 million and accounted for 16.7% of premiums. These
premiums are primarily related to Medicare supplement and credit
life and disability insurance.
Net investment income before intercompany eliminations was
$17.8 million and $18.8 million for the years ended December 31,
1997 and 1996, respectively. This decrease is due to a decrease in
invested assets at the start of the year, which is the result of a
$30.0 million cash dividend paid to Oxford's parent on December 31,
1996.
Benefits and expenses incurred were $33.1 million for the year
ended December 31, 1997, a decrease of 8.3% over 1996. Comparable
benefits and expenses incurred for 1996 were $36.1 million. This
decrease is primarily due to the deferred annuity contracts that
have matured. Benefits and expenses incurred by Oxford's
subsidiaries were $3.8 million.
Operating profit before tax and intercompany eliminations was
$10.6 million for both the years ended December 31, 1997 and
December 31, 1996. Included in operating profit for 1997 is more
than $1.3 million from Oxford's subsidiaries.
Interest Expense
Interest expense, net of interest income, increased by $13.6
million to $64.0 million during fiscal 1998, as compared to $50.4
million in fiscal 1997. The increase can be primarily attributed
to lower levels of interest income in the current year.
Extraordinary Loss on Extinguishment of Debt
During the second quarter of fiscal 1998, the Company
extinguished $76.0 million of 10.27% interest-bearing notes
originally due in fiscal 1999 through fiscal 2002. This resulted
in an extraordinary loss of $4.0 million, net of tax of $2.4
million ($0.18 per share).
During the third quarter of fiscal 1998, the Company
extinguished $255.0 million of 6.43% to 8.13% interest-bearing
notes originally due in fiscal 1999 through fiscal 2010. This
resulted in an extraordinary loss of $9.7 million, net of tax of
$5.6 million ($0.44 per share).
Results of Operations - Consolidated Group
As a result of the foregoing, pretax earnings of $76.3 million
were realized in fiscal 1998, as compared to $83.5 million in the
prior year. After providing for income taxes, earnings from
operations were $48.7 million in fiscal 1998 as compared to $54.2
million in fiscal 1997. Following deductions for an extraordinary
loss from the extinguishment of debt, net earnings for the current
year were $35.0 million, as compared to $51.9 million in fiscal
1997.
18
Fiscal Year Ended March 31, 1997 Versus Fiscal Year Ended March 31, 1996
Moving and Storage Operations
Revenues consist of rental revenues and net sales.
Rental revenue increased by $30.8 million, approximately 3.3%,
to $973.8 million in fiscal 1997. The increase in rental revenues
resulted from growth in the rental of moving-related equipment and
self-storage market, which grew in the aggregate by $40.6 million
to $974.5 million, as compared to $933.9 million in fiscal 1996.
Truck rental revenues growth was due to improved utilization, an
increase in the fleet size and higher average dollars per
transaction. Self-storage facilities rental growth was positively
impacted by additional rentable square footage and higher
management fees derived from storage facilities managed for others.
Net sales revenues were $173.0 million in fiscal 1997, an
increase of 5.0% as compared to fiscal 1996 net sales of $164.8
million. Revenue growth from the sale of moving support items
(i.e. boxes, etc.), propane and hitches resulted in an $8.3 million
increase during the year.
Cost of sales was $103.8 million in fiscal 1997, a decrease of
0.3% from $104.1 million in fiscal 1996. A contributing factor
towards the decrease was a $4.9 million decrease in allowances for
inventory shrinkage and other inventory adjustments. Material
costs from the sale of propane and hitches increased by $3.7
million reflecting higher sales levels.
Operating expenses increased to $871.1 million in fiscal 1997
from $800.3 million during fiscal 1996, an increase of 8.8%. An
aggregate increase in personnel, rental equipment maintenance and
rental equipment lease expense of $56.8 million contributed to the
increase. Increased rental, sales and repair activity increased
personnel costs. Expansion of the rental fleet and transactional
growth resulted in higher rental equipment maintenance costs.
Increased leasing activity resulted in higher lease expense for
rental equipment. Advertising expense in fiscal 1997 declined by
$7.0 million to $31.9 million from $38.9 million in fiscal 1996.
This decrease reflects a one-time expense of $8.6 million
recognized in fiscal 1996, due to the adoption of Statement of
Position 93-7. The Company had been deferring yellow page directory
costs and amortizing the costs over the life of the directory. The
Company is currently reviewing its implementation procedures. All
other operating expense categories increased in the aggregate by
$21.0 million.
Depreciation expense in fiscal 1997 declined by $17.3 million
to $66.7 million from $84.0 million in the prior year. The decline
from the prior year is due to the increase in leasing activity and
the sale/leaseback of rental trailers in June 1996 and an increase
in net gains from the sale of real property of $10.1 million.
Property and Casualty
RWIC gross premium writings for the year ended December 31, 1996
were $167.8 million as compared to $174.2 million in 1995.
The rental industry market accounts for a significant share of
total premiums, 46.3% and 45.2% in 1996 and 1995, respectively.
These writings include U-Haul customers, fleetowners and U-Haul as
well as other rental industry insureds with similar
characteristics. RWIC continues underwriting reinsurance via
broker markets. Premiums in this area decreased during 1996 to
$49.0 million, or 29.2% of total gross premiums, from comparable
1995 figures of $50.1 million, or 28.7% of total premiums. This
decrease can be primarily attributed to inadequate pricing and
market conditions. Premium writings in selected general agency
lines were 13.1% of total gross written premiums in 1996 as
compared to 16.3% in 1995. This decrease resulted from a business
decision to withdraw from a regional commercial multiple peril
market. RWIC continued its direct multiple peril coverage of
various commercial properties and businesses during 1996. These
premiums accounted for 10.7% of the total gross written premium
during the year ended December 31, 1996 as compared to 9.1% during
1995.
Net earned premiums increased $15.7 million, or 11.2%, to
$156.5 million for the year ended December 31, 1996, compared with
premiums of $140.8 million for the year ended December 31, 1995.
The premium increase was primarily due to increased earnings on the
rental industry and direct multiple peril markets, offset by
decreases in assumed broker market reinsurance and general agency
lines.
Net investment income was $30.6 million for the year ended
December 31, 1996, an increase of 2.3% over 1995 net investment
income of $29.9 million. The marginal increase resulted from
19
enhanced yield provided by an increased investment in preferred
stock.
Underwriting expenses incurred were $168.8 million for the
year ended December 31, 1996, an increase of $19.6 million, or
13.1% over 1995. Comparable underwriting expenses incurred for
1995 were $149.2 million. The increase is largely attributable to
a $16.6 million increase in commission expense and a $1.5 million
increase in losses incurred. Commission expense at December 1995
was reduced by $9.0 million in order to realize a guaranteed margin
on a canceled general agency program. Commission expense in 1996
includes a $2.0 million allowance for doubtful accounts as a result
of a settlement agreement with the Receiver for American Bonding
Company, which provided for the return of $2.3 million of funds
held as collateral. An additional increase in commission expense
resulted from increased acquisition expenses on broker market
reinsurance business. The $1.5 million losses incurred increase
consisted of increases in the rental industry liability and broker
market reinsurance lines and was offset by a decrease in the
general agency lines. All other underwriting expenses increased in
the aggregate of $1.5 million.
Income before tax expense was $18.3 million for the year ended
December 31, 1996, as compared to $21.4 million for the year ended
December 31, 1995. This represents a decrease of $3.1 million, or
14.5% over 1995. Increased premium earnings and investment income
were offset by a disproportionate increase in underwriting expenses
as discussed above.
Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $20.3 million for the year ended December 31,
1996, an increase of $0.9 million or 4.6% over 1995 and accounted
for 73.0% of Oxford's premiums in 1996. These premiums are
primarily from matured term life insurance and deferred annuity
contracts. Increases in premiums are primarily from an increase in
annuitizations as a result of the maturing of deferred annuities.
Premiums from Oxford's direct lines before intercompany
eliminations were $7.5 million in 1996, a decrease of $0.1 million
or 1.3% from the prior year. This decrease in direct premium is
primarily attributable to the credit life and disability insurance
business ($5.2 million in premium). Oxford's direct business
related to group life and disability coverage issued to employees
of the Company accounted for approximately 7.9% of premiums for the
year ended December 31, 1996. Other direct lines, including the
credit business, accounted for approximately 19.1% of Oxford's
premiums in 1996.
Net investment income before intercompany eliminations was
$18.8 million and $16.7 million for the years ended December 31,
1996 and 1995, respectively. This increase is due to increasing
margins on the interest sensitive business. Gains (losses) on the
disposition of investments were $(0.4) million and $4.8 million for
1996 and 1995, respectively.
Benefits and expenses incurred were $36.1 million for the year
ended December 31, 1996, an increase of 15.7% over 1995.
Comparable benefits and expenses incurred for 1995 were $31.2
million. This increase is primarily due to an increase in
annuitizations on maturing deferred annuities, partially offset by
decreases in death benefits and amortization of deferred
acquisition costs.
Operating profit before tax and intercompany eliminations
decreased by $2.0 million, or approximately 15.9%, in 1996 to $10.6
million, primarily due to the realization of capital gains in 1995.
The decrease in operating profit was partially offset by larger
margins on Oxford's interest sensitive business in 1996.
Interest Expense
Interest expense net of interest income decreased by $0.1
million to $50.4 million in fiscal 1997, as compared to $50.5
million in the prior year. Higher average debt levels during
fiscal 1997 increased interest expense which were offset by higher
interest income from the previous year.
20
Extraordinary Loss on Extinguishment of Debt
During the second quarter of fiscal 1997, the Company
extinguished debt of approximately $76.3 million by irrevocably
placing cash into a trust of U.S. Treasury securities to be used to
satisfy scheduled payments of principal and interest. The Company
also extinguished $86.2 million of its long-term notes originally
due in fiscal 1997 through fiscal 1999. These transactions
resulted in an extraordinary loss of $2.3 million, net of tax of
$1.4 million ($0.09 per share).
Results of Operations - Consolidated Group
As a result of the foregoing, pretax earnings from operations
of $83.5 million were realized in fiscal 1997, as compared to $96.2
million for fiscal 1996. After providing for income taxes and
extraordinary loss on early extinguishment of debt, net of tax; net
earnings for fiscal 1997 were $51.9 million, as compared to $60.4
million for the prior year.
Quarterly Results
The following table presents unaudited quarterly results for
the eight quarters in the period beginning April 1, 1996 and ending
March 31, 1998. The Company believes that all necessary
adjustments have been included in the amounts stated below to
present fairly, and in accordance with generally accepted
accounting principles, the selected quarterly information when read
in conjunction with the consolidated financial statements
incorporated herein by reference. The Company's U-Haul moving and
storage operations are seasonal and proportionally more of the
Company's revenues and net earnings from its U-Haul moving and
storage operations are generated in the first and second quarters
of each fiscal year (April through September). The operating
results for the periods presented are not necessarily indicative of
results for any future period (in thousands except share and per
share data).
Quarter Ended
----------------------------------------------
Jun 30 Sep 30 Dec 31 Mar 31
1997 1997 1997 1998
----------------------------------------------
Total revenues $ 372,021 416,771 322,543 298,607
Earnings from operations
before extraordinary loss
on early extinguishment
of debt (6) (7) 29,198 39,032 (5,390) (14,184)
Net earnings (loss) (3) (6) (7) 29,198 34,894 (15,236) (13,872)
Weighted average common
shares outstanding (4) 21,879,156 21,890,072 21,901,521 21,913,654
Earnings (loss) from operations
before extraordinary loss
on early extinguishment
of debt per common
share (2) (6) (7) 1.09 1.54 (0.49) (0.85)
Net earnings (loss) per
common share (both basic
and diluted) (1) (2) (4)
(6) (7) 1.09 1.35 (0.94) (0.84)
Quarter Ended
----------------------------------------------
Jun 30 Sep 30 Dec 31 Mar 31
1996 1996 1996 1997
----------------------------------------------
Total revenues $ 361,053 398,449 316,892 283,381
Earnings from operations
before extraordinary loss
on early extinguishment
of debt (5) 40,005 39,741 (9,538) (16,024)
Net earnings (loss) (5) 40,005 37,737 (9,853) (16,024)
Weighted average common
shares outstanding (4) 32,015,301 27,675,192 20,359,873 21,868,241
Earnings (loss) from operations
before extraordinary loss
on early extinguishment
of debt per common share
(1) (2) (4) (5) 1.15 1.29 (0.72) (0.97)
Net earnings (loss) per
common share (both basic
and diluted) (1) (2) (4) (5) 1.15 1.22 (0.74) (0.97)
21
_______________
(1) Net earnings (loss) per common share amounts were computed after giving
effect to the dividends on the Company's Preferred Stock.
(2) Reflects the adoption of Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" during
the fourth quarter of fiscal 1998.
(3) Reflects the change in estimated residual value during the fourth
quarter of fiscal 1998.
(4) Reflects the acquisition of treasury shares acquired pursuant to the Shoen
Litigation as discussed in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Stockholder Litigation".
(5) During second quarter of fiscal 1997, the Company extinguished
$76.3 million of debt and $86.2 million of its long-term notes originally
due in fiscal 1997 through fiscal 1999. This resulted in an extraordinary
loss of $2.3 million, net of tax of $1.4 million ($0.09 per share).
(6) During the second quarter of fiscal 1998, the Company extinguished
$76.0 million of 10.27% interest-bearing notes originally due in fiscal
1999 through fiscal 2002. This resulted in an extraordinary loss of
$4.0 million, net of tax of $2.4 million ($0.18 per share).
(7) During the third quarter of fiscal 1998, the Company extinguished
$255.0 million of 6.43% to 8.13% interest-bearing notes originally due in
fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss
of $9.7 million, net of tax of $5.6 million ($0.44 per share).
22
Liquidity and Capital Resources
Moving and Storage Operations
To meet the needs of its customers, U-Haul must maintain a
large inventory of fixed asset rental items. At March 31, 1998,
net property, plant and equipment represented approximately 67.7%
of total U-Haul assets and approximately 43.8% of consolidated
assets. In fiscal 1998, gross capital expenditures for property,
plant and equipment were $392.3 million, as compared to $203.9
million in fiscal 1997. These expenditures primarily reflect
expansion of the rental truck fleet, purchase of trucks previously
leased and real property acquisitions. The capital needs required
to fund these acquisitions were funded with internally generated
funds from operations, debt and lease financings.
Cash flow from operations was $127.8 million in fiscal 1998,
as compared to $156.7 million in fiscal 1997 and $146.6 million in
fiscal 1996. The decrease results from an increase in receivables,
an increase in accounts payable and accrued expenses offset by a
decrease in inventories.
Property and Casualty
Cash flows from operating activities were $23.8 million, $15.0
million and $31.0 million for the years ended December 31, 1997,
1996 and 1995, respectively. The change for 1997 resulted from a
decrease in due from affiliates, offset by a decrease in cash due
to a decrease in net income, other liabilities and federal tax
payable and an increase in accounts receivable. An additional
increase in cash resulted from increased loss and expense reserves
and a smaller unearned premium decrease than for the year ended
December 31, 1996.
RWIC's cash and cash equivalents and short-term investment
portfolio were $16.3 million and $30.8 million at December 31, 1997 and
December 31, 1996, respectively. This level of liquid assets,
combined with budgeted cash flow, is adequate to meet periodic
needs. The decrease is attributable to a $13.5 million investment
in a Texas based self-storage partnership in February 1997. The
structure of the long-term portfolio is designed to match future
liability cash needs. Capital and operating budgets allow RWIC to
schedule cash needs in accordance with investment and underwriting
proceeds.
RWIC maintains a diversified securities investment portfolio,
primarily in bonds at varying maturity levels with 94.0% of the
fixed-income securities consisting of investment grade securities.
The maturity distribution is designed to provide sufficient
liquidity to meet future cash needs. Current liquidity remains
strong, with current invested assets equal to 100.7% of total
liabilities.
Stockholder's equity increased $3.1 million from $192.3
million at December 31, 1996 to $195.4 million at December 31,
1997. RWIC considers current stockholder's equity to be adequate
to support future growth and absorb unforeseen risk events. RWIC
does not use debt or equity issues to increase capital and
therefore has no exposure to capital market conditions.
Applicable laws and regulations of the State of Arizona
require the Company's insurance subsidiaries to maintain minimum
capital determined in accordance with statutory accounting
practices. With respect to RWIC, such amount is $1.0 million. In
addition, the amount of dividends that can be paid to stockholders
by insurance companies domiciled in the State of Arizona is
limited. Any dividend in excess of the limit requires prior
regulatory approval.
Life Insurance
Oxford's primary sources of cash are premiums, receipts from
interest-sensitive products and investment income. The primary
uses of cash are operating costs and benefit payments to
policyholders. Matching the investment portfolio to the cash flow
demands of the types of insurance being written is an important
consideration. Benefit and claim statistics are continually
monitored to provide projections of future cash requirements.
23
Cash provided by operating activities was $8.2 million, $16.5
million and $9.0 million for the years ended December 31, 1997,
1996 and 1995, respectively. In 1997, cash flows provided (used)
by financing activities were approximately $(9.1) million. During
1996 and 1995, cash flows provided (used) by financing activities
were $(10.0) million and $87.9 million, respectively. Cash flows
from deferred annuity sales increase investment contract deposits,
which are a component of financing activities, as well as the
purchase of fixed maturities which are a component of investing
activities.
In addition to cash flows from operating and financing
activities, a substantial amount of liquid funds is available
through Oxford's short-term portfolio. At December 31, 1997 and
1996, short-term investments aggregated $12.2 million and $4.5
million, respectively. Management believes that the overall
sources of liquidity will continue to meet foreseeable cash needs.
Stockholder's equity of Oxford increased to $85.8 million in
1997 from $75.3 million in 1996. During 1997, Oxford did not pay
dividends to its parent, during 1996, Oxford paid cash dividends of
$33.9 million to its parent.
Applicable laws and regulations of the State of Arizona
require the Company's insurance subsidiaries to maintain minimum
capital and surplus determined in accordance with statutory
accounting practices. With respect to Oxford, the amount is $0.4
million. In addition, the amount of dividends that can be paid to
shareholders by insurance companies domiciled in the State of
Arizona is limited. Any dividend in excess of the limit requires
prior regulatory approval. Statutory surplus which can be
distributed as dividends without regulatory approval is $4.6
million at December 31, 1997. These restrictions are not expected
to have a material adverse effect on the ability of the Company to
meet its cash obligations.
Consolidated Group
During each of the fiscal years ending March 31, 1999, 2000
and 2001, U-Haul estimates gross capital expenditures will average
approximately $325 million primarily reflecting rental fleet
rotation. This level of capital expenditures, combined with a
potential range of $30-$115 million in annual long-term debt
maturities, if certain features of debt are exercised during this
same period, are expected to create annual average funding needs of
approximately $375-$415 million. Management estimates that U-Haul
will fund 100% of these requirements with internally generated
funds, including proceeds from the disposition of older trucks and
other asset sales.
Credit Agreements
The Company's operations are funded by various credit and
financing arrangements, including unsecured long-term borrowings,
unsecured medium-term notes and revolving lines of credit with
domestic and foreign banks. Principally, to finance its fleet of
trucks and trailers, the Company routinely enters into sale and
leaseback transactions. As of March 31, 1998, the Company had
$1,025.3 million in total notes and loans outstanding and
unutilized committed lines of credit of approximately $220.0
million.
Certain of the Company's credit agreements contain restrictive
financial and other covenants, including, among others, covenants
with respect to incurring additional indebtedness, maintaining
certain financial ratios and placing certain additional liens on
its properties and assets. At March 31, 1998, the Company was in
compliance with these covenants.
The Company is further restricted in the issuance of certain
types of preferred stock. The Company is prohibited from issuing
shares of preferred stock that provide for any mandatory
redemption, sinking fund payment or mandatory prepayment, or that
allow the holders thereof to require the Company or any subsidiary
of the Company to repurchase such preferred stock at the option of
such holders or upon the occurrence of any event or events without
the consent of its lenders.
Stockholder Litigation
On October 1, 1996, the Company paid the last portion of a
total of approximately $448.1 million to the plaintiffs (non-
management members of the Shoen family and their affiliates) in
full settlement of a long-standing legal dispute involving the
Shoen family and related to control of the Company. As a result,
the plaintiffs that owned AMERCO stock were required to transfer
all of their shares of Common Stock to the Company. The total
number of shares transferred was 18,254,976.
24
An issue remains regarding whether or not the plaintiffs are
entitled to statutory post-judgment interest at the rate of ten
percent (10%) per year from February 21, 1995 (the date the
Director-Defendants filed for protection under Chapter 11) until
the judgment was satisfied. On July 19, 1996, the bankruptcy
court ruled the plaintiffs are entitled to such interest. The
Director-Defendants and the Company have appealed the court's
decision. The Company has deposited approximately $48.2 million
into an escrow account to secure payment of the disputed interest,
pending final resolution of this issue (including all appeals by
either side). The escrow account is reflected as a component of
"Other assets" in the Company's financial statements. If the
interest issue is decided adversely to the Company and the Director-
Defendants, the amount deposited into the escrow account will be
transferred to the plaintiffs. The ultimate outcome of this issue
will not have the effect of increasing or decreasing the Company's
net earnings, but could reduce stockholders' equity.
The Company has deducted for income tax purposes approximately
$324.0 million of the payments made to the plaintiffs. While the
Company believes that such income tax deductions are appropriate,
there can be no assurance that such deductions ultimately will be
allowed in full.
Other
On April 1, 1995, the Company implemented Statement of
Position 93 - 7, "Reporting on Advertising Costs", issued by the
Accounting Standards Executive Committee in December 1993. This
statement of position provides guidance on financial reporting on
advertising costs in annual financial statements. Upon
implementation, the Company recognized additional advertising
expense of $8,647,000 for advertising costs not qualifying as
direct-response. The adoption had the effect of reducing net
income by $5,474,000 ($0.15 per share) for the year ended March
31, 1996. The Company is currently reviewing its implementation
procedures.
For the year ended March 31, 1998, the Company implemented
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", issued by the
Accounting Standards Executive Committee in March 1998. This
statement of position establishes guidelines for the accounting
for the costs of all computer software developed or obtained for
internal use, including payroll and other direct costs.
For the year ended March 31, 1998, the Company implemented
Statement of Financial Standards No. 130, "Reporting Comprehensive
Income". Effective for fiscal years beginning after December 15,
1997, this statement establishes standards for reporting and
displaying comprehensive income and its components in general-
purpose financial statements. The standard requires that
comprehensive income and its components be displayed in the
financial statements, the items be classified by their nature and
display the accumulated balances of other comprehensive income in
stockholders' equity separately from retained earnings and
additional paid-in-capital. The statement had no effect on the
Company's results of operations, financial position, capital
resources or liquidity.
For the year ended March 31, 1998, the Company implemented
Statement of Financial Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Effective for
financial periods beginning after December 15, 1997, this
statement requires public business enterprises to report certain
information about their operating segments in a complete set of
financial statements to stockholders; to report certain enterprise-
wide information about their products and services, their
activities in different geographic areas and their reliance on
major customers; and to disclose certain segment information in
their interim financial statements. The statement had no effect
on the Company's results of operations, financial position,
capital resources or liquidity.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities". This
statement standardizes the accounting for derivative instruments
by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure
them at fair value. It also provides for matching the timing of
gain or loss recognition on the hedging instrument with the
recognition of (a) the changes in the fair value of hedged asset
25
or liability attributable to the hedged risk or (b) the earnings
effect of the hedged forecasted transaction. This statement
becomes effective for fiscal periods beginning after June 15,
1999. The Company is evaluating the effect this statement will
have on its financial reporting and disclosures and when it will
adopt the statement.
Other pronouncements issued by the Financial Accounting
Standards Board adopted during the year are not material to the
consolidated financial statements of the Company. Further,
pronouncements with future effective dates are either not
applicable or not material to the consolidated financial statements
of the Company.
Year 2000 Disclosure
The Company is and has been working since 1997 to identify and
evaluate the changes necessary to its existing computerized
business systems to make these systems compliant for Year 2000
processing. The Year 2000 processing problem is caused by currently
installed computer systems and software products, including several
used by the Company, being coded to accept only two digit entries
in the date code field. Beginning in the year 2000, these date
code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. The Company's date
critical functions related to the Year 2000 and beyond, such as
rental transaction processing and financial systems may be
adversely affected unless these computer systems are or become Year
2000 compliant. The Company has been replacing, upgrading or
modifying key financial systems in the normal course of business.
The Company is utilizing both internal and external resources to
identify, correct, reprogram and test its systems for Year 2000
compliance. In particular, the Company has an outside consulting
firm on-site currently making the necessary modifications to
existing systems. The Company expects to be fully Year 2000
compliant by March 1999 at an estimated cost of approximately $2.0
million. Although the Company believes it will achieve compliance
on a timely basis and does not anticipate incurring material costs
beyond the estimated $2.0 million, no assurance can be given that
the Company's computer systems will be Year 2000 compliant by March
1999 or otherwise in a timely manner or that the Company will not
incur significant additional costs pursuing Year 2000 compliance.
If the appropriate modifications are not made, or are not timely,
the Year 2000 problem may have a material adverse effect on the
Company. Furthermore, even if the Company's systems will be Year
2000 compliant, there can be no assurance the Company will not be
adversely affected by the failure of others to become Year 2000
compliant. For example, the Company may be affected by, among
other things, the failure of inventory suppliers, credit card
processors, security companies, or other vendors and service
providers to become Year 2000 compliant. In an effort to evaluate
and reduce its exposure in this area, the Company has ongoing
communication with its vendors and other service providers about
their progress in identifying and addressing problems to ensure
that their computer systems will be Year 2000 compliant. However,
despite the Company's efforts to date, there can be no assurance
that the Year 2000 problem will not have a material adverse effect
on the Company in the future.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants and Consolidated
Financial Statements of the Company, including the notes to such
statements and the related schedules, are set forth on pages 30
through 76 and are hereby incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT
ING AND FINANCIAL DISCLOSURE
The Registrants have had no disagreements with their
independent accountant in regard to accounting and financial
disclosure matters and have not changed their independent
accountant during the two most recent fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information regarding (i) directors and executive officers of
the Company is set forth under the captions "Election of
Directors", "Executive Officers of the Company", and "Shoen
Litigation" and (ii) compliance with Section 16(a) is set forth
under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement relating to the 1998
Annual Meeting of Stockholders (the "1998 Proxy Statement")
portions of which are incorporated by reference into this Form 10-K
Report, which will be filed with the Securities and Exchange
Commission in accordance with Rule 14a-6 promulgated under the
Securities Exchange Act of 1934, as amended. With the exception of
the foregoing information and other information specifically
incorporated by reference into this report, the 1998 Proxy
Statement is not being filed as a part hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth
under the caption "Executive Compensation" in the 1998 Proxy
Statement, which information is incorporated herein by reference;
provided, however, that the "Board Report on Executive
Compensation" and the "Performance Graph" contained in the 1998
Proxy Statement are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the 1998
Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions of management is set forth under the captions "Certain
Relationships and Related Transactions" and "Shoen Litigation" in
the 1998 Proxy Statement, which information is incorporated herein
by reference.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
Page No.
-------
1. Financial Statements
Report of Independent Accountants 30
Consolidated Balance Sheets -
March 31, 1998 and 1997 31
Consolidated Statements of Earnings -
Years ended March 31, 1998, 1997 and 1996 33
Consolidated Statements of Changes in Stockholders'
Equity - Years ended March 31, 1998, 1997 and 1996 34
Consolidated Statements of Cash Flows - Years ended
March 31, 1998, 1997 and 1996 36
Notes to Consolidated Financial Statements 38
2. Additional Information
Summary of Earnings of Independent Trailer Fleets 69
Notes to Summary of Earnings of Independent
Trailer Fleets 70
3. Financial Statement Schedules required to be filed
by Item 8 and Paragraph (d) of this Item 14
Condensed Financial Information of Registrant --
Schedule I 72
Supplemental Information (For Property-Casualty
Insurance Underwriters) -- Schedule V 76
All other schedules are omitted as the required information is
not applicable or the information is presented in the financial
statements or related notes thereto.
(b) No report on Form 8-K has been filed during the last quarter
of the period covered by this report.
28
(c) Exhibits
Exhibit No. Description
----------- -----------
2.1 Order Confirming Plan (1)
2.2 Second Amended and Restated Debtor's Plan of
Reorganization Proposed by Edward J. Shoen (1)
3.1 Restated Articles of Incorporation (2)
3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3)
4.1 Debt Securities Indenture (1)
4.2 First Supplemental Indenture, Dated as of May 6, 1996 (4)
4.3 Stockholders Rights Plan (5)
4.4 AMERCO Stock Option and Incentive Plan (5)
4.5 AMERCO and Citibank, N.A. Trustee Second Supplemental
Indenture Dated as of October 22, 1997 (11)
4.6 Calculation Agency Agreement (11)
4.7 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust
Certificates ("Bats") Due October 15, 1999 (11)
10.1* AMERCO Employee Savings, Profit Sharing and
Employee Stock Ownership Plan (5)
10.2 U-Haul Dealership Contract (5)
10.3 Share Repurchase and Registration Rights
Agreement (5)
10.4 Share Repurchase and Registration Rights
Agreement (5)
10.5 ESOP Loan Credit Agreement (6)
10.6 ESOP Loan Agreement (6)
10.7 Trust Agreement for the AMERCO Employee Savings,
Profit Sharing and Employee Stock Ownership
Plan(6)
10.8 Amended Indemnification Agreement (6)
10.9 Indemnification Trust Agreement (6)
10.10 Promissory Note between SAC Holding Corporation
and a subsidiary of AMERCO (12)
10.11 Promissory Notes between Four SAC Self-Storage
Corporation and a subsidiary of AMERCO (12)
10.12 Management Agreement between Three SAC Self-
Storage Corporation and a subsidiary of AMERCO (12)
10.13 Management Agreement between Four SAC Self-
Storage Corporation and a subsidiary of AMERCO (12)
10.14 Agreement, dated October 17, 1995, among AMERCO,
Edward J. Shoen, James P. Shoen, Aubrey K. Johnson,
John M. Dodds and William E. Carty (8)
10.15 Directors' Release, dated October 17, 1995,
executed by Edward J. Shoen, James P. Shoen, Aubrey K.
Johnson, John M. Dodds and William E. Carty
in favor of AMERCO (8)
10.16 AMERCO Release, dated October 17, 1995, executed
by AMERCO in favor of Edward J. Shoen, James P. Shoen,
Aubrey K. Johnson, John M. Dodds and William E. Carty (8)
10.17 Settlement Agreement with Paul F. Shoen (9)
10.18 Series B Preferred Stock Purchase Agreement, dated as of
August 30, 1996 (3)
10.19 Series B Preferred Stock Amended and Restated
Side Agreement, dated as of June 1, 1997 (10)
10.20 Settlement Agreement, dated October 15, 1996
between L.S. Shoen and AMERCO (12)
10.21 Settlement Agreement between AMERCO and Sophia
Shoen (10)
12 Statements Re: Computation of Ratios
21 Subsidiaries of AMERCO
* Indicates compensatory plan arrangement
29
c. Exhibits, continued
23 Consent of Independent Accountants
27 Financial Data Schedule
________________
(1) Incorporated by reference to the Company's Registration
Statement on Form S-3, Registration no. 333-1195.
(2) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1992, file no. 0-
7862.
(3) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, file no.
0-7862.
(4) Incorporated by reference to the Company's Current Report on
Form 8-K, dated May 6, 1996.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended March 31, 1993, file no. 0-7862.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended March 31, 1990, file no. 0-7862.
(7) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, file no. 0-
7862.
(8) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, file no. 0-
7862.
(9) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended March 31, 1995, file no. 0-7862.
(10)Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, file no. 0-
7862.
(11)Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997, file no. 0-
7862.
(12)Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, file no. 0-7862.
30
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
and Stockholders of AMERCO
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) and (3) on page 27 present
fairly, in all material respects, the financial position of AMERCO
and its subsidiaries at March 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Summary of
Earnings of Independent Trailer Fleets included on pages 69 through
71 of this Form 10-K is presented for purposes of additional
analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
Phoenix, Arizona
June 26, 1998
31
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
March 31,
Assets 1998 1997
---------------------
(in thousands)
Cash and cash equivalents $ 31,606 41,752
Receivables 317,620 238,523
Inventories 68,887 65,794
Prepaid expenses 21,154 17,264
Investments, fixed maturities 886,873 859,694
Investments, other 164,064 127,306
Deferred policy acquisition costs 44,255 48,598
Other assets 103,062 72,997
---------------------
Property, plant and equipment, at cost:
Land 208,028 209,803
Buildings and improvements 838,419 814,744
Furniture and equipment 214,513 199,126
Rental trailers and other rental
equipment 158,750 148,807
Rental trucks 939,561 947,911
General rental items 20,475 21,600
---------------------
2,379,746 2,341,991
Less accumulated depreciation 1,103,990 1,094,925
---------------------
Total property, plant and equipment 1,275,756 1,247,066
---------------------
$ 2,913,277 2,718,994
=====================
The accompanying notes are an integral part of these consolidated
financial statements.
32
Liabilities and Stockholders' Equity 1998 1997
---------------------
(in thousands)
Liabilities:
Accounts payable and accrued
expenses $ 144,201 131,099
Notes and loans 1,025,323 983,550
Policy benefits and losses, claims
and loss expenses payable 592,642 469,134
Liabilities from premium deposits 425,347 433,397
Cash overdraft 21,414 23,606
Other policyholders' funds and
liabilities 34,911 30,966
Deferred income 45,298 35,247
Deferred income taxes 29,082 9,675
---------------------
Stockholders' equity:
Serial 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 March 31, 1998
and 1997 - -
Series B preferred stock, with no par
value, 100,000 shares authorized;
75,000 and 100,000 shares issued
and outstanding as of March 31,
1998 and 1997, respectively - -
Serial 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; 5,762,495 shares
issued as of March 31, 1998 and 1997 1,441 1,441
Common stock of $0.25 par value,
150,000,000 shares authorized;
36,487,505 issued as of March 31,
1998 and 1997 9,122 9,122
Additional paid-in capital 313,444 337,933
Accumulated other comprehensive income (9,384) (9,722)
Retained earnings 658,227 644,009
---------------------
972,850 982,783
Less:
Cost of common shares in treasury, net
(19,635,913 shares as of March 31,
1998 and 1997) 359,723 359,723
Unearned employee stock
ownership plan shares 18,068 20,740
---------------------
Total stockholders' equity 595,059 602,320
Contingent liabilities and commitments _____________________
$ 2,913,277 2,718,994
=====================
The accompanying notes are an integral part of these consolidated
financial statements.
33
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Years ended March 31,
1998 1997 1996
--------------------------------------------
(in thousands except share and per share data)
Revenues
Rental revenue $ 1,018,699 973,783 942,987
Net sales 176,935 172,968 164,795
Premiums 164,613 163,603 154,249
Net investment income 49,695 49,421 45,989
----------------------------------
Total revenues 1,409,942 1,359,775 1,308,020
Costs and expenses
Operating expense 889,737 860,483 798,544
Cost of sales 101,628 103,817 104,129
Benefits and losses 194,413 178,275 157,515
Amortization of deferred
acquisition costs 14,194 16,493 17,131
Depreciation, net 69,655 66,742 83,989
----------------------------------
Total costs and expenses 1,269,627 1,225,810 1,161,308
Earnings from operations 140,315 133,965 146,712
Interest expense, net of interest
income of $15,353, $25,604 and
$17,071 in 1998, 1997 and 1996,
respectively 64,016 50,437 50,486
----------------------------------
Pretax earnings 76,299 83,528 96,226
Income tax expense (27,643) (29,344) (35,832)
----------------------------------
Earnings from operations before
extraordinary loss on early
extinguishment of debt 48,656 54,184 60,394
Extraordinary loss on early
extinguishment of debt, net (13,672) (2,319) -
----------------------------------
Net earnings $ 34,984 51,865 60,394
==================================
Earnings per common share (both
basic and diluted):
Earnings from operations
before extraordinary loss on
early extinguishment of debt $ 1.28 1.44 1.33
Extraordinary loss on early
extinguishment of debt, net (0.62) (0.09) -
----------------------------------
Net earnings $ 0.66 1.35 1.33
==================================
Weighted average common
shares outstanding 21,896,101 25,479,651 35,736,335
==================================
The accompanying notes are an integral part of these consolidated
financial statements.
34
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
Unearned
Accumulated Employee
Series A Additional Other Stock Total
Common Common Paid-in Comprehensive Retained Treasury Ownership Stockholders' Comprehensive
Stock Stock Capital Income Earnings Stock Plan Shares Equity Income
-----------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $ 1,441 8,559 165,675 (18,918) 561,589 (10,461) (21,101) 686,784
Leveraged employee stock
ownership plan:
Issuance of shares 81 81
Purchase of shares (4,576) (4,576)
Repayments from loan 2,348 2,348
Preferred stock dividends:
Series A ($2.13 per share) (12,964) (12,964)
Treasury stock purchase
5,873,140 shares (100,657) (100,657)
Comprehensive income:
Net income 60,394 60,394 $ 60,394
Other comprehensive income,
net of tax:
Foreign currency
translation 558 558 558
Unrealized gain on
investments 17,580 17,580 17,580
------
Comprehensive income $ 78,532
------ ----- ------- -------- ------- --------- -------- ------- ======
Balance at March 31, 1996 1,441 8,559 165,756 (780) 609,019 (111,118) (23,329) 649,548
Issuance of common stock 563 73,146 73,709
Issuance of preferred stock 98,546 98,546
Leveraged employee stock
ownership plan:
Issuance of shares 485 485
Purchase of shares (2) (2)
Repayments from loan 2,591 2,591
Preferred stock dividends:
Series A ($2.13 per share) (12,964) (12,964)
Series B ($39.11 per share) (3,911) (3,911)
Treasury stock purchase
12,426,836 shares (248,605) (248,605)
Comprehensive income:
Net income 51,865 51,865 $ 51,865
Other comprehensive income,
net of tax:
Foreign currency
translation (2,256) (2,256) (2,256)
Unrealized loss on
investments (6,686) (6,686) (6,686)
------
Comprehensive income $ 42,923
----- ----- ------- -------- ------- --------- -------- ------- ======
Balance at March 31, 1997 1,441 9,122 337,933 (9,722) 644,009 (359,723) (20,740) 602,320
The accompanying notes are an integral part of these consolidated financial statements.
35
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
Unearned
Accumulated Employee
Series A Additional Other Stock Total
Common Common Paid-in Comprehensive Retained Treasury Ownership Stockholders' Comprehensive
Stock Stock Capital Income Earnings Stock Plan Shares Equity Income
-------------------------------------------------------------------------------------------------
Balance at March 31, 1997 1,441 9,122 337,933 (9,722) 644,009 (359,723) (20,740) 602,320
Repurchase of preferred stock (25,000) (25,000)
Leveraged employee stock
ownership plan:
Issuance of shares 511 511
Purchase of shares (5) (5)
Repayments from loan 2,677 2,677
Preferred stock dividends:
Series A ($2.13 per share) (12,964) (12,964)
Series B ($81.04 per share) (7,802) (7,802)
Comprehensive income:
Net income 34,984 34,984 $ 34,984
Other comprehensive income,
net of tax:
Foreign currency
translation (4,542) (4,542) (4,542)
Unrealized gain on
investments 4,880 4,880 4,880
------
Comprehensive income $ 35,322
----- ----- ------- -------- ------- --------- -------- ------- ======
Balance at March 31, 1998 $ 1,441 9,122 313,444 (9,384) 658,227 (359,723) (18,068) 595,059
===== ===== ======= ======== ======= ========= ======== =======
The accompanying notes are an integral part of these consolidated financial statements.
36
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31,
1998 1997 1996
---------------------------
(in thousands)
Cash flows from operating
activities:
Net earnings $ 34,984 51,865 60,394
Depreciation and amortization 113,822 94,364 102,427
Provision for losses on accounts
receivable 4,108 3,465 4,492
Net (gain) loss on sale of real
and personal property (1,776) (7,979) 2,142
Gain on sale of investments (944) (728) (5,172)
Changes in policy liabilities
and accruals 37,021 (403) 20,010
Additions to deferred policy
acquisition costs (10,010) (13,065) (21,507)
Net change in other operating
assets and liabilities (17,303) 60,662 24,056
---------------------------
Net cash provided by operating
activities 159,902 188,181 186,842
Cash flows from investing
activities:
Purchases of investments:
Property, plant and equipment (392,298) (203,943) (291,057)
Fixed maturities (123,832) (189,763) (332,155)
Common stock (8,573) - -
Preferred stock (4,054) (10,875) -
Equity investment (24,500) - -
Real estate - - (8,127)
Mortgage loans (17,551) (38,339) (10,560)
Proceeds from sales of
investments:
Property, plant and equipment 291,321 240,787 165,490
Fixed maturities 131,334 206,995 190,846
Preferred stock 1,015 59 -
Real estate 1,331 934 2,749
Mortgage loans 21,715 38,906 29,447
Changes in other investments (16,699) 5,402 9,169
---------------------------
Net cash provided (used) by
investing activities (140,791) 50,163 (244,198)
The accompanying notes are an integral part of these consolidated
financial statements.
37
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years ended March 31,
1998 1997 1996
---------------------------
(in thousands)
Cash flows from financing
activities:
Net change in short-term
borrowings 122,500 (347,000) 84,500
Proceeds from notes 300,000 562,300 140,141
Debt issuance costs (2,956) (6,240) (1,663)
Leveraged Employee Stock
Ownership Plan:
Purchase of shares (5) (2) (4,576)
Repayments from loan 2,677 2,591 2,348
Principal payments on notes (380,727) (229,970) (107,643)
Issuance of preferred stock - 98,546 -
Repurchase of preferred stock (25,000) - -
Issuance of common stock - 73,709 -
Extraordinary loss on early
extinguishment of debt, net (13,672) (2,319) -
Net change in cash overdraft (2,192) (8,553) 796
Preferred stock dividends paid (20,766) (16,875) (12,964)
Treasury stock acquisitions, net - (248,605) (100,657)
Deferred tax-treasury stock - (80,997) (34,938)
Investment contract deposits 51,943 81,678 163,423
Investment contract withdrawals (61,059) (57,789) (75,529)
Escrow deposit - (48,234) -
---------------------------
Net cash provided (used) by
financing activities (29,257) (227,760) 53,238
---------------------------
Increase (decrease) in cash
and cash equivalents (10,146) 10,584 (4,118)
Cash and cash equivalents at
beginning of year 41,752 31,168 35,286
---------------------------
Cash and cash equivalents at
end of year $ 31,606 41,752 31,168
===========================
The accompanying notes are an integral part of these consolidated
financial statements.
38
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AMERCO, a Nevada corporation (the Company), is the holding
company for U-Haul International, Inc. (U-Haul), Amerco Real Estate
Company (AREC), Republic Western Insurance Company (RWIC) and Oxford
Life Insurance Company (Oxford). All references to a fiscal year
refer to the Company's fiscal year ended March 31 of that year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
parent corporation, AMERCO, and its subsidiaries, substantially all of
which are wholly-owned. All material intercompany accounts and
transactions of AMERCO and its subsidiaries have been eliminated.
RWIC and Oxford have been consolidated on the basis of calendar
years ended December 31. Accordingly, all references to the years
1997, 1996 and 1995 correspond to the Company's fiscal years 1998, 1997
and 1996, respectively.
The operating results and financial position of AMERCO's
consolidated insurance operations are determined as of December 31 of
each year. There were no effects related to intervening events
between January 1 and March 31 of 1998, 1997 or 1996 that would
materially affect the consolidated financial position or results of
operations for the financial statements presented herein. See Note 19
of Notes to Consolidated Financial Statements for additional
information regarding the insurance subsidiaries.
DESCRIPTION OF BUSINESS
Moving and self-storage operations consist of the rental of
trucks, automobile-type trailers and self-storage space to the do-it-
yourself mover under the registered tradename U-Haul
throughout the United States and Canada. Additionally, the Company sells
related products (such as boxes, tape and packaging materials). AREC owns
the majority of the Company's real estate assets, including the Company's
Center and Storage locations. AREC has responsibility for actively
marketing properties available for sale or lease. AREC is also
responsible for managing any environmental risks associated with the
Company's real estate.
RWIC originates and reinsures property and casualty type insurance
products for various market participants, including independent third
parties, the Company's customers and the Company. RWIC's principal
strategy is to capitalize on its knowledge of insurance products aimed
at the moving and rental markets.
Oxford originates and reinsures life, health and annuity type
insurance products and administers the Company's self-insured employee
health plan.
FOREIGN CURRENCY
The consolidated financial statements include the accounts of U-
Haul Co. (Canada) Ltd., a subsidiary of the Company.
Assets and liabilities, denominated in currencies other than U.S.
dollars, are translated to U.S. dollars at the exchange rate as of the
balance sheet date. Income and expense amounts are translated at the
average exchange rate during the fiscal year. The related translation
gains or losses are included in the Statement of Stockholders' Equity.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with an original
maturity of approximately three months or less to be cash equivalents
($6,568,000 as of March 31, 1998).
39
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
RECEIVABLES
Accounts receivable of RWIC and Oxford include premiums and
agents' balances due, net of commissions payable and amounts due from
ceding reinsurers. Accounts receivable of RWIC and Oxford are reduced
by amounts considered by management to be uncollectible. Accounts
receivable of the Company's moving and storage subsidiaries include
mortgage and other notes receivable and trade accounts receivable.
Accounts receivable are reduced by amounts considered by management to
be uncollectible based on historical collection loss experience and a
review of the current status of existing receivables by the Company's
rental subsidiaries.
INVENTORIES
Inventories are primarily valued at the lower of cost or market.
Cost is determined using the LIFO (last-in, first-out) method.
INVESTMENTS
Fixed maturities consist of bonds and redeemable preferred stocks
which are classified as held-to-maturity or available-for-sale. Fixed
maturity investments classified as held-to-maturity are recorded at
cost adjusted for the amortization of premiums or accretion of
discounts while those classified as available-for-sale are recorded at
fair value with unrealized gains or losses reported on a net basis in
the Statement of Stockholders' Equity. Gains and losses on the sale
of securities classified as available-for-sale are reported as a
component of revenues using the specific identification method. The
Company does not currently maintain a trading portfolio. Mortgage
loans on real estate held by the insurance subsidiaries are carried at
unpaid balances, net of allowance for possible losses and any
unamortized premium or discount. Real estate is carried at cost less
accumulated depreciation. Policy loans are carried at their unpaid
balance. Fair values for investments are based on
quoted market prices, dealer quotes or discounted cash flows.
Short-term investments consist of other securities scheduled to
mature within one year of their acquisition date. See Note 4 of Notes
to Consolidated Financial Statements.
Interest on bonds and mortgage loans is recognized when earned.
Dividends on common and redeemable preferred stocks are recognized on
ex-dividend dates. Realized gains and losses on the sale of
investments are recognized at the trade date and included in revenues
using the specific identification method.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs which vary with and are primarily
related to the production of new business, have been deferred. These
deferred policy acquisition costs are amortized in relation to revenue
such that profits are realized as a level percentage of revenue.
Property-casualty acquisition costs are amortized over the
related contract period which generally does not exceed one year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are
depreciated on the straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance is charged to
operating expenses as incurred, while renewals and betterments are
capitalized. Major overhaul costs are amortized over the estimated
period benefited. Gains and losses on dispositions are netted against
depreciation expense when realized. Interest costs incurred as part
of the initial construction of assets are capitalized. Interest
expense of $2,210,000, $3,430,000 and $1,807,000 was capitalized in
the years ended 1998, 1997 and 1996, respectively. During fiscal 1998,
the Company increased the estimated salvage value and useful lives of
certain rental equipment. The effect of the change increased net earnings
by $9,268,000 ($0.42 per share).
Certain recoverable environmental costs related to the removal of
underground storage tanks or related contamination are capitalized and
depreciated over the estimated useful lives of the properties. The
capitalized costs improve the safety or efficiency of the property as
compared to when the property was originally acquired or are incurred
in preparing the property for sale.
40
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
At March 31, 1998, the book value of the Company's real estate
that is no longer necessary for use in the Company's current
operations, and available for sale/lease, was approximately
$45,946,000. Such properties available for sale are carried at cost,
less accumulated depreciation, which is less than or approximate to
fair value.
FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to reduce
its interest rate exposure; the Company does not use the agreements
for trading purposes. Amounts to be paid or received under the
agreements are accrued. Although the Company is exposed to credit
loss for the interest rate differential in the event of nonperformance
by the counterparties to the agreements, it does not anticipate
nonperformance by the counterparties.
The Company has mortgage receivables which potentially expose the
Company to credit risk. The portfolio of notes is principally
collateralized by mini-warehouse storage facilities and other
residential and commercial properties. The Company has not
experienced losses related to the notes from individual notes or
groups of notes in any particular industry or geographic area. The
estimated fair values were determined using the discounted cash flow
method, using interest rates currently offered for similar loans to
borrowers with similar credit ratings.
Fair value summary of mortgage receivables:
Book Estimated
value fair value
--------------------------
(in thousands)
March 31, 1998 $ 80,220 82,420
==========================
March 31, 1997 $ 66,484 68,928
==========================
Other financial instruments that are subject to fair value
disclosure requirements are carried in the financial statements at
amounts that approximate fair value, unless elsewhere disclosed. See
below as well as Notes 4 and 5 of Notes to Consolidated Financial
Statements.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of temporary cash
investments and trade receivables. The Company places its temporary
cash investments with financial institutions and limits the amount of
credit exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to the
large number of customers and their dispersion across many different
industries and geographic areas.
POLICY BENEFITS AND LOSSES, CLAIMS AND LOSS EXPENSES PAYABLE
Liabilities for policy benefits payable on traditional life and
certain annuity policies are established in amounts adequate to meet
estimated future obligations on policies in force. These liabilities
are computed using mortality and withdrawal assumptions which are
based upon recognized actuarial tables and contain margins for adverse
deviation. At December 31, 1997, interest assumptions used to compute
policy benefits payable range from 2.5% to 12.8%.
With respect to annuity policies accounted for as investment
contracts, the liability for investment contract deposits consists of
policy account balances that accrue to the benefit of the
policyholders, excluding surrender charges. Fair value of investment
contract deposits were $391,732,000 and $399,953,000 at December 31,
1997 and 1996, respectively.
Liabilities for accident and health and other policy claims and
benefits payable represent estimates of payments to be made on
insurance claims for reported losses and estimates of losses incurred
but not yet reported. These estimates are based on past claims
experience and consider current claim trends as well as social and
economic conditions.
41
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
With respect to property-casualty, the liability for unpaid
losses is based on the estimated ultimate cost of settling claims
reported prior to the end of the accounting period, estimates received
from ceding reinsurers and estimates for unreported losses based on
RWIC's historical experience supplemented by insurance industry
historical experience. The liability for unpaid loss adjustment
expenses is based on historical ratios of loss adjustment expenses
paid to losses paid. Amounts recoverable from reinsurers on unpaid
losses are estimated in a manner consistent with the claim liability
associated with the reinsured policy. Adjustments to the liability
for unpaid losses and loss expenses as well as amounts recoverable
from reinsurers on unpaid losses are charged or credited to expense in
periods in which they are made.
RENTAL REVENUE
The Company recognizes its share of rental revenue less
commission on the accrual basis pursuant to contractual arrangements
between AMERCO and its fleet owners, rental dealers and customers.
See Note 9 of Notes to Consolidated Financial Statements for further
discussion.
PREMIUM REVENUE
Accident and health, credit life and health and property-casualty
gross premiums are earned on a pro rata basis over the term of the
related contracts. The portion of premiums not earned at the end of
the period is recorded as unearned premiums. Traditional life and
annuity premiums are recognized as revenue when due from
policyholders. Revenue for annuity policies which are accounted for
as investment contracts are included in net investment income as
investment margins until the policyholder annuitizes, at which time
the policyholders fund balance is recognized as premium.
REINSURANCE
Reinsurance premiums, commissions and expense reimbursements,
related to ceded business, are accounted for on bases consistent with
those used in accounting for the original policies issued and the
terms of the reinsurance contracts. Premiums ceded to other companies
have been reported as a reduction of premium income. Assets and
liabilities relating to ceded contracts are reported gross of the
effects of reinsurance. See also "Policy Benefits And Losses, Claims
and Loss Expenses Payable" above.
INCOME TAXES
In addition to charging income for taxes paid or payable, the
provision for income taxes reflects deferred income taxes resulting
from changes in temporary differences between the tax bases of assets
and liabilities and their reported amounts in the financial
statements. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date.
The Company files a consolidated federal income tax return with
its insurance subsidiaries.
NEW ACCOUNTING STANDARDS
On April 1, 1995, the Company implemented Statement of Position
93-7, "Reporting on Advertising Costs", issued by the Accounting
Standards Executive Committee in December 1993. This statement of
position provides guidance on financial reporting on advertising
costs in annual financial statements. Upon implementation, the
Company recognized additional advertising expense of $8,647,000 for
advertising costs not qualifying as direct-response. The adoption had
the effect of reducing net income by $5,474,000 ($0.15 per share) for
the year ended March 31, 1996. The Company is currently reviewing its
implementation procedures.
For the year ended March 31, 1998, the Company implemented
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", issued by the
Accounting Standards Executive Committee in March 1998. This
statement of position establishes guidelines for the accounting for
the costs of all computer software developed or obtained for internal
use, including payroll and other direct costs.
42
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
For the year ended March 31, 1998, the Company implemented
Statement of Financial Standards No. 130, "Reporting Comprehensive
Income". Effective for fiscal years beginning after December 15,
1997, this statement establishes standards for reporting and
displaying comprehensive income and its components in general-purpose
financial statements. The standard requires that comprehensive income
and its components be displayed in the financial statements, the items
be classified by their nature and display the accumulated balances of
other comprehensive income in stockholders' equity separately from
retained earnings and additional paid-in-capital. The statement had
no effect on the Company's results of operations, financial position,
capital resources or liquidity.
For the year ended March 31, 1998, the Company implemented
Statement of Financial Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information". Effective for financial
periods beginning after December 15, 1997, this statement requires
public business enterprises to report certain information about their
operating segments in a complete set of financial statements to
stockholders; to report certain enterprise-wide information about
their products and services, their activities in different geographic
areas and their reliance on major customers; and to disclose certain
segment information in their interim financial statements. The
statement had no effect on the Company's results of operations,
financial position, capital resources or liquidity.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement
standardizes the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. It
also provides for matching the timing of gain or loss recognition on
the hedging instrument with the recognition of (a) the changes in the
fair value of hedged asset or liability attributable to the hedged
risk or (b) the earnings effect of the hedged forecasted transaction.
This statement becomes effective for fiscal periods beginning after
June 15, 1999. The Company is evaluating the effect this statement
will have on its financial reporting and disclosures and when it will
adopt the statement.
Other pronouncements issued by the Financial Accounting Standards
Board adopted during the year are not material to the consolidated
financial statements of the Company. Further, pronouncements with
future effective dates are either not applicable or not material to the
consolidated financial statements of the Company.
EARNINGS PER SHARE
Basic earnings per common share are computed based on the
weighted average number of shares outstanding for the year and
quarterly periods, excluding shares of the employee stock ownership
plan that have not been committed to be released. Preferred dividends
include undeclared or unpaid dividends of the Company. Net income is
reduced for preferred dividends for the purpose of the calculation.
The Company does not have any potential common stock that was not
included in the calculation of diluted earnings per share because it
is antidilutive in the current period. Accordingly, basic and diluted
earnings per share are equal. See Notes 6 and 7 of Notes to
Consolidated Financial Statements for further discussion.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the financial
statements for the years ended 1997 and 1996 to conform with the
current year's presentation.
43
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. RECEIVABLES
A summary of receivables follows:
March 31,
--------------------
1998 1997
--------------------
(in thousands)
Trade accounts receivable $ 15,994 15,273
Mortgage and note receivables,
net of discount 35,027 39,806
Note receivable and accrued interest
from SAC Holding Corporation
and its subsidiaries 67,547 46,690
Premiums and agents' balances
in course of collection 40,464 28,307
Reinsurance recoverable 120,262 73,069
Accrued investment income 14,853 14,308
Independent dealer receivable 5,131 6,995
Other receivables 20,274 16,457
-------------------
319,552 240,905
Less allowance for doubtful accounts 1,932 2,382
-------------------
$ 317,620 238,523
===================
During fiscal 1998, a subsidiary of the Company held various
senior and junior notes with SAC Holding Corporation and its
subsidiaries (SAC Holdings). The voting common stock of SAC Holdings
is held by Mark V. Shoen, a major stockholder of the Company.
The Company's subsidiary received principal payments of $1,047,000
and interest payments of $6,847,000 from SAC Holdings during fiscal
1998. The note receivable balance outstanding at March 31, 1998 was,
in the aggregate, $66,111,000 bearing interest rates ranging from 8.37%
to 13.0%.
During fiscal 1998, a subsidiary of the Company funded the
purchase of properties and construction costs for SAC Holdings of
approximately $24,574,000. Three of the properties were purchased from
the Company at a purchase price equal to the Company's acquisition cost
plus capitalized costs which approximated fair market value. In March
1998, SAC Holdings sold three of the properties to an outside party and
reduced the Company's receivable by $2,814,000.
The Company currently manages the properties owned by SAC Holdings
pursuant to a management agreement, under which the Company receives a
management fee equal to 6% of the gross receipts from the properties.
The Company received management fees of $1,860,000 during fiscal 1998.
The management fee percentage is consistent with the fees received by
the Company for other properties managed by the Company.
Management believes that the foregoing transactions were
consummated on terms equivalent to those that prevail in arm's-length
transactions.
3. INVENTORIES
A summary of inventory components follows:
March 31,
--------------------
1998 1997
--------------------
(in thousands)
Truck and trailer parts
and accessories $ 41,880 40,938
Hitches and towing components 16,418 14,348
Moving aids and promotional items 10,589 10,508
--------------------
$ 68,887 65,794
====================
44
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
3. INVENTORIES, continued
Certain general and administrative expenses are allocated to
ending inventories. Such costs remaining in inventory at fiscal years
ended 1998, 1997 and 1996 are estimated at $7,626,000, $7,568,000 and
$6,773,000, respectively. For the fiscal years ended March 31, 1998,
1997 and 1996, aggregate general and administrative costs were
$526,431,000, $511,473,000 and $439,122,000, respectively.
LIFO inventories, which represent approximately 98% of total
inventories at March 31, 1998 and 1997, would have been $4,716,000 and
$4,611,000 greater at March 31, 1998 and 1997, respectively, if the
consolidated group had used the FIFO (first-in, first-out) method.
4. INVESTMENTS
Major categories of net investment income consist of the
following:
Year ended December 31,
----------------------------
1997 1996 1995
----------------------------
(in thousands)
Fixed maturities $ 63,467 65,680 59,992
Real estate 223 279 727
Policy loans 605 519 554
Mortgage loans 7,187 7,193 7,887
Short-term, amounts held by
ceding reinsurers, net and
other investments 2,797 1,499 1,601
----------------------------
Investment income 74,279 75,170 70,761
Less investment expenses 24,584 25,749 24,772
----------------------------
Net investment income $ 49,695 49,421 45,989
============================
A comparison of amortized cost to estimated market value for
fixed maturities is as follows:
December 31, 1997
- ----------------- Par Value Gross Gross Estimated
Consolidated or number Amortized unrealized unrealized market
Held-to-Maturity of shares cost gains losses value
------------------------------------------------------
(in thousands)
U.S. treasury
securities
and government
obligations $ 10,415 $ 10,285 1,283 - 11,568
U.S. government
agency mortgage-
backed securities $ 40,988 40,772 512 (884) 40,400
Obligations of
states and
political
subdivisions $ 27,395 27,231 1,430 - 28,661
Corporate
securities $ 154,893 158,243 4,516 (453) 162,306
Mortgage-backed
securities $ 105,915 104,535 1,870 (482) 105,923
Redeemable preferred
stocks 2,168 59,685 1,006 (216) 60,475
----------------------------------------
400,751 10,617 (2,035) 409,333
----------------------------------------
45
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1997
- ----------------- Par Value Gross Gross Estimated
Consolidated or number Amortized unrealized unrealized market
Available-for-Sale of shares cost gains losses value
------------------------------------------------------
(in thousands)
U.S. treasury
securities and
government
obligations $ 18,205 $ 18,329 1,011 (7) 19,333
U.S. government
agency mortgage-
backed securities $ 36,128 35,570 1,334 (17) 36,887
Obligations of
states and
political
subdivisions $ 11,225 11,624 413 (31) 12,006
Corporate
securities $ 305,595 308,408 11,792 (1,136) 319,064
Mortgage-backed
securities $ 82,480 81,831 2,520 (65) 84,286
Redeemable preferred
stocks 531 13,869 677 - 14,546
----------------------------------------
469,631 17,747 (1,256) 486,122
----------------------------------------
Total $ 870,382 28,364 (3,291) 895,455
========================================
December 31, 1996
- ----------------- Par Value Gross Gross Estimated
Consolidated or number Amortized unrealized unrealized market
Held-to-Maturity of shares cost gains losses value
------------------------------------------------------
(in thousands)
U.S. treasury
securities
and government
obligations $ 18,680 $ 18,571 1,239 (24) 19,786
U.S. government
agency mortgage-
backed securities $ 50,465 50,171 528 (1,914) 48,785
Obligations of
states and
political
subdivisions $ 30,135 29,920 1,242 (21) 31,141
Corporate
securities $ 170,180 174,469 3,795 (1,782) 176,482
Mortgage-backed
securities $ 109,962 108,476 1,565 (1,783) 108,258
Redeemable preferred
stocks 929 26,768 421 (257) 26,932
----------------------------------------
408,375 8,790 (5,781) 411,384
----------------------------------------
46
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1996
- ----------------- Par Value Gross Gross Estimated
Consolidated or number Amortized unrealized unrealized market
Available-for-Sale of shares cost gains losses value
------------------------------------------------------
(in thousands)
U.S. treasury
securities and
government
obligations $ 11,685 $ 11,771 964 - 12,735
U.S. government
agency mortgage-
backed securities $ 26,085 25,575 331 (119) 25,787
Obligations of
states and
political
subdivisions $ 11,900 12,085 558 (95) 12,548
Corporate
securities $ 307,711 311,335 7,359 (2,633) 316,061
Mortgage-backed
securities $ 72,371 72,208 1,542 (560) 73,190
Redeemable preferred
stocks 436 10,815 202 (19) 10,998
----------------------------------------
443,789 10,956 (3,426) 451,319
----------------------------------------
Total $ 852,164 19,746 (9,207) 862,703
========================================
Fixed maturities estimated market values are based on publicly
quoted market prices at the close of trading on December 31, 1997 or
December 31, 1996, as appropriate.
The amortized cost and estimated market value of debt
securities by contractual maturity are shown below. Expected
maturities will differ from contractual maturities as borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
December 31, 1997
- ----------------- Amortized Estimated
Consolidated cost market value
---------------------------
Held-to-Maturity (in thousands)
Due in one year or less $ 14,357 14,457
Due after one year through five years 103,547 107,376
Due after five years through ten years 72,123 74,198
After ten years 5,732 6,504
------------------------
195,759 202,535
Mortgage-backed securities 145,307 146,323
Redeemable preferred stock 59,685 60,475
------------------------
400,751 409,333
------------------------
47
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1997
- ----------------- Amortized Estimated
Consolidated cost market value
---------------------------
Available-for-sale (in thousands)
Due in one year or less 20,100 20,231
Due after one year through five years 120,446 124,020
Due after five years through ten years 140,911 145,618
After ten years 56,904 60,534
------------------------
338,361 350,403
Mortgage-backed securities 117,401 121,173
Redeemable preferred stock 13,869 14,546
------------------------
469,631 486,122
------------------------
Total $ 870,382 895,455
========================
December 31, 1996
- ----------------- Amortized Estimated
Consolidated cost market value
---------------------------
Held-to-Maturity (in thousands)
Due in one year or less $ 20,151 20,454
Due after one year through five years 79,000 80,899
Due after five years through ten years 117,915 119,517
After ten years 5,894 6,539
------------------------
222,960 227,409
Mortgage-backed securities 158,647 157,043
Redeemable preferred stock 26,768 26,932
------------------------
408,375 411,384
------------------------
December 31, 1996
- ----------------- Amortized Estimated
Consolidated cost market value
--------------------------
Available-for-sale (in thousands)
Due in one year or less 8,773 8,846
Due after one year through five years 87,678 88,893
Due after five years through ten years 188,378 191,841
After ten years 50,362 51,764
------------------------
335,191 341,344
Mortgage-backed securities 97,783 98,977
Redeemable preferred stock 10,815 10,998
------------------------
443,789 451,319
------------------------
Total $ 852,164 862,703
========================
Proceeds from sales of investments in debt securities during
1997, 1996 and 1995 were $69,252,000, $115,886,000 and $101,565,000,
respectively. Gross gains of $1,132,000, $1,518,000 and $4,498,000
and gross losses of $515,000, $654,000 and $419,000 were realized on
those sales during 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996 fixed maturities include bonds with
an amortized cost of $15,443,000 and $18,728,000, respectively, on
deposit with insurance regulatory authorities to meet statutory
requirements.
48
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
Investments, other consists of the following:
March 31,
------------------
1998 1997
------------------
(in thousands)
Short-term investments $ 27,267 10,925
Mortgage loans 73,979 79,353
Equity investment 24,500 -
Real estate, foreclosed properties 22,497 20,936
U.S. government securities mutual fund 5,883 5,883
Policy loans 8,536 8,627
Other 1,402 1,582
------------------
$ 164,064 127,306
==================
Short-term investments consist primarily of fixed maturities with
a maturity of three months to one year from acquisition date. Mortgage
loans, representing first lien mortgages held by the insurance
subsidiaries, are carried at unpaid balances, less allowance for
possible losses and any unamortized premium or discount. Equity
investments and real estate obtained through foreclosures and held for
sale is carried at the lower of cost or fair value. U.S. government
securities mutual fund is carried at cost which approximates market
value. Policy loans are carried at their unpaid balance.
At December 31, 1997 and 1996, mortgage loans held as investments
with a book value of $73,979,000 and $79,353,000, respectively, were
outstanding. The estimated fair value of the mortgage loans at
December 31, 1997 and 1996 aggregated $74,240,000 and $84,564,000,
respectively. The estimated fair values were determined using the
discounted cash flow method, using interest rates currently offered for
similar loans to borrowers with similar credit ratings. Investments in
mortgage loans, included as a component of investments, are reported
net of allowance for possible losses of $507,000 and $800,000 in 1997
and 1996, respectively.
In February 1997, the Company, through its insurance subsidiaries,
invested in the equity of a limited partnership in a Texas-based self-
storage corporation. RWIC invested $13,500,000 in exchange for a 38%
limited partnership and Oxford invested $11,000,000 in exchange for a 31%
limited partnership. U-Haul is a 50% owner of a corporation which is a
general partner in the Texas-based self-storage corporation. The Company
has a $10,000,000 note receivable from the corporation.
49
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following:
March 31,
--------------------
1998 1997
--------------------
(in thousands)
Short-term borrowings, 6.31%
interest rate $ 6,500 4,000
Notes payable to banks under
revolving lines of credit, unsecured,
5.85% to 5.94% interest rates 180,000 60,000
Medium-term notes payable, unsecured,
6.71% to 8.08% interest
rates, due through 2027 362,000 387,000
Notes payable under Bond Backed Asset Trust,
unsecured, 6.65% to 7.14% interest
rates, due through 2033 300,000 -
Notes payable to insurance companies,
unsecured, 6.43% to 10.27% interest
rates, due through 2006 - 226,500
Notes payable to public,
unsecured, 7.85% interest
rate, due through 2004 175,000 175,000
Notes payable to banks, unsecured,
4.81% to 7.54% interest
rates, due through 2001 - 62,500
Notes and mortgages payable, secured,
7.00% to 10.00% interest rates,
due through 2005 1,752 68,471
Other notes payable, unsecured,
9.50% interest rate,
due through 2005 71 79
--------------------
$ 1,025,323 983,550
====================
Notes and mortgages payable are secured by land and buildings at
various locations with a net book value of $11,174,000 at March 31,
1998.
Revolving credit loans (long-term) are available from
participating banks under an agreement which provides for a total
credit line of $400,000,000 through the expiration date of the
revolving term of June 30, 2002. The Company may elect to borrow
under the credit agreement in the form of Eurodollar borrowings,
domestic dollar borrowings or issue letters of credit. Depending on
the form of borrowing elected, interest will be based on the prime
rate, the federal funds effective rate or the interbank offering rate
and in addition, margin interest rates will be charged. Loans may
also be at a fixed rate based upon the discretion of the borrower and
lender.
50
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE, continued
Facility fees, which are based upon the amount of credit line,
aggregated $622,000 and $975,000 for 1998 and 1997, respectively. As
of March 31, 1998, loans outstanding under the revolving credit line
totaled $180,000,000. Management intends to refinance the borrowings
on a long-term basis by either replacing them with long-term
obligations, renewing or extending them.
Year ended
-----------------------------
1998 1997 1996
-----------------------------
(in thousands)
A summary of revolving credit
activity follows:
Weighted average interest rate
during the year 5.95% 5.76% 6.20%
at year end 5.90% 5.78% 5.73%
Maximum amount outstanding
during the year $ 285,000 338,000 343,000
Average amount outstanding
during the year $ 203,250 128,000 281,750
A summary of short-term
borrowing follows:
Weighted average interest rate
during the year 6.05% 5.87% 6.26%
at year end 6.31% 7.63% 5.93%
Maximum amount outstanding
during the year $ 57,000 195,000 73,000
Average amount outstanding
during the year $ 25,208 56,417 37,583
AMERCO has committed lines of credit with various banks totaling
$400,000,000 and uncommitted lines of credit of $87,466,000 at March
31, 1998.
The Company has executed interest rate swap agreements (SWAPS) to
potentially mitigate the impact of changes in interest rates on its
floating rate debt. These agreements effectively change the Company's
interest rate exposure on $118,000,000 of floating rate notes to a
weighted average fixed rate of 7.87%. The SWAP's mature at the time
the related notes mature. Incremental interest expense associated
with SWAP activity was $2,687,000, $3,481,000 and $2,959,000 during
1998, 1997 and 1996, respectively.
At March 31, 1998, interest rate swap agreements with an
aggregate notional amount of $118,000,000 were outstanding.
Management estimates that at March 31, 1998 and 1997, the Company
would be required to pay $7,000,000 and $5,000,000, respectively, to
terminate the agreements. Such amounts were determined from current
treasury rates combined with swap spreads on agreements outstanding.
During the second quarter of fiscal 1998, the Company extinguished
$76,000,000 of 10.27% interest-bearing notes originally due in fiscal
1999 through fiscal 2002. This resulted in an extraordinary loss of
$4,044,000, net of tax of $2,371,000 ($0.18 per share).
In October 1997, the Company issued $300,000,000 of Bond Backed
Asset Trust Certificates (BATs). The net proceeds were used to
initially prepay floating rate indebtedness of the Company under
revolving credit agreements. Subsequent to the funding of the BATs,
the Company extinguished $255,071,000 of 6.43% to 8.13% interest-
bearing notes originally due in fiscal 1999 through fiscal 2010. This
resulted in an extraordinary loss of $9,628,000, net of tax of
$5,645,000 ($0.44 per share).
On July 18, 1996, the Company extinguished debt of approximately
$76,250,000 by irrevocably placing cash into a trust of U.S. Treasury
securities to be used to satisfy scheduled payments of principal and
interest. As of March 31, 1998 the remaining amount of debt that is
considered extinguished as a result of the defeasance amounted to
$14,000,000.
51
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE, continued
Certain of the Company's credit agreements contain restrictive
financial and other covenants, including, among others, covenants with
respect to incurring additional indebtedness, maintaining certain
financial ratios and placing certain additional liens on its properties
and assets. At March 31, 1998, the Company was in compliance with
these covenants.
The annual maturities of long-term debt for the next five years
adjusted for subsequent activity (if the revolving credit lines are
outstanding to maturity), are presented in the table below:
Year Ended
-----------------------------------------------
1999 2000 2001 2002 2003
-----------------------------------------------
(in thousands)
Mortgages $ 110 62 46 37 30
Medium-Term and
Other Notes 40,009 30,010 10 77,512 -
Revolving Credit - - - - 180,000
------------------------------------------------
$ 40,119 30,072 56 77,549 180,030
================================================
Interest paid in cash amounted to $76,035,000, $69,972,000 and
$71,561,000 for 1998, 1997 and 1996, respectively.
6. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock, 150,000,000 shares of Serial
Common Stock and 50,000,000 shares of Serial Preferred Stock. The
Board of Directors (the Board) may authorize the Serial Common Stock
to be issued in such series and on such terms as the Board shall
determine. Serial Preferred Stock issuance may be with or without par
value.
The Company has 6,100,000 shares of 8.5% cumulative, no par, non-
voting Series A (Series A) preferred stock. The Series A is not
convertible into, or exchangeable for, shares of any other class or
classes of stock of the Company. Dividends are payable quarterly in
arrears and have priority as to dividends over the Company's common
stock. The Series A is not redeemable prior to December 1, 2000. On
or after December 1, 2000, the Company, at its option, may redeem all
or part of the Series A, for cash at $25.00 per share plus accrued and
unpaid dividends to the redemption date.
On August 30, 1996, the Company issued 100,000 shares of its
Series B Preferred Stock with no par value for gross proceeds of
$100,000,000. Dividends are cumulative with the rate being reset
quarterly and have priority as to dividends over the Company's Common
Stock. The Series B Preferred Stock, as amended, is convertible under
certain circumstances into 4,000,000 shares, subject to the Company's
prior right to redeem the Series B Preferred Stock, of AMERCO's Common
Stock, $0.25 par value. In January 1998, the Company redeemed 25,000
shares of its Series B Preferred Stock for $25,000,000.
On October 14, 1996, the Company paid an additional $15,000,000 to
L.S. Shoen in settlement of all outstanding disputes pursuant to a
Settlement, Mutual Release of All Claims and Confidentiality Agreement
(Settlement Agreement), dated October 15, 1996 with the Company
resolving the lawsuit in the District Court of Clark County, Nevada.
The settlement resolves a long-standing dispute between the Company and
L.S. Shoen regarding L.S. Shoen's entitlement to compensation pursuant
to an alleged lifetime employment contract.
On December 18, 1996, the Company sold 2,250,000 shares of Common
Stock, $0.25 par value, to the public for $35.00 per share, receiving
net proceeds of $74,228,000.
During the year ended March 31, 1996, pursuant to a judgment in
the Shoen Litigation, the Company repurchased 5,828,140 shares of
Common Stock in exchange for $39,631,000, funded damages of
$87,337,000 and paid statutory post-judgment interest of $6,128,000.
52
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6. STOCKHOLDERS' EQUITY, continued
During the year ended March 31, 1997, pursuant to a judgment in
the Shoen Litigation, the Company repurchased 12,426,836 shares of
Common Stock in exchange for $84,502,000, funded damages of
$228,373,000 and paid statutory post-judgment interest of $689,000 and
placed funds of $48,234,000 into an escrow account pending the outcome
of a dispute involving the entitlement of the plaintiffs to post-
bankruptcy petition date interest.
The plaintiffs included the father, brothers and sisters of Edward
J., Mark V., Paul F. and James P. Shoen who are major stockholders of
the Company, and Edward J., Paul F. and James P. Shoen who are
directors of the Company.
The above treasury share transactions were recorded net of tax of
$115,935,000 ($80,997,000 for fiscal 1997 transactions and $34,938,000
for fiscal 1996 transactions).
7. EARNINGS PER SHARE
The following table reflects the calculation of the earnings per
share (in thousands except per share data):
Year ended
-----------------------------------
1998 1997 1996
-----------------------------------
(in thousands except per share data)
Earnings from operations
before extraordinary
loss on early extinguishment
of debt $ 48,656 54,184 60,394
Less dividends
on preferred shares 20,664 17,456 12,962
----------------------------------
27,992 36,728 47,432
Extraordinary loss on early
extinguishment of debt, net (13,672) (2,319) -
----------------------------------
Net earnings for per
share calculation $ 14,320 34,409 47,432
==================================
Earnings per common share (both
basic and diluted):
Earnings from operations
before extraordinary loss
on early extinguishment
of debt $ 1.28 1.44 1.33
Extraordinary loss on early
extinguishment of debt, net (0.62) (0.09) -
----------------------------------
Net earnings $ 0.66 1.35 1.33
==================================
Weighted average common
shares outstanding 21,896,101 25,479,651 35,736,335
==================================
53
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. INCOME TAXES
The components of the consolidated expense for income taxes
applicable to operations are as follows:
Year ended
-------------------------------
1998 1997 1996
-------------------------------
(in thousands)
Current:
Federal $ 2,098 3,404 -
State 406 169 637
Deferred:
Federal 23,772 24,218 33,790
State 1,367 1,553 1,405
------------------------------
$ 27,643 29,344 35,832
===============================
Actual tax expense reported on earnings from operations differs
from the "expected" tax expense amount (computed by applying the
United States federal corporate tax rate of 35% in 1998, 1997 and
1996) as follows:
Year ended
-------------------------------
1998 1997 1996
-------------------------------
(in thousands)
Computed "expected" tax
expense $ 26,705 29,232 33,679
Increases (reductions) in taxes
resulting from:
Tax-exempt interest income (676) (767) (714)
Net reinsurance effect (166) (920) -
Canadian subsidiary income
tax benefit (524) (645) (1,235)
True-up of prior year 950 - 2,112
Federal tax benefit of
state and local taxes (620) (602) (714)
Other 201 1,324 662
------------------------------
Actual federal tax
expense 25,870 27,622 33,790
State and local income tax
expense 1,773 1,722 2,042
------------------------------
Actual tax expense
of operations $ 27,643 29,344 35,832
==============================
54
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. INCOME TAXES, continued
Deferred tax assets and liabilities are comprised as follows:
March 31,
-----------------
1998 1997
-----------------
(in thousands)
Deferred tax assets
-------------------
Benefit of tax NOL and credit
carryforwards $ 139,458 150,633
Accrued liabilities 7,663 14,953
Deferred revenue from
sale/leaseback 9,794 10,173
Policy benefits and losses,
claims and loss expenses
payable, net 17,064 26,137
Other 714 -
-----------------
Total deferred tax assets $ 174,693 201,896
-----------------
Deferred tax liabilities
------------------------
Property, plant and equipment $ 188,952 195,080
Deferred acquisition costs 14,823 16,082
Other - 409
-----------------
Total deferred tax liabilities $ 203,775 211,571
-----------------
Net deferred tax liability $ 29,082 9,675
=================
In light of the Company's history of profitable operations,
management has concluded that it is more likely than not that the
Company will ultimately realize the full benefit of its deferred tax
assets. Accordingly, the Company believes that a valuation allowance
is not required at March 31, 1998 and 1997. See also Note 14 of Notes
to Consolidated Financial Statements.
Income taxes paid in cash amounted to $2,758,000, $4,949,000 and
$540,000 for 1998, 1997 and 1996, respectively.
Under the provisions of the Tax Reform Act of 1984 (the Act), the
balance in Oxford's account designated "Policyholders' Surplus
Account" is frozen at its December 31, 1983 balance of $19,251,000.
Federal income taxes (Phase III) will be payable thereon at applicable
current rates if amounts in this account are distributed to the
stockholder or to the extent the account exceeds a prescribed maximum.
Oxford did not incur a Phase III liability for the years ended
December 31, 1997, 1996 and 1995.
The Internal Revenue Service has examined AMERCO's income tax
returns for the years ended 1994 and 1995. All agreed issues have
been provided for in the financial statements.
At March 31, 1998 AMERCO and RWIC have non-life net operating
loss carryforwards available to offset taxable income in future years
of $324,963,000 for tax purposes. These carryforwards expire in 2005
through 2012. AMERCO has alternative minimum tax credit carryforwards
of $14,647,000 which do not have an expiration date, but may only be
utilized in years in which regular tax exceeds alternative minimum
tax. The use of certain carryforwards may be limited or prohibited if
a reorganization or other change in corporate ownership were to occur.
During 1994, Oxford dividended its investment in RWIC common
stock to its parent at its book value. As a result of such dividend,
a deferred intercompany gain arose due to the difference between the
book value and fair value of such common stock. However, such gain
can only be triggered if certain events occur. To date, no events
have occurred which would trigger such gain recognition. No deferred
taxes have been provided in the accompanying consolidated financial
statements as management believes that no events have occurred to
trigger such gain.
55
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS
Independent rental equipment owners (fleet owners) own
approximately 9% of all U-Haul rental trailers and 0.03% of certain
other rental equipment. There are approximately 4,000 fleet owners,
including certain officers, directors, employees and stockholders of
the Company. All rental equipment is operated under contract with
U-Haul whereby U-Haul administers the operations and marketing of such
equipment and in return receives a percentage of rental fees paid by
customers. Based on the terms of various contracts, rental fees are
distributed to the Company (for services as operators), to the fleet
owners (including certain subsidiaries and related parties of the
Company) and to Rental Dealers (including Company-operated U-Haul
Centers).
RWIC insures and reinsures certain risks of U-Haul customers and
independent fleet owners. Premiums earned on these policies were
$49,400,000, $40,800,000 and $43,400,000 during the years ended
December 31, 1997, 1996 and 1995, respectively.
10. EMPLOYEE BENEFIT PLANS
The Company participates in the AMERCO Employee Savings, Profit
Sharing and Employee Stock Ownership Plan (the Plan) which is designed
to provide all eligible employees with savings for their retirement
and to acquire a proprietary interest in the Company.
The Plan has three separate features: a profit sharing feature
(the Profit Sharing Plan) under which the Employer may make
contributions on behalf of participants; a savings feature (the
Savings Plan) which allows participants to defer income under Section
401(k) of the Internal Revenue Code of 1986; and an employee stock
ownership feature (the ESOP) under which the Company may make
contributions of AMERCO Common Stock or cash to acquire such stock on
behalf of participants. Generally, employees of the Company are
eligible to participate in the Plan upon completion of a one year
service requirement.
The Company has arranged financing to fund the ESOP trust (ESOT)
and to enable the ESOT to purchase shares. Below is a summary of the
financing arrangements.
Amount outstanding
Financing as of Interest Payments
Date March 31, 1998 1998 1997 1996
---------------------------------------------------------------------
(in thousands)
December 1989 $ 900 126 162 309
May 1990 351 35 45 59
June 1991 16,817 1,466 1,472 1,131
Shares are released from collateral and allocated to active
employees based on the proportion of debt service paid in the plan
year. Contributions to the ESOT charged to expense were $3,588,000,
$3,570,000 and $2,904,000 for the years ended 1998, 1997 and 1996,
respectively.
The shares held by ESOP as of March 31 were as follows:
Shares issued Shares issued
prior to subsequent to
December 31, 1992 December 31, 1992
------------------------------------------
1998 1997 1998 1997
------------------------------------------
(in thousands)
Allocated shares 1,587 1,487 118 78
Shares committed to be
released - - 11 11
Unreleased shares 523 749 697 742
Fair value of
unreleased shares $ 5,688 7,574 21,425 18,926
==========================================
56
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. EMPLOYEE BENEFIT PLANS, continued
For purposes of this schedule, fair value of unreleased shares
issued prior to December 31, 1992 is defined as the historical cost of
such shares. Fair value of unreleased shares issued subsequent to
December 31, 1992 is defined as the March 31 trading value of such
shares for 1998 and 1997.
Oxford insures various group life and group disability insurance
plans covering employees of the consolidated group. Premiums earned
were $2,785,000, $2,370,000 and $2,138,000 during the years ended
December 31, 1997, 1996 and 1995, respectively, and were eliminated in
consolidation.
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides medical and life insurance benefits to
retired employees and eligible dependents over age 65 if the employee
meets specified age and service requirements.
The Company uses the accrual method of accounting for
postretirement benefits. The Company continues to fund medical and
life insurance benefit costs as claims are incurred.
The components of net periodic postretirement benefit cost for
1998, 1997 and 1996 are as follows:
1998 1997 1996
----------------------------
(in thousands)
Service cost for benefits earned
during the period $ 260 381 346
Interest cost on accumulated
postretirement benefit 301 407 422
Other components (239) (58) (81)
----------------------------
Net periodic postretirement benefit cost $ 322 730 687
============================
The 1998 and 1997 postretirement benefit liability included the
following components:
1998 1997
-----------------
(in thousands)
Actuarial present value of postretirement
benefit obligation:
Retirees $ (1,589) (1,360)
Eligible active plan participants (381) (344)
Other active plan participants (2,769) (2,408)
-----------------
Accumulated postretirement benefit obligation (4,739) (4,112)
Unrecognized net gain (3,460) (3,838)
-----------------
$ (8,199) (7,950)
=================
The discount rate assumptions in computing the information above
were as follows:
1998 1997 1996
--------------------------
Accumulated postretirement benefit obligation 7.00% 7.50% 7.00%
The year-to-year fluctuations in the discount rate assumptions
primarily reflect changes in U.S. interest rates. The discount rate
represents the expected yield on a portfolio of high-grade (AA-AAA
rated or equivalent) fixed-income investments with cash flow streams
sufficient to satisfy benefit obligations under the plans when due.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 6.75% in 1998,
declining annually to an ultimate rate of 4.20% in 2012.
57
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued
If the health care cost trend rate assumptions were increased by
1.0%, the accumulated postretirement benefit obligation as of March
31, 1998 would be increased by approximately $737,000. The effect of
this change on the sum of the service cost and interest cost
components of net periodic postretirement benefit cost for 1998 would
be an increase of approximately $105,000.
Postemployment benefits provided by the Company are not material.
12. REINSURANCE
The Company's insurance subsidiaries assume and cede reinsurance
on both a coinsurance and risk premium basis. RWIC and Oxford obtain
reinsurance for that portion of risks exceeding retention limits. The
maximum amount of life insurance retained on any one life is $100,000.
RWIC also reinsures a wide range of property-casualty risks with
third parties and insures general and auto liability, multiple peril
and workers' compensation coverage for the consolidated group,
independent fleet owners and customers as a direct writer and as a
reinsurer through third party companies.
To the extent that a reinsurer is unable to meet its obligation
under the related reinsurance agreements, the Company would remain
liable for the unpaid losses and loss expenses. Pursuant to certain
of these agreements, the Company holds letters of credit of $7,900,000
from reinsurers. The Company has issued letters of credit of
$2,800,000 in favor of certain ceding companies.
RWIC insures and reinsures general liability, auto liability and
workers' compensation coverage for member companies of the consolidated
group. Premiums earned by RWIC on these policies were $19,800,000,
$19,700,000 and $12,700,000 during the years ended December 31, 1997,
1996 and 1995, respectively, and were eliminated in consolidation.
RWIC is a reinsurer of municipal bond insurance through an
agreement with MBIA, Inc. Premiums generated through this agreement
are recognized on a pro rata basis over the contract coverage period.
Unearned premiums on this coverage were $5,200,000 and $5,000,000 as
of December 31, 1997 and 1996, respectively. RWIC's share of case
loss reserves related to this coverage was insignificant at December
31, 1997. RWIC's aggregate exposure for Class 1 municipal bond
insurance was $964,700,000 as of December 31, 1997.
A summary of reinsurance transactions by business segment
follows:
Percentage
Ceded Assumed of amount
Direct to other from other Net assumed to
amount companies companies amount net
------------------------------------------------------
(in thousands)
Year ended 1997
- ---------------
Life insurance
in force $ 1,601,840 224,893 2,219,393 3,596,340 62%
============================================
Premiums earned:
Life $ 3,527 160 7,034 10,401 68%
Accident and
health 7,916 1,217 1,930 8,629 22%
Annuity 106 - 8,868 8,974 99%
Property
casualty 103,488 22,387 55,508 136,609 41%
--------------------------------------------
Total $ 115,037 23,764 73,340 164,613
============================================
58
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
12. REINSURANCE, continued
Percentage
Ceded Assumed of amount
Direct to other from other Net assumed to
amount companies companies amount net
------------------------------------------------------
(in thousands)
Year ended 1996
- ---------------
Life insurance
in force $ 35,298 463 2,392,339 2,427,174 99%
============================================
Premiums earned:
Life $ 1,869 18 8,016 9,867 81%
Accident and
health 4,740 171 1,469 6,038 24%
Annuity 82 - 10,836 10,918 99%
Property
casualty 108,440 26,148 54,488 136,780 40%
--------------------------------------------
Total $ 115,131 26,337 74,809 163,603
============================================
Percentage
Ceded Assumed of amount
Direct to other from other Net assumed to
amount companies companies amount net
----------------------------------------------------
(in thousands)
Year ended 1995
- ---------------
Life insurance
in force $ 35,257 481 2,586,485 2,621,261 99%
==========================================
Premiums earned:
Life $ 2,078 17 8,414 10,475 80%
Accident and
health 4,877 183 2,574 7,268 35%
Annuity - - 8,453 8,453 100%
Property
casualty 91,373 33,031 69,711 128,053 54%
------------------------------------------
Total $ 98,328 33,231 89,152 154,249
==========================================
In connection with Oxford's acquisitions during 1997 as disclosed in
Note 19 of Notes to Consolidated Financial Statements, the level of life
reinsurance transactions increased as of December 31, 1997.
13. CONTINGENT LIABILITIES AND COMMITMENTS
The Company occupies certain facilities and uses certain
equipment under operating lease commitments with terms expiring
through 2079. Lease expense was $89,879,000, $85,903,000 and
$69,097,000 for the years ended 1998, 1997 and 1996, respectively.
During the year ended March 31, 1998, a subsidiary of U-Haul entered
into twenty-four transactions, and has subsequently entered into two
additional transactions, whereby the Company sold rental trucks and
subsequently leased back. The Company has guaranteed $95,192,000 of
residual values at March 31, 1998 and an additional $3,740,000
subsequent to March 31, 1998 for these assets at the end of the
respective lease terms. U-Haul also entered into two transactions,
whereby the Company sold computer equipment and subsequently leased
back. Certain leases contain renewal and fair market value purchase
options as well as mileage and other restrictions similar to covenants
disclosed in Note 5 of Notes to Consolidated Financial Statements
(Note 5) for notes payable and loan agreements.
59
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. CONTINGENT LIABILITIES AND COMMITMENTS, continued
Following are the lease commitments for leases having terms of
more than one year (in thousands):
March 31, 1998
--------------------------- Net activity
Property, plant Rental subsequent to
Year ended and other equipment fleet year end Total
-------------------------------------------------------------------------
1999 $ 5,740 100,200 2,091 108,031
2000 4,437 100,200 2,521 107,158
2001 2,869 94,287 2,521 99,677
2002 1,098 78,603 2,521 82,222
2003 774 64,939 2,521 68,234
Thereafter 8,603 100,705 5,471 114,779
----------------------------------------------------
$ 23,521 538,934 17,646 580,101
====================================================
During the year ended March 31, 1998, the Company reduced future
lease commitments by $83,713,000 through early termination of certain
leases. Residual value guarantees were also reduced by $14,300,000 in
connection with the terminations.
In December 1996, the Company executed a $100 million Operating
Lease Facility (the Facility) with a number of financial institutions.
Under the Facility, the lessor acquires land to be developed for
storage locations by the Company, as Construction Agent, or acquires
existing storage locations with advances of funds (the Advances) made
by certain parties to the Facility. The Company will separately lease
land and improvements, including completed locations capitalized by
the lessor, under the Facility and the respective lease supplements.
Funding under the Facility totaled $48,216,000 at March 31, 1998.
The Facility contains certain restrictions similar to those
contained in Note 5. Upon occurrence of any event of default, the
lessor may rescind or terminate any or all leases and, among other
things, require the Company to repurchase any or all of the
properties. The Facility has a three year term, subject to the
Company's option, with the consent of other parties, to renew for
successive one year terms.
Upon the expiration of the Facility, the Company may either
purchase all of the properties based on a purchase price equal to all
amounts outstanding under the Advances, including the interest and
yield thereon, or remarket all of the properties to a third party
purchaser who may become a subsequent lessor to the Company.
In the normal course of business, the Company is a defendant in a
number of suits and claims. The Company 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 such suits, claims or
proceedings involving the Company, individually or in the aggregate,
are expected to result in a material loss. Also see Notes 12 and 14 of
Notes to Consolidated Financial Statements.
14. LEGAL PROCEEDINGS
A judgment was entered on February 21, 1995, in the Shoen
Litigation against Edward J. Shoen, James P. Shoen, Paul F. Shoen,
Aubrey K. Johnson, John M. Dodds and William E. Carty, who are current
members of the Board of Directors of the Company. The Company was also
a defendant in the action as originally filed, but was dismissed from
the action on August 15, 1994. The plaintiffs alleged, among other
things, that certain of the individual plaintiffs were wrongfully
excluded from sitting on the Company's Board of Directors in 1988
through the sale of Common Stock to certain key employees. That sale
allegedly prevented the plaintiffs from gaining a majority position in
the Company's Common Stock and control of the Company's Board of
Directors. The plaintiffs alleged various breaches of fiduciary duty
and other unlawful conduct by the individual defendants and sought
equitable relief, compensatory damages, punitive damages and statutory
post-judgment interest.
60
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
14. LEGAL PROCEEDINGS, continued
Based on the plaintiffs' theory of damages, the court ruled that
the plaintiffs elected as their remedy in this lawsuit to transfer
their shares of stock in the Company to the defendants upon the
satisfaction of the judgment. The judgment was entered against the
defendants in the amount of approximately $461.8 million plus interest
and taxable costs. In addition, on February 21, 1995, judgment was
entered against Edward J. Shoen in the amount of $7 million as punitive
damages. On March 23, 1995, Edward J. Shoen filed a notice of appeal
with respect to the award of punitive damages and the plaintiffs
subsequently cross appealed the judge's remittitur of the punitive
damages from $70 million to $7 million. Both appeals were denied by
the Court of Appeals of the State of Arizona on July 24, 1997 and the
Supreme Court of the State of Arizona denied review of the case on
March 17, 1998. Edward J. Shoen has informed the Company that he
intends to file an appeal with the United States Supreme Court with
respect to the award of punitive damages.
Pursuant to separate indemnification agreements, the Company
agreed to indemnify the defendants to the fullest extent permitted by
law or the Company's Articles or By-Laws, for all expenses and damages
incurred by the defendants in the proceeding, subject to certain
exceptions.
On February 21, 1995, Edward J. Shoen, James P. Shoen, Aubrey K.
Johnson, John M. Dodds and William E. Carty (the Director-Defendants)
filed for protection under Chapter 11 of the federal bankruptcy laws,
resulting in the issuance of an order automatically staying the
execution of the judgment against those defendants. In late April
1995, the Director-Defendants, in cooperation with the Company, filed
plans of reorganization in the United States Bankruptcy Court for the
District of Arizona, all of which proposed the same funding and
treatment of the plaintiffs' claims resulting from the judgment in the
Shoen Litigation. The plans of reorganization, as amended and restated
on February 29, 1996, were confirmed by the bankruptcy court on March
15, 1996. The plans, as confirmed, shall collectively be referred to
as the "Plan."
On October 17, 1995 the Company entered into an agreement (the
Agreement) with the Director-Defendants whereby the Company agreed,
among other things, to fund the Plan and to release the
Director-Defendants from all claims the Company may have against them
arising from the Shoen Litigation. In addition, the
Director-Defendants agreed, among other things, (i) to release, subject
to certain exceptions, the Company from any claim they may have against
it pursuant to any indemnification agreements and (ii) to assign all
rights they have under the Shoen Litigation to the Company.
Pursuant to the Plan, the Company repurchased 18,254,976 shares of
the plaintiffs' Common Stock. As a result, the judgment in the Shoen
Litigation was satisfied in full. On October 1, 1996, the
Director-Defendants emerged from bankruptcy upon the filing of notice
with the bankruptcy court that the effective date of the Plan had
occurred and that the Plan had been performed and was substantially
consummated.
As of the date hereof, an issue remains regarding whether or not
the plaintiffs are entitled to statutory post-judgment interest at the
rate of ten percent (10%) per year from February 21, 1995 (the date the
Director-Defendants filed for protection under Chapter 11) until the
judgment was satisfied. On July 19, 1996, the bankruptcy court ruled
the plaintiffs are entitled to such interest. The Director-Defendants
and the Company have appealed the court's decision. The Company has
deposited $48,234,000 into an escrow account to secure payment of the
disputed interest, pending final resolution of this issue (including
all appeals by either side) which has been recorded as an "other asset"
in Company's financial statements. If the interest issue is decided
adversely to the Company and the Director-Defendants, the amount
deposited into the escrow account will be transferred to the
plaintiffs. The ultimate outcome of this issue will not have the
effect of increasing or decreasing the Company's net earnings, but
could reduce stockholders' equity.
The Company has deducted for income tax purposes approximately
$324.0 million of the payments made to the plaintiffs. While the
Company believes that such income tax deductions are appropriate, there
can be no assurance that such deductions ultimately will be allowed in
full.
61
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. PREFERRED STOCK PURCHASE RIGHTS
In July 1988, the Company's Board of Directors adopted a
stockholder-rights plan, and such rights were distributed as a
dividend at the rate of one right for each outstanding share of the
Company's common stock to the holders of record of common shares on
July 29, 1988. As a result of the 400-for-1 common stock split that
occurred on October 1, 1990, each outstanding share of common stock
currently has one four-hundredth of a right associated with it. When
exercisable, each right will entitle its holder to purchase from the
Company one one-hundredth of a share of the new Series C Preferred
Stock of the Company at a price of $15,000. AMERCO has reserved 5,000
shares of authorized but unissued preferred stock for the Series C
Preferred Stock authorized in this stockholder-rights plan. The
rights will become exercisable if a person or group of affiliated or
associated persons acquire or obtain the right to acquire beneficial
ownership of 50% or more of the common stock without approval of a
majority of the Board of Directors of the Company. The majority
approval must be made by members of the Board who were members as of
July 25, 1988 (Disinterested Directors) or subsequent members elected
to the Board if such persons are recommended or approved by a majority
of the Disinterested Directors. The rights will expire on July 29,
1998 unless earlier redeemed by the Company pursuant to authorization
by a majority of the Disinterested Directors. The Board of Directors
is evaluating the appropriateness of having an updated shareholder
rights plan in place by July 29, 1998.
In the event the Company is acquired in a merger or other
business combination transaction after the rights become exercisable,
provision shall be made so that each holder of a right shall have the
right to receive, upon exercise thereof and payment of the exercise
price, that number of common shares of such corporation which at the
time of such transaction would have a market or book value of two
times the exercise price of the right. If the Company is the
surviving company, each holder would have the right to receive, upon
payment of the exercise price, common shares with a market or book
value of two times the exercise price.
16. STOCK OPTION PLAN
In October 1992, the stockholders approved a ten year incentive
plan entitled the AMERCO Stock Option and Incentive Plan (the Plan)
for officers and key employees of the Company.
Under the Plan, Incentive Stock Options (ISOs), Non-qualified
Stock Options, Stock Appreciation Rights (SAR), Restricted Stock
Dividend Equivalents and Performance Shares may be awarded. The
aggregate numbers of shares of stock subject to award under the Plan
may not exceed 3,000,000. The stock subject to the Plan is AMERCO
Common Stock unless prior to the date the first award is made under
the Plan, a Committee of at least two Board members determines, in its
discretion, to utilize another class of the Company's stock.
The Plan provides for the granting of ISOs as defined under the
Internal Revenue Code and Non-qualified Stock Options under such terms
and conditions as the Committee determines in its discretion. The
ISOs may be granted at prices not less than one-hundred percent of the
fair market value at the date of grant with a term not exceeding ten
years.
The Plan provides for the granting of SARs subject to certain
conditions and limitations to holders of options under the Plan. SARs
permit the optionee to surrender an exercisable option for an amount
equal to the excess of the market price of the common stock over the
option price when the right is exercised.
62
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
16. STOCK OPTION PLAN, continued
Under the Restricted Stock feature of the Plan, a specified
number of common shares may be granted subject to certain
restrictions. Restriction violations during a specified period result
in forfeiture of the stock. The Committee may, at its discretion,
impose any restrictions on a Restricted Stock award.
The Plan authorizes the Committee to grant Dividend Equivalents
in connection with options. Dividend Equivalents are rights to
receive additional shares of Company stock at the time of exercise of
the option to which such Dividend Equivalents apply.
Under the Plan, Performance Share units may be granted. Each
unit is deemed to be the equivalent of one share of Company stock and
such units are credited to a Performance Share account. The value of
the units at the time of award or payment is the fair market value of
an equivalent number of shares of stock. At the end of the award
period, payment may be made subject to certain predetermined criteria
and restrictions.
To date, no stock options or awards have been granted.
17. RELATED PARTY TRANSACTIONS
The Company has related party transactions with certain major
stockholders, directors and officers of the consolidated group as
disclosed in Notes 2, 6, 9 and 15 of Notes to Consolidated Financial
Statements.
During the years ended 1998, 1997 and 1996, the Company purchased
$2,816,000, $3,281,000 and $3,122,000, respectively, of printing from
a company wherein an officer is a major stockholder, director and
officer of the Company.
During the years ended 1997 and 1996, the Company purchased
$11,164,000 and $1,558,000 of computer components from a company
wherein a major stockholder was the family trust of a major
stockholder, director and officer of the Company, until June 1, 1996.
On July 7, 1997, the Company executed an agreement with Sophia
Shoen whereby the Company paid $1,250,000 to Sophia Shoen to settle an
arbitration proceeding entitled JAMS-ENDISPUTE Link No. 940517195 and
--------------
to terminate a Share Repurchase and Registration Right Agreement.
Sophia Shoen is a major stockholder of the Company.
Pursuant to a Share Repurchase and Registration Rights Agreement,
dated as of March 1, 1992, among Paul F. Shoen, Pafran, Inc. and the
Company, Paul F. Shoen had the right to require the Company to
repurchase, with certain limitations, up to $3,000,000 of Common Stock
owned by him. The Paul Shoen Registration Rights Agreement provides
that the Company's obligation to repurchase any shares from Paul F.
Shoen shall be satisfied if such shares are purchased by the ESOP
Trust. Pursuant to the Paul Shoen Registration Rights Agreement, (i)
on June 30, 1994, Paul F. Shoen sold 58,825 shares of Common Stock to
the ESOP Trust at the then appraised value of $17.00 per share for an
aggregate sales price of approximately $1,000,000 and (ii) on January
17, 1995, Paul F. Shoen sold 50,632 shares of Common Stock to the ESOP
Trust at the most recent closing price for the Common Stock trading on
Nasdaq of $19.75 per share for an aggregate sales price of
approximately $1,000,000. In addition, Paul F. Shoen, subject to
certain limitations and restrictions, may also elect under the Paul
Shoen Registration Rights Agreement to cause the Company to effect a
registration under the Securities Act of 1933, as amended, and
applicable state securities laws of shares of Common Stock held by him.
Paul F. Shoen sold 500,000 shares of Common Stock to the public in
March of 1995 pursuant to his registration rights. Paul F. Shoen is a
major stockholder and director of the Company.
On December 18, 1995, the Company reimbursed Paul F. Shoen
$1,500,000 for a payment made to the plaintiffs in partial satisfaction
of the judgment in the Shoen Litigation.
Management believes that these transactions were consummated on
terms equivalent to those that prevail in arm's-length transactions.
63
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
18. SUPPLEMENTAL CASH FLOW INFORMATION
The (increase) decrease in receivables, inventories and accounts
payable and accrued expenses net of other operating and investing
activities follows:
Year ended
---------------------------------------
1998 1997 1996
---------------------------------------
(in thousands)
Receivables $ (35,359) 75,150 (45,734)
=======================================
Inventories $ (3,093) (19,903) 4,446
=======================================
Accounts payable and
accrued expenses $ 11,123 (20,819) 24,137
=======================================
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE
SUBSIDIARIES
A summary consolidated balance sheet for RWIC is presented below:
December 31,
---------------------
1997 1996
---------------------
(in thousands)
Investments - fixed maturities $ 427,304 401,198
Other investments 34,918 13,609
Receivables 140,568 116,373
Deferred policy acquisition costs 7,203 8,622
Due from affiliate 18,377 24,223
Deferred federal income taxes 17,169 16,941
Other assets 8,910 28,721
-------------------
Total assets $ 654,449 609,687
===================
Policy liabilities and accruals $ 389,574 338,047
Unearned premiums 45,753 50,699
Other policyholders' funds and liabilities 23,723 28,592
-------------------
Total liabilities 459,050 417,338
Stockholder's equity 195,399 192,349
-------------------
Total liabilities and
stockholder's equity $ 654,449 609,687
===================
64
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE
SUBSIDIARIES, continued
A summarized consolidated income statement for RWIC is presented
below:
Year ended December 31,
-----------------------------------
1997 1996 1995
-----------------------------------
(in thousands)
Premiums $ 155,906 156,505 140,752
Net investment income 31,292 30,572 29,906
-----------------------------------
Total revenue 187,198 187,077 170,658
Benefits and losses 170,036 151,258 132,723
Amortization of deferred policy
acquisition costs 8,622 9,858 8,973
Other expenses 7,804 7,699 7,526
-----------------------------------
Income from operations 736 18,262 21,436
Federal income tax
benefit (expense) 556 (5,502) (6,722)
-----------------------------------
Net income $ 1,292 12,760 14,714
===================================
A summary consolidated balance sheet for Oxford is presented
below:
December 31,
---------------------
1997 1996
---------------------
(in thousands)
Investments - fixed maturities $ 459,569 458,496
Other investments 106,649 92,762
Receivables 50,696 13,553
Deferred policy acquisition costs 37,052 39,976
Due (to) from affiliate (238) 149
Other assets 37,390 2,142
-------------------
Total assets $ 691,118 607,078
===================
Policy liabilities and accruals $ 157,315 80,589
Premium deposits 425,347 433,397
Other policyholders' funds and liabilities 11,598 7,931
Deferred federal income taxes 11,062 9,908
-------------------
Total liabilities 605,322 531,825
Stockholder's equity 85,796 75,253
-------------------
Total liabilities and
stockholder's equity $ 691,118 607,078
===================
A summarized consolidated income statement for Oxford is
presented below:
Year ended December 31,
-----------------------------------
1997 1996 1995
-----------------------------------
(in thousands)
Premiums $ 29,731 27,832 27,073
Net investment income 17,811 18,793 16,730
-----------------------------------
Total revenue 47,542 46,625 43,803
Benefits and losses 24,377 27,017 24,792
Amortization of deferred policy
acquisition costs 5,572 6,635 8,158
Other expenses 6,953 2,399 (1,757)
-----------------------------------
Income from operations 10,640 10,574 12,610
Federal income tax expense (3,220) (2,771) (4,233)
-----------------------------------
Net income $ 7,420 7,803 8,377
===================================
65
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE
SUBSIDIARIES, continued
Applicable laws and regulations of the State of Arizona require
maintenance of minimum capital determined in accordance with statutory
accounting practices in the amount of $400,000 for Oxford and
$1,000,000 for RWIC. In addition, the amount of dividends which can
be paid to stockholders by insurance companies domiciled in the State
of Arizona is limited. Any dividend in excess of the limit requires
prior regulatory approval. Statutory surplus which can be distributed
as dividends is $20,270,000 at December 31, 1997.
Audited statutory net income for RWIC for the years ended
December 31, 1997, 1996 and 1995 was $2,124,000, $16,807,000 and
$12,273,000, respectively; audited statutory capital and surplus was
$157,027,000 and $161,085,000 at December 31, 1997 and 1996,
respectively.
Audited statutory net income for Oxford for the years ended
December 31, 1997, 1996 and 1995 was $8,278,000, $12,815,000 and
$8,912,000, respectively; audited statutory capital and surplus was
$57,102,000 and $49,576,000 at December 31, 1997 and 1996,
respectively.
On November 21, 1997, Oxford purchased all of the issued and
outstanding shares of Encore Financial, Inc. and its subsidiaries
(Encore) for $11,569,000. Encore's primary subsidiary is North
American Insurance Company (NAI). NAI is an insurance company
domiciled in Wisconsin whose premium volume is primarily
derived from the sale of credit life and disability products. NAI owns
all of the issued and outstanding common shares of North American Fire &
Casualty Insurance Company, a property and casualty insurance company
domiciled in Louisiana. On November 24, 1997, Oxford purchased all of
the issued and outstanding shares of Safe Mate Life Insurance Company
for $2,243,000, domiciled in Texas, whose premium volume is derived from the
sale of credit life and disability products. These purchases greatly increase
Oxford's distribution channels and enhance administrative capabilities
in these markets.
66
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
Industry Segment Data - AMERCO's three industry segments are
Moving and Storage Operations, Property and Casualty Insurance and
Life Insurance. Moving and Storage Operations is composed of the
operations of U-Haul International, Inc., which is engaged in the
rental of various kinds of equipment and sales of related products and
services and AREC. Property and Casualty Insurance is composed of the
operations of Republic Western Insurance Company which operates in
various property and casualty lines. Life Insurance is composed of
the operations of Oxford Life Insurance Company which operates in
various life, accident and health and annuity lines.
Information concerning operations by industry segment follows:
Moving Property/ Adjustments
and Storage Casualty Life and
Operations Insurance Insurance Eliminations Consolidated
------------------------------------------------------------
(in thousands)
1998
- ----
Revenues:
Outside $1,196,226 167,398 46,318 - 1,409,942
Intersegment - 19,800 1,224 (21,024) -
----------------------------------------------------------
Total revenue $1,196,226 187,198 47,542 (21,024) 1,409,942
Depreciation/
amortization $ 97,764 10,807 5,251 - 113,822
Interest expense
net of interest
income of
$15,353 $ 64,016 - - - 64,016
Pretax earnings $ 64,923 736 10,640 - 76,299
Income tax $ 24,979 (556) 3,220 - 27,643
Extraordinary
loss $ 13,672 - - - 13,672
Identifiable
assets $1,884,213 654,449 691,118 (316,503) 2,913,277
67
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments
and Storage Casualty Life and
Operations Insurance Insurance Eliminations Consolidated
------------------------------------------------------------
(in thousands)
1997
- ----
Revenues:
Outside $1,146,807 167,352 45,616 - 1,359,775
Intersegment - 19,725 1,009 (20,734) -
----------------------------------------------------------
Total revenue $1,146,807 187,077 46,625 (20,734) 1,359,775
Depreciation/
amortization $ 75,607 12,040 6,717 - 94,364
Interest expense
net of interest
income of
$25,604 $ 50,437 - - - 50,437
Pretax earnings $ 54,692 18,262 10,574 - 83,528
Income tax $ 21,071 5,502 2,771 - 29,344
Extraordinary
loss $ 2,319 - - - 2,319
Identifiable
assets $1,811,145 609,687 607,078 (308,916) 2,718,994
Moving Property/ Adjustments
and Storage Casualty Life and
Operations Insurance Insurance Eliminations Consolidated
------------------------------------------------------------
(in thousands)
1996
- ----
Revenues:
Outside $1,107,135 157,959 42,926 - 1,308,020
Intersegment (231) 12,699 877 (13,345) -
----------------------------------------------------------
Total revenue $1,106,904 170,658 43,803 (13,345) 1,308,020
Depreciation/
amortization $ 83,734 11,176 7,517 - 102,427
Interest expense
net of interest
income of
$17,071 $ 50,486 - - - 50,486
Pretax earnings $ 61,524 21,436 12,610 656 96,226
Income tax $ 24,877 6,722 4,233 - 35,832
Identifiable
assets $1,916,533 619,454 614,300 (326,880) 2,823,407
68
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Geographic Area Data - United States Canada Consolidated
---------------------------------------
(All amounts are in U.S. $'s) (in thousands)
1998
- ----
Total revenues $ 1,379,183 30,759 1,409,942
Depreciation/amortization $ 111,072 2,750 113,822
Interest expense, net $ 64,295 (279) 64,016
Income tax $ 27,643 - 27,643
Extraordinary loss $ 13,672 - 13,672
Identifiable assets $ 2,863,416 49,861 2,913,277
1997
- ----
Total revenues $ 1,330,955 28,820 1,359,775
Depreciation/amortization $ 91,920 2,444 94,364
Interest expense, net $ 50,548 (111) 50,437
Income tax $ 29,344 - 29,344
Extraordinary loss $ 2,319 - 2,319
Identifiable assets $ 2,674,603 44,391 2,718,994
1996
- ----
Total revenues $ 1,281,047 26,973 1,308,020
Depreciation/amortization $ 100,143 2,284 102,427
Interest expense, net $ 51,339 (853) 50,486
Income tax $ 35,832 - 35,832
Identifiable assets $ 2,777,146 46,261 2,823,407
21. SUBSEQUENT EVENTS
On May 5, 1998, the Company declared a cash dividend of $3,241,000
($.53125 per preferred share) to the Series A preferred stockholders of
record as of May 15, 1998.
In June 1998, the Company paid a cash dividend of $1,520,000 to the
Series B preferred stockholder.
See Note 13 of Notes to Consolidated Financial Statements for other
subsequent event disclosures.
69
SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS
Additional Information
The following Summary of Earnings of Independent Trailer Fleets is
presented for purposes of analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements by Price
Waterhouse LLP, independent accountants, whose report thereon appears elsewhere
herein.
Years Ended March 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
(in thousands except earnings per $100 of average investment)
Earnings data (Note A):
Fleet Owner income:
Credited to Fleet Owner gross
rental income $ 2,317 3,214 4,181 5,288 6,556
Credited to Distribution, Accident
and Canadian Duty Fund (Note D) 27 36 69 66 71
-------- ----- ----- ----- -----
Total Fleet Owner income 2,344 3,250 4,250 5,354 6,627
-------- ----- ----- ----- -----
Fleet Owner operation expenses:
Charged to Fleet Owner (Note C) 1,144 1,639 2,182 2,127 2,404
Charged to Distribution, Accident
and Canadian Duty Funds (Note D) 98 131 254 234 237
-------- ----- ----- ----- -----
Total Fleet Owner operation
expenses 1,242 1,770 2,436 2,361 2,641
-------- ----- ----- ----- -----
Fleet Owner earnings before
Distribution, Accident and
Canadian Duty Funds credit,
depreciation and income taxes 1,102 1,480 1,814 2,993 3,986
Distribution, Accident and Canadian
Duty Funds credit (Note D) 70 95 185 168 165
-------- ----- ----- ----- -----
Net Fleet Owner earnings before
depreciation and income taxes $ 1,172 1,575 1,999 3,161 4,151
======== ===== ===== ===== =====
Investment data (Note A):
Amount at end of year $ 3,875 5,402 6,871 8,593 10,107
======== ===== ===== ===== ======
Average amount during year $ 4,639 6,137 7,732 9,351 10,775
======== ===== ===== ===== ======
Net Fleet Owner earnings before
depreciation and income taxes
per $100 of average investment
(Note B) $ 25.26 25.66 25.85 33.80 38.52
======== ===== ===== ===== =====
The accompanying notes are an integral part of this Summary of Earnings of Independent Trailer Fleets.
70
NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS
Additional Information
(A) The accompanying Summary of Earnings of Independent Trailer Fleets includes
the operations of trailers under the brand name of "U-Haul" owned by
Independent Fleet Owners. Earnings data represent the aggregate results of
operations before depreciation and taxes. Investment data represent the
cost of trailers and investments before accumulated depreciation.
Fleet Owner income is based on Independent Rental Dealer reports of rentals
transacted through the day preceding the last Monday of each month and
received by U-Haul International, Inc. by the end of the month and Company-
Operated U-Haul Center reports of rentals transacted through the last day of
each month. Payments to Fleet Owners for trailers lost or retired from
rental service as a result of damage by accident have not been reflected in
this summary because such payments do not relate to earnings before
depreciation and income taxes but, rather, investment (depreciation).
The investment data is based upon the cost of trailers to the Fleet Owners
as reflected by sales records of the U-Haul manufacturing facilities.
(B) The summary of earnings data stated in terms of amount per $100 of average
investment represents the aggregate results of operations (earnings data)
divided by the average amount of investment during the periods. The average
amount of investment is based upon a simple average of the month-end
investment during each period. Average earnings data is not necessarily
representative of an individual Fleet Owner's earnings.
(C) A summary of operations expenses charged directly to Independent Fleet
Owners follows:
Year ended March 31,
----------------------------------------
1998 1997 1996 1995 1994
----------------------------------------
(in thousands)
Licenses $ 285 434 436 503 520
Public liability insurance 156 198 264 320 392
Repairs and maintenance 703 1,007 1,482 1,304 1,492
----------------------------------------
$ 1,144 1,639 2,182 2,127 2,404
========================================
(D) The Fleet Owners, Independent Rental Dealers, U-Haul International, Inc. and
Subsidiary U-Haul Rental Companies forego normal commissions on a portion of
gross rental fees designated for transfer to the Distribution Fee Fund, the
Accident Fund and the Canadian Duty Fund. Designated expenses, otherwise
chargeable to Fleet Owners, are paid from these Funds to the extent of the
financial resources of the Funds. The amounts designated "Distribution,
Accident and Canadian Duty Funds credit" in the accompanying summary of
earnings represent Operator Contribution expenses borne by the Funds, which
exceed Independent Fleetowner commissions foregone.
71
NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued
Additional Information
(E) Commissions foregone for transfer to the Distribution, Accident and Canadian
Duty Funds (net of fees in excess of expenses incurred) follows:
Subsidiary Fleet Owners
-------------------------
U-Haul Subsidiary
Companies Companies Independent Total
--------------------------------------------------
(in thousands)
Year ended:
March 31, 1998 $ 947 482 28 1,457
March 31, 1997 882 439 36 1,357
March 31, 1996 1,287 624 69 1,980
March 31, 1995 986 465 66 1,517
March 31, 1994 873 399 71 1,343
(F) A summary of Independent Fleet Owner expenses incurred by the Funds follows:
Year ended March 31,
----------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------
(in thousands)
Accident repairs $ 1,049 1,111 1,675 1,295 1,085
Less portion allocated to fleets owned by subsidiary
companies 951 980 1,421 1,061 848
------ ----- ----- ----- -----
Total Independent Fleet Owner expenses paid
by funds 98 131 254 234 237
Add portion allocated to fleets owned by subsidiary
companies 951 980 1,421 1,061 848
Return of investment (accident reimbursement) 408 246 305 222 258
------ ----- ----- ----- -----
Total expenses incurred by Funds $ 1,457 1,357 1,980 1,517 1,343
====== ===== ===== ===== =====
72
Schedule I
Condensed Financial Information of Registrant
AMERCO
Balance Sheets
March 31,
1998 1997
----------------------
(in thousands)
Assets
- ------
Cash $ 1,040 1,388
Investment in subsidiaries 686,331 629,415
Due from unconsolidated subsidiaries 957,084 881,700
Other assets 58,449 56,798
----------------------
$ 1,702,904 1,569,301
======================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Notes and loans $ 1,023,571 915,079
Other liabilities 67,458 34,131
----------------------
Stockholders' equity:
Preferred stock - -
Common stock 10,563 10,563
Additional paid-in capital 313,444 337,933
Accumulated other comprehensive income (9,384) (9,722)
Retained earnings:
Beginning of year 644,009 609,019
Net earnings 34,984 51,865
Dividends paid (20,766) (16,875)
----------------------
658,227 644,009
Less:
Cost of common shares in treasury 359,723 359,723
Unearned employee stock
ownership plan shares 1,252 2,969
----------------------
Total stockholders' equity 611,875 620,091
----------------------
$ 1,702,904 1,569,301
======================
See accompanying notes to condensed financial information and
notes to consolidated financial statements incorporated herein by
reference.
73
Schedule I, continued
Condensed Financial Information of Registrant
AMERCO
Statements of Earnings
Years Ended March 31,
1998 1997 1996
------------------------------------
(in thousands except per share data)
Revenues
- --------
Net interest income from
subsidiaries $ 64,751 58,723 63,133
Other revenue - (1) (2)
------------------------------------
Total revenues 64,751 58,722 63,131
------------------------------------
Expenses
- --------
Interest expense 76,969 72,560 62,583
Other expenses 6,040 3,407 13,914
------------------------------------
Total expenses 83,009 75,967 76,497
------------------------------------
Operating loss (18,258) (17,245) (13,366)
Equity in earnings of
unconsolidated subsidiaries 89,339 98,895 107,550
Income tax expense (25,615) (27,466) (33,790)
Extraordinary loss on early
extinguishment of debt, net (10,482) (2,319) -
------------------------------------
Net earnings $ 34,984 51,865 60,394
====================================
Earnings from operations
before extraordinary loss
on early extinguishment of
debt $ 1.28 1.44 1.33
Extraordinary loss on early
extinguishment of debt, net (0.62) (0.09) -
------------------------------------
Net earnings $ 0.66 1.35 1.33
====================================
Weighted average common
shares outstanding 21,896,101 25,479,651 35,736,335
====================================
See accompanying notes to condensed financial information and
notes to consolidated financial statements incorporated herein by
reference.
74
Schedule I, continued
Condensed Financial Information of Registrant
AMERCO
Statements of Cash Flows
Years Ended March 31,
1998 1997 1996
----------------------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 34,984 51,865 60,394
Amortization, net 270 1,954 34
Equity in earnings of
subsidiaries 56,578 65,392 69,085
Increase (decrease) in amounts due
from unconsolidated subsidiaries (74,909) 192,119 3,195
Net change in operating assets and
liabilities (69,642) (63,961) (121,490)
Other, net 1,074 (8,641) 18,485
----------------------------------
Net cash provided (used) by
operating activities (51,645) 238,728 29,703
----------------------------------
Cash flows from financing activities:
Net change in short term borrowings 122,500 (347,000) 84,500
Proceeds from notes 300,000 562,000 140,000
Leveraged Employee Stock Ownership
Plan-repayments from loan 1,717 1,717 1,717
Principal payments on notes (314,008) (229,157) (106,826)
Debt issuance costs (2,664) (5,612) (1,027)
Issuance of common stock - 73,709 -
Issuance (repurchase) of
preferred stock (25,000) 98,546 -
Preferred stock dividends paid (20,766) (16,875) (12,964)
Treasury Stock purchase, net - (248,605) (100,657)
Deferred tax-treasury stock - (80,997) (34,938)
Escrow deposit - (48,234) -
Extraordinary loss on early
extinguishment of debt, net (10,482) (2,319) -
----------------------------------
Net cash provided (used) by
financing activities 51,297 (242,827) (30,195)
----------------------------------
Increase (decrease) in cash (348) (4,099) (492)
Cash and cash equivalents
at beginning of year 1,388 5,487 5,979
----------------------------------
Cash and cash equivalents
at end of year $ 1,040 1,388 5,487
==================================
Income taxes paid in cash amounted to $2,588,000, $4,721,000 and
$285,000 for 1998, 1997 and 1996, respectively. Interest paid in cash
amounted to $72,337,000, $67,492,000 and $67,150,000 for 1998, 1997
and 1996, respectively.
See accompanying notes to condensed financial information and
notes to consolidated financial statements incorporated herein by
reference.
75
Schedule I, continued
Condensed Financial Information of Registrant
AMERCO
Notes to Condensed Financial Information
March 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AMERCO, a Nevada corporation, was incorporated in April, 1969,
and is the holding company for U-Haul International, Inc., Republic
Western Insurance Company, Oxford Life Insurance Company and Amerco
Real Estate Company. The financial statements of the Registrant
should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in this Form 10-K.
The Company is included in a consolidated Federal income tax
return with all of its U.S. subsidiaries. Accordingly, the provision
for income taxes has been calculated for Federal income taxes of the
Registrant and subsidiaries included in the consolidated return of the
Registrant. State taxes for all subsidiaries are allocated to the
respective subsidiaries.
The financial statements include only the accounts of the
Registrant (a Nevada corporation), which include certain of the
corporate operations of AMERCO. The debt and related interest expense
of the Registrant have been allocated to the consolidated
subsidiaries. The intercompany interest income and expenses are
eliminated in the consolidated financial statements.
2. GUARANTEES
AMERCO has guaranteed performance of certain long-term leases.
See Note 13 of Notes to Consolidated Financial Statements.
3. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following:
March 31,
--------------------
1998 1997
--------------------
(in thousands)
Medium-term notes payable, unsecured,
6.71% to 8.08% interest
rates, due through 2027 $ 362,000 387,000
Notes payable under Bond Backed Asset
Trust, unsecured, 6.65% to 7.14%
interest rates, due through 2033 300,000 -
Notes payable to insurance companies,
unsecured, 6.43% to 10.27% interest
rates, due through 2006 - 226,500
Notes payable to public,
unsecured, 7.85% interest
rate, due through 2004 175,000 175,000
Notes payable to banks, unsecured,
4.81% to 7.54% interest
rates, due through 2001 - 62,500
Other notes payable, unsecured,
9.50% interest rate,
due through 2005 71 79
Notes payable to banks under
revolving lines of credit, unsecured,
5.85% to 5.94% interest rates 180,000 60,000
Other short-term promissory notes,
6.31% interest rate 6,500 4,000
--------------------
$ 1,023,571 915,079
====================
For additional information, see Note 5 of Notes to Consolidated
Financial Statements.
76
Schedule V
AMERCO AND CONSOLIDATED SUBSIDIARIES
Supplemental Information (For Property-Casualty Insurance Underwriters)
Years ended December 31, 1997, 1996 and 1995
Reserves Amorti-
for Unpaid zation Paid
Claims Claims and of Claims
Deferred and Claim Adjustment Deferred and
Policy Claim Net Net Expenses Incurred Policy Claim Net
Affiliation Acqui- Adjust- Discount Earned Invest- Related to Acqui- Adjust- Premiums
With sition ment if any, Unearned Premiums ment Current Prior sition ment Written
Year Registrant Costs Expenses Deducted Premiums (1) Income Year Year Costs Expenses (2)
- ---- ---------- ----- -------- -------- -------- -------- ------ ---- ---- ----- -------- -------
(in thousands)
98 Consolidated
property -
casualty entity $ 7,203 384,816 N/A 45,753 136,106 31,292 132,291 23,192 8,622 118,308 135,782
97 Consolidated
property -
casualty entity 8,622 332,674 N/A 50,699 136,780 30,572 112,394 11,527 9,858 119,674 129,034
96 Consolidated
property -
casualty entity 9,858 341,981 N/A 64,379 128,083 29,906 114,110 8,292 8,973 109,372 125,789
(1) The earned premiums are reported net of intersegment transactions. Earned
premiums eliminated in consolidation amount to $19,800,000, $19,725,000 and
$12,669,000 for the years ended 1997, 1996 and 1995, respectively.
(2) The premiums written are reported net of intersegment transactions.
Premiums written eliminated in consolidation amount to $20,287,000,
$15,373,000 and $14,206,000 for the years ended 1997, 1996 and 1995,
respectively.
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
U-Haul International, Inc.
By: /S/ EDWARD J. SHOEN
--------------------
Edward J. Shoen
President of U-Haul International, Inc.
Dated: June 29, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/S/ EDWARD J. SHOEN President of U-Haul June 29, 1998
- -------------------- International, Inc.
Edward J. Shoen (Principal Executive
Officer)
/S/ DONALD W. MURNEY Principal Financial June 29, 1998
- ------------------------- and Accounting Officer
Donald W. Murney
/S/ JAMES P. SHOEN Director June 29, 1998
- -------------------------
James P. Shoen
/S/ DAVID SCHMELTZ Director June 29, 1998
- -------------------------
DAVID SCHMELTZ
/S/ MARK V. SHOEN Director June 29, 1998
- -------------------------
William E. Carty
/S/ RICHARD J. HERRERA Director June 29, 1998
- -------------------------
Richard J. Herrera