<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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, Ste. 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
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 [ ].
22,614,087 shares of AMERCO Common Stock, $0.25 par value were
outstanding at November 9, 1998.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par
value, were outstanding at November 9, 1998. U-Haul International, Inc.
meets the conditions set forth in General Instruction H(1)(a) and (b)
of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
a) Consolidated Balance Sheets as of September 30, 1998,
March 31, 1998 and September 30, 1997.................. 4
b) Consolidated Statements of Earnings for the Six
months ended September 30, 1998 and 1997............... 6
c) Consolidated Statements of Changes in Stockholders'
Equity for the Six months ended September 30, 1998
and 1997............................................... 7
d) Consolidated Statements of Earnings for the
Quarters ended September 30, 1998 and 1997............. 8
e) Consolidated Statements of Cash Flows for the Six
months ended September 30, 1998 and 1997............... 9
f) Notes to Consolidated Financial Statements -
September 30, 1998, March 31, 1998 and
September 30, 1997..................................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 27
Item 4. Submission Of Matters To A Vote Of Security Holders........ 27
Item 6. Exhibits and Reports on Form 8-K........................... 28
<PAGE> 3
THIS PAGE LEFT
INTENTIONALLY BLANK
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
September 30, March 31, September 30,
ASSETS 1998 1998 1997
----------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Cash and cash equivalents $ 14,150 31,606 33,831
Receivables 308,267 317,620 249,992
Inventories 75,236 68,887 72,273
Prepaid expenses 18,017 21,154 16,069
Investments, fixed maturities 902,354 886,873 856,383
Investments, other 152,953 164,064 149,757
Deferred policy acquisition costs 53,248 44,255 47,505
Other assets 103,171 103,062 71,948
-------------------------------------
Property, plant and equipment, at
cost:
Land 206,640 208,028 209,944
Buildings and improvements 841,063 838,419 822,767
Furniture and equipment 224,221 214,513 205,045
Rental trailers and other rental
equipment 184,443 179,225 181,337
Rental trucks 963,413 939,561 1,053,326
-------------------------------------
2,419,780 2,379,746 2,472,419
Less accumulated depreciation 1,115,708 1,103,990 1,108,174
-------------------------------------
Total property, plant and
equipment 1,304,072 1,275,756 1,364,245
-------------------------------------
$ 2,931,468 2,913,277 2,862,003
=====================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
September 30, March 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998 1997
----------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Liabilities:
Accounts payable and accrued
expenses $ 138,172 144,201 106,471
Notes and loans 997,982 1,025,323 1,059,044
Policy benefits and losses, claims
and loss expenses payable 566,974 592,642 477,980
Liabilities from premium deposits 429,730 425,347 427,556
Cash overdraft 25,024 21,414 21,113
Other policyholders' funds and
liabilities 39,233 34,911 31,817
Deferred income 39,928 45,298 35,202
Deferred income taxes 66,286 29,082 48,476
-------------------------------------
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,
issued and outstanding as of
September 30, 1998, March 31, 1998
and September 30, 1997 - - -
Series B preferred stock, with no par
value, 100,000 shares authorized,
50,000 shares issued and outstanding
as of September 30, 1998, 75,000 shares
issued and outstanding as of March 31,
1998 and 100,000 shares issued and
outstanding as of September 30, 1997 - - -
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
September 30, 1998, March 31, 1998
and September 30, 1997 1,441 1,441 1,441
Common stock of $0.25 par value,
150,000,000 shares authorized,
36,487,505 shares issued as of
September 30, 1998, March 31, 1998
and September 30, 1997 9,122 9,122 9,122
Additional paid-in capital 288,444 313,444 336,933
Accumulated other comprehensive income (15,642) (9,384) (10,424)
Retained earnings 722,381 658,227 697,569
-------------------------------------
1,005,746 972,850 1,034,641
Less:
Cost of common shares in treasury,
(19,635,913 shares as of
September 30, 1998, March 31, 1998
and September 30, 1997) 359,723 359,723 359,723
Unearned employee stock
ownership plan shares 17,884 18,068 20,574
-------------------------------------
Total stockholders' equity 628,139 595,059 654,344
Contingent liabilities and commitments
$ 2,931,468 2,913,277 2,862,003
=====================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Six months ended September 30,
(Unaudited)
1998 1997
--------------------------
(in thousands except
share and per share data)
Revenues
Rental revenue $ 598,901 571,330
Net sales 107,567 105,611
Premiums 96,223 79,845
Net investment income 26,818 23,636
------------------------
Total revenues 829,509 780,422
Costs and expenses
Operating expense 446,984 416,997
Cost of sales 62,909 60,520
Benefits and losses 79,991 82,033
Amortization of deferred acquisition
costs 8,799 7,123
Lease expense 56,532 45,455
Depreciation, net 31,902 31,415
------------------------
Total costs and expenses 687,117 643,543
Earnings from operations 142,392 136,879
Interest expense, net of interest
income of $6,878 and $7,064 in
1998 and 1997, respectively 29,757 33,644
------------------------
Pretax earnings 112,635 103,235
Income tax expense (39,234) (35,005)
------------------------
Earnings from operations before
extraordinary loss on early
extinguishment of debt 73,401 68,230
Extraordinary loss on early
extinguishment of debt, net - (4,138)
------------------------
Net earnings $ 73,401 64,092
========================
Earnings per common share (both
basic and diluted):
Earnings from operations before
extraordinary loss on early
extinguishment of debt $ 2.93 2.63
Extraordinary loss on early
extinguishment of debt, net - (0.19)
------------------------
Net earnings $ 2.93 2.44
========================
Weighted average common shares outstanding 21,930,301 21,884,614
========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
<TABLE>
<CAPTION>
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Six months ended September 30, 1998 and 1997
(unaudited)
(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
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $ 1,441 9,122 313,444 (9,384) 658,227 (359,723) (18,068) 595,059
Preferred stock repurchase (25,000) (25,000)
Leveraged employee stock
ownership plan:
Purchase of shares (2) (2)
Repayments from loan 186 186
Preferred stock dividends:
Series A ($1.06 per share) (6,482) (6,482)
Series B ($49.81 per share) (2,765) (2,765)
Comprehensive income:
Net income 73,401 73,401 $ 73,401
Other comprehensive income,
net of tax:
Foreign currency
translation (5,496) (5,496) (5,496)
Unrealized loss on
investments (762) (762) (762)
------
Comprehensive income $ 67,143
------ ----- ------- ------- ------- -------- -------- ------- ======
Balance at September 30, 1998 $ 1,441 9,122 288,444 (15,642) 722,381 (359,723) (17,884) 628,139
====== ===== ======= ======= ======= ======== ======= =======
Balance at March 31, 1997 $ 1,441 9,122 337,933 (9,722) 644,009 (359,723) (20,740) 602,320
Preferred stock (1,000) (1,000)
Leveraged employee stock
ownership plan:
Purchase of shares (3) (3)
Repayments from loan 169 169
Preferred stock dividends:
Series A ($1.06 per share) (6,482) (6,482)
Series B ($40.50 per share) (4,050) (4,050)
Comprehensive income:
Net income 64,092 64,092 $ 64,092
Other comprehensive income,
net of tax:
Foreign currency
translation (520) (520) (520)
Unrealized loss on
investments (182) (182) (182)
------
Comprehensive income $ 63,390
------ ----- ------- ------- ------- -------- ------- ------- ======
Balance at September 30, 1997 $ 1,441 9,122 336,933 (10,424) 697,569 (359,723) (20,574) 654,344
====== ===== ======= ======== ======= ========= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE> 8
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended September 30,
(Unaudited)
1998 1997
--------------------------
(in thousands except
share and per share data)
Revenues
Rental revenue $ 317,488 306,184
Net sales 51,254 50,129
Premiums 57,793 44,380
Net investment income 13,636 12,081
------------------------
Total revenues 440,171 412,774
Costs and expenses
Operating expense 237,448 227,224
Cost of sales 30,214 29,710
Benefits and losses 44,411 43,612
Amortization of deferred acquisition
costs 4,188 3,663
Lease expense 29,570 22,438
Depreciation, net 14,329 10,836
------------------------
Total costs and expenses 360,160 337,483
Earnings from operations 80,011 75,291
Interest expense, net of interest
income of $3,236 and $3,586 in
1998 and 1997, respectively 14,748 16,176
------------------------
Pretax earnings from operations 65,263 59,115
Income tax expense (23,092) (20,083)
------------------------
Earnings from operations before
extraordinary loss on early
extinguishment of debt 42,171 39,032
Extraordinary loss on early
extinguishment of debt, net - (4,138)
------------------------
Net earnings $ 42,171 34,894
========================
Earnings per common share:
Earnings from operations before
extraordinary loss on early
extinguishment of debt $ 1.71 1.54
Extraordinary loss on early
extinguishment of debt, net - (0.19)
------------------------
Net earnings $ 1.71 1.35
========================
Weighted average common shares outstanding 21,935,854 21,890,072
========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended September 30,
(Unaudited)
1998 1997
-------------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 73,401 64,092
Depreciation and amortization 47,676 42,368
Provision for losses on accounts
receivable 2,272 2,350
Net (gain) loss on sale of real and
personal property (1,677) (465)
Net (gain) loss on sale of investments (1,979) 25
Changes in policy liabilities and
accruals (210) 29,244
Additions to deferred policy
acquisition costs (17,654) (5,709)
Net change in other operating assets
and liabilities (8,148) (8,842)
------------------------
Net cash provided by operating activities 93,681 123,063
------------------------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (190,031) (284,035)
Fixed maturities (113,073) (66,883)
Equity investment - (24,500)
Preferred stock (15,500) -
Mortgage loans (1,246) (11,858)
Proceeds from sale of investments:
Property, plant and equipment 129,258 134,320
Fixed maturities 110,366 68,693
Real estate 4,749 194
Preferred stock 658 -
Mortgage loans 9,710 10,623
Changes in other investments 5,063 3,083
------------------------
Net cash provided (used) by investing
activities (60,046) (170,363)
------------------------
Cash flows from financing activities:
Net change in short-term borrowings 19,000 176,000
Debt issuance costs (378) (1,506)
Principal payments on notes (46,341) (100,506)
Extraordinary loss on early
extinguishment of debt, net - (4,138)
Leveraged Employee Stock Ownership Plan:
Purchase of shares (2) (3)
Repayments from loan 186 169
Net change in cash overdraft 3,610 (2,493)
Preferred stock dividends paid (9,247) (10,532)
Repurchase of preferred stock (25,000) -
Investment contract deposits 39,257 11,726
Investment contract withdrawals (32,176) (29,338)
------------------------
Net cash provided (used) by
financing activities (51,091) 39,379
------------------------
Increase (decrease)in cash and
cash equivalents (17,456) (7,921)
Cash and cash equivalents at
beginning of period 31,606 41,752
------------------------
Cash and cash equivalents at
end of period $ 14,150 33,831
========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, March 31, 1998 and September 30, 1997
(Unaudited)
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).
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.
The consolidated balance sheets as of September 30, 1998 and
1997, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the six months ended September
30, 1998 and 1997 are unaudited; in the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily
indicative of results for a full year.
The operating results and financial position of AMERCO's
consolidated insurance operations are determined on a one quarter lag.
There were no effects related to intervening events which would
significantly affect consolidated financial position or results of
operations for the financial statements presented herein.
The financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the
Company's annual financial statements and notes.
Basic earnings per common share are computed based on the
weighted average number of shares outstanding for the period,
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.
Certain reclassifications have been made to the financial
statements for the six months ended September 30, 1997 to conform with
the current year's presentation.
<PAGE> 11
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
2. INVESTMENTS
A comparison of amortized cost to market for fixed maturities is as
follows:
June 30, 1998
------------- 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 $ 13,415 $ 13,249 1,413 - 14,662
U.S. government
agency mortgage-
backed securities $ 35,518 33,336 501 (458) 33,379
Obligations of
states and
political
subdivisions $ 26,745 26,642 1,243 - 27,885
Corporate
securities $ 140,772 143,464 4,178 (283) 147,359
Mortgage-backed
securities $ 89,282 88,070 1,879 (279) 89,670
Redeemable preferred
stocks 4,159 105,804 1,191 (771) 106,224
----------------------------------------
410,565 10,405 (1,791) 419,179
----------------------------------------
June 30, 1998
------------- 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 18,319 974 (3) 19,290
U.S. government
agency mortgage-
backed securities $ 33,332 32,795 1,281 (7) 34,069
States,
municipalities
and political
subdivisions $ 8,137 8,537 416 (15) 8,938
Corporate
securities $ 337,912 337,709 12,273 (1,351) 348,631
Mortgage-backed
securities $ 50,652 50,459 1,190 (25) 51,624
Redeemable preferred
stocks 1,126 28,747 664 (174) 29,237
----------------------------------------
476,566 16,798 (1,575) 491,789
----------------------------------------
Total $ 887,131 27,203 (3,366) 910,968
========================================
<PAGE> 12
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES
A summarized consolidated balance sheet for RWIC is presented below:
June 30,
----------------------
1998 1997
----------------------
(in thousands)
Investments - fixed maturities $ 431,983 412,140
Other investments 22,829 24,014
Receivables 139,927 117,613
Deferred policy acquisition costs 6,116 9,217
Due from affiliate 23,533 32,521
Deferred federal income taxes 17,244 16,851
Other assets 8,588 9,867
-------------------
Total assets $ 650,220 622,223
===================
Policy liabilities and accruals $ 380,188 348,252
Unearned premiums 47,562 55,235
Other policyholders' funds and liabilities 22,891 22,166
-------------------
Total liabilities 450,641 425,653
Stockholder's equity 199,579 196,570
-------------------
Total liabilities and
stockholder's equity $ 650,220 622,223
===================
A summarized consolidated income statement for RWIC is presented below:
Six months ended
-------------------
June 30,
-------------------
1998 1997
-------------------
(in thousands)
Premiums $ 65,261 78,996
Net investment income 16,652 15,280
-------------------
Total revenue 81,913 94,276
Benefits and losses 56,540 69,918
Amortization of deferred policy
acquisition costs 2,401 4,311
Other expenses 16,454 14,224
-------------------
Income from operations 6,518 5,823
Federal income tax expense (1,960) (1,645)
-------------------
Net income $ 4,558 4,178
===================
<PAGE> 13
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES,
continued
A summarized consolidated balance sheet for Oxford is presented below:
June 30,
----------------------
1998 1997
----------------------
(in thousands)
Investments - fixed maturities $ 470,371 444,243
Other investments 109,225 102,894
Receivables 33,543 14,527
Deferred policy acquisition costs 47,132 38,288
Due from affiliate (307) 121
Other assets 29,589 2,402
-------------------
Total assets $ 689,553 602,475
===================
Policy liabilities and accruals $ 139,224 81,928
Premium deposits 429,730 427,556
Other policyholders' funds and liabilities 19,475 5,108
Deferred taxes 11,047 10,033
-------------------
Total liabilities 599,476 524,625
Stockholder's equity 90,077 77,850
-------------------
Total liabilities and
stockholder's equity $ 689,553 602,475
===================
A summarized consolidated income statement for Oxford is presented
below:
Six months ended
June 30,
-------------------
1998 1997
-------------------
(in thousands)
Premiums $ 36,302 12,700
Net investment income 9,440 8,909
-------------------
Total revenue 45,742 21,609
Benefits and losses 23,451 12,115
Amortization of deferred policy
acquisition costs 6,398 2,812
Other expenses 9,140 2,776
-------------------
Income from operations 6,753 3,906
Federal income tax expense (2,088) (1,085)
-------------------
Net income $ 4,665 2,821
===================
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, domiciled in
Texas, for $2,243,000. Safe Mate's 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.
<PAGE> 14
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
4. ACCUMULATED OTHER COMPREHENSIVE INCOME
A summary of accumulated comprehensive income components follows:
Foreign Unrealized Accumulated
currency gain (loss) comprehensive
translation on investments income
---------------------------------------
(in thousands)
Balance at March 31, 1998 $ (18,675) 9,291 (9,384)
Foreign currency translation (5,496) - (5,496)
Unrealized gain (loss)
on investments - (762) (762)
--------------------------------------
Balance at September 30, 1998 $ (24,171) 8,529 (15,642)
======================================
Balance at March 31, 1997 $ (14,133) 4,411 (9,722)
Foreign currency translation (520) - (520)
Unrealized gain (loss)
on investments - (182) (182)
--------------------------------------
Balance at September 30, 1997 $ (14,653) 4,229 (10,424)
======================================
5. CONTINGENT LIABILITIES AND COMMITMENTS
During the six months ended September 30, 1998, a subsidiary of U-Haul
entered into ten transactions, and has subsequently entered into two additional
transactions, whereby the Company sold rental trucks and subsequently leased
back. The Company has guaranteed $18,212,000 of residual values at
September 30, 1998, and an additional $2,439,000 of residual values subsequent
to September 30, 1998 for these assets at the end of the respective lease
terms. U-Haul also subsequently entered into one transaction, whereby the
Company sold and subsequently leased back computer equipment. Following are
the lease commitments for the leases executed during the six months ended
September 30, 1998, and subsequently which have a term of more than one year
(in thousands):
Net activity
Year ended Lease subsequent to
March 31, Commitments period end Total
----------------------------------------------------------
1999 $ 8,344 907 9,251
2000 12,514 2,040 14,554
2001 12,514 2,040 14,554
2002 12,514 2,040 14,554
2003 12,514 2,040 14,554
Thereafter 29,817 5,210 35,027
------------------------------------
$ 88,217 14,277 102,494
====================================
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 such suits,
claims or proceedings involving the Company, individually or in the
aggregate are expected to result in a material loss.
<PAGE> 15
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
6. SUPPLEMENTAL CASH FLOWS INFORMATION
The (increase) decrease in receivables, inventories and accounts
payable and accrued liabilities net of other operating and investing
activities follows:
Six Months ended September 30,
------------------------------
1998 1997
------------------------------
(in thousands)
Receivables $ (25,092) (14,736)
==============================
Inventories $ (6,349) (6,479)
==============================
Accounts payable and
accrued liabilities $ (12,195) (26,112)
==============================
Income taxes paid in cash amounted to $820,000 and $1,159,000 for
the six months ended September 30, 1998 and 1997, respectively.
Interest paid in cash amounted to $36,921,000 and $44,609,000 for
the six months ended September 30, 1998 and 1997, respectively.
7. EARNINGS PER SHARE
The following table reflects the calculation of the earnings per share:
Six months ended Quarter ended
September 30, September 30,
1998 1997 1998 1997
-----------------------------------------------
(in thousands except share and per share data)
Earnings from operations
before extraordinary
loss on early extinguishment
of debt $ 73,401 68,230 42,171 39,032
Less dividends
on preferred shares 9,073 10,571 4,586 5,316
---------------------- ---------------------
64,328 57,659 37,585 33,716
Extraordinary loss on early
extinguishment of debt - (4,138) - (4,138)
---------------------- ---------------------
Net earnings for per
share calculation $ 64,328 53,521 37,585 29,578
====================== =====================
Net earnings for per share:
Earnings from operations
before extraordinary loss
on early extinguishment
of debt $ 2.93 2.63 1.71 1.54
Extraordinary loss on early
extinguishment of debt, net - (0.19) - (0.19)
---------------------- ---------------------
Net earnings $ 2.93 2.44 1.71 1.35
====================== =====================
Weighted average common
shares outstanding 21,930,301 21,884,614 21,935,854 21,890,072
====================== =====================
<PAGE> 16
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
8. RELATED PARTIES
During the six months ended September 30, 1998, a subsidiary 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 interest payments of $4,167,000
from SAC Holdings during the six months ended September 30, 1998.
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 $1,074,000 during
the six months ended September 30, 1998. The management fee
percentage is consistent with the fees received by the Company for
other properties managed by the Company.
As of September 30, 1998, a subsidiary of the Company funded the
purchase of eleven properties by SAC Holdings for approximately $6,708,000.
9. 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. The
Company is currently reviewing its implementation procedures.
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 Standards Board with
future effective dates are either not applicable or not material to
the consolidated financial statements of the Company.
<PAGE> 17
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
10. 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 $ 707,194 77,162 45,153 - 829,509
Intersegment - 4,751 589 (5,340) -
----------------------------------------------------------
Total revenue $ 707,194 81,913 45,742 (5,340) 829,509
Depreciation/
amortization $ 33,576 3,438 10,662 - 47,676
Interest expense,
net of interest
income
of $6,878 $ 29,757 - - - 29,757
Pretax earnings $ 99,364 6,518 6,753 - 112,635
Income tax $ 35,186 1,960 2,088 - 39,234
Identifiable
assets $1,922,349 650,220 689,553 (330,654) 2,931,468
1997
- ----
Revenues:
Outside $ 676,458 83,031 20,933 - 780,422
Intersegment - 11,245 676 (11,921) -
----------------------------------------------------------
Total revenue $ 676,458 94,276 21,609 (11,921) 780,422
Depreciation/
amortization $ 34,249 5,337 2,782 - 42,368
Interest expense,
net of interest
income
of $7,064 $ 33,644 - - - 33,644
Pretax earnings $ 93,506 5,823 3,906 - 103,235
Income tax $ 32,275 1,645 1,085 - 35,005
Identifiable
assets $1,961,218 622,223 602,475 (323,913) 2,862,003
<PAGE> 18
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
10. 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 $ 811,223 18,286 829,509
Depreciation/amortization $ 46,038 1,638 47,676
Interest expense, net $ 29,874 (117) 29,757
Income tax $ 39,234 - 39,234
Identifiable assets $ 2,892,406 39,062 2,931,468
1997
- ----
Total revenues $ 761,326 19,096 780,422
Depreciation/amortization $ 41,091 1,277 42,368
Interest expense, net $ 33,736 (92) 33,644
Income tax $ 35,005 - 35,005
Identifiable assets $ 2,803,759 58,244 2,862,003
11. SUBSEQUENT EVENTS
On November 3, 1998, the Company declared a cash dividend of $3,241,000
($0.53125 per preferred share) to preferred stockholders of record as of
November 13, 1998.
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Information on industry segments is incorporated by reference
from "Item 1. Financial Statements - Notes 1, 3 and 10 of Notes to
Consolidated Financial Statements". The notes discuss the principles
of consolidation, summarized consolidated financial information and
industry segment and geographical 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
SIX MONTHS ENDED SEPTEMBER 30, 1998 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1997
Moving and Storage Operations
Revenues consist of rental revenues and net sales.
Total rental revenues increased by $27.6 million, 4.8%, to $598.9
million during the first six months of fiscal 1999. Net revenues from
the rental of moving related equipment increased by $24.8 million
primarily due to an increase in truck rental revenue. The growth in
truck rental revenue reflects higher utilization, increased inventory
levels and improved in-town utilization.
Net sales revenues were $107.6 million during the first six
months of fiscal 1999, which represents a 1.9% increase, compared to
fiscal 1998 net sales of $105.6 million. Revenue growth from the sale
of moving support items (i.e. boxes, etc.), which increased 6.7%
during this period, led to the improvement.
Cost of sales was $62.9 million during the first six months of
fiscal 1999, which represents an increase of 4.0%, compared to $60.5
million in fiscal 1998. Increased sales of moving support items,
combined with higher material costs for the moving support items,
were the major contributing factor.
Operating expenses increased to $426.7 million during the first
six months of fiscal 1999 from $404.1 million compared to fiscal 1998,
an increase of 5.6%. Higher rental equipment maintenance expenditures
are due to an increase in fleet size and transaction levels.
Equipment maintenance expenditures are within the planned target range
for fiscal 1999.
Lease expense increased to $56.5 million during the first six
months of fiscal 1999 compared to $45.5 million in fiscal 1998.
Additional leasing activity over the past nine months reflects the
increase.
Net depreciation expense stayed consistent during the period,
$31.9 million during the first six months of fiscal 1999 compared to
$31.4 million in fiscal 1998. An increase in gain on sale of property
offset by an increase in depreciation expense relating to rental
equipment accounted for the minimal change.
Property and Casualty
RWIC gross premium writings for the six months ended June 30,
1998 were $76.9 million as compared to $87.9 million in 1997. The
decrease in premium writings resulted primarily from reduced insurance
transactions with U-Haul. The rental industry share of total premiums
declined to 41.6% in 1998 as compared to 51.4% in 1997 due to the
decrease in U-Haul transactions. RWIC underwrites professional
reinsurance via broker markets and premiums in this area increased
during the six months ended June 30, 1998 to 35.3% of total gross
premiums, from 34.4% in 1997. RWIC's direct multiple peril coverage
accounted for 15.7% of total gross premiums during the six months
ended June 30, 1998, as compared to 11.9% in 1997. Premiums in
selected general agency lines increased to a 7.4% of gross written
premiums in 1998 as compared to a 2.3% in 1997. Increased written
premium on the excess workers compensation business contributed to
this increase.
<PAGE> 20
Net earned premiums decreased to $65.3 million for the six months
ended June 30, 1998, compared with $79.0 million for 1997. The
premium decrease resulted from the U-Haul Liability programs in the
rental industry market which decreased to $28.7 million from $45.1
million in 1997. An additional $0.2 million decrease is due to the
general agency lines program which consisted of $3.2 million and $3.4
million for the six months ended June 30, 1998 and 1997, respectively.
Direct multiple peril net earned premiums increased to $9.8 million at
June 30, 1998 compared to $7.8 million for 1997. Assumed treaty
reinsurance increased to $23.5 million for the six months ending June
30, 1998 as compared to $22.7 million in 1997.
Net investment income was $16.7 million for the six months ended
June 30, 1998, an increase of 9.2% over 1997 net investment income of
$15.3 million. The increase resulted from enhanced yield provided by
an increased investment in preferred stock.
Underwriting expenses incurred were $75.4 million for the six
months ended June 30, 1998, a decrease of $13.1 million, or 14.8% from
1997. The loss and loss adjustment expenses incurred decreased $13.9
million primarily due to the reduction in transactions with U-Haul and
corresponds to the decrease in liabilities for unpaid claims due to
estimated future losses for current and prior policies for those
transactions. All other underwriting expenses increased in the
aggregate by $0.8 million.
RWIC completed the six months ending June 30, 1998 with income
before tax expense of $6.5 million as compared to $5.8 million for
1997. This represents an increase of $0.7 million, or 12.1% over
1997. The increase resulted primarily from decreased underwriting
expenses and increased realized gains.
Life Insurance
Total premiums from Oxford and its subsidiaries were $36.3
million for the six months ended June 30, 1998, an increase of $23.6
million over 1997. These increases are primarily due to the
acquisition of North American Insurance Company (NAI) and Safe Mate
Life Insurance Company (SML).
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $11.2 million for the six months ended June 30,
1998, an increase of $2.5 million or approximately 28.7% over 1997 and
accounted for 30.9% of Oxford's premiums in 1998. These premiums are
primarily from term life insurance, credit life and accident and
health insurance, and deferred annuity contracts that have matured.
Increases in premiums are primarily from new credit insurance
reinsurance contracts.
Premiums from Oxford's direct lines before intercompany
eliminations were $4.3 million for the six months ended June 30, 1998,
an increase of $254 thousand or 6.3% from 1997. This increase in
direct premium is primarily attributable to writing of new Single
Premium Whole Life policies. Oxford's direct business related to
group life and disability coverage issued to employees of the Company
for the six months ended June 30, 1998 accounted for approximately
3.4% of premiums. Other direct lines, including credit life and
health business, accounted for approximately 8.3% of Oxford's premiums
in 1998. Premiums from Oxford's subsidiaries, NAI and SML were $20.4
million and accounted for 56.3% of premiums for the six months ended
June 30, 1998.
Net investment income before intercompany eliminations was $9.4
million and $8.9 million for the six months ended June 30, 1998 and
1997, respectively. This increase is due to a larger asset base
resulting from the acquisition of NAI and SML.
Benefits and expenses incurred were $41.2 million for the six
months ended June 30, 1998. Oxford's benefits and expenses were $22.1
million, an increase of 25.6% over 1997. This increase is primarily
due to increases in the amortization of policy acquisition costs for
new credit insurance policies. Benefits and expenses related to
Oxford's subsidiaries were $19.1 million for the six months ended June
30, 1998.
Operating profit before tax and before intercompany eliminations
increased by $2.8 million or approximately 72.8% in 1998 to $6.8
million, primarily due to the acquisition of NAI and SML.
Interest Expense
Net interest expense declined to $29.8 million during the first
six months of fiscal 1999, as compared to $33.6 million compared to
fiscal 1998. The decrease can be attributed to a reduction in the
average cost of debt and a decrease in average debt levels
outstanding.
<PAGE> 21
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 $4.1 million, net of tax of $2.3 million ($0.19
per share).
Consolidated Group
As a result of the foregoing, pretax earnings of $112.6 million
were realized during the first six months of fiscal 1999,, as compared
to $103.2 million for fiscal 1998. After providing for income taxes
and an extraordinary loss from the extinguishment of debt, net
earnings for the first six months of fiscal 1999 were $73.4 million,
as compared to $64.1 million for fiscal 1998.
QUARTERLY RESULTS
The following table presents unaudited quarterly results for the
ten quarters in the period beginning April 1, 1996 and ending
September 30, 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 rental operations are
seasonal and proportionally more of the Company's revenues and net
earnings from its U-Haul rental 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 for
share and per share data).
Quarter Ended
-----------------------
Jun 30 Sep 30
1998 1998
-----------------------
Total revenues $ 389,338 440,171
Net earnings 31,230 42,171
Weighted average common
shares outstanding (4) 21,924,749 21,935,854
Net earnings
per common share (both basic
and diluted) (1) 1.21 1.71
Quarter Ended
----------------------------------------------
Jun 30 Sep 30 Dec 31 Mar 31
1997 1997 1997 1998
----------------------------------------------
Total revenues $ 372,021 412,774 322,543 298,607
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)
<PAGE> 22
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) (4) (5) 1.15 1.29 (0.72) (0.97)
Net earnings (loss) per
common share (both basic
and diluted) (1) (4) (5) 1.15 1.22 (0.74) (0.97)
_______________
(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 values 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" of
the Company's Form 10-K for the year ended March 31, 1998.
(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).
<PAGE> 23
QUARTER ENDED SEPTEMBER 30, 1998 VERSUS QUARTER ENDED SEPTEMBER 30, 1997
Moving and Storage Operations
Revenues consist of rental revenue and net sales.
Rental revenue increased by $11.3 million, approximately 3.7%, to
$317.5 million in the second quarter of fiscal 1999. This reflects a
$9.9 million increase in revenues from the rental of moving related
equipment reflecting higher truck inventory levels and improved in-
town truck utilization.
Net sales were $51.3 million in the second quarter of fiscal
1999, which represents an increase of 2.4% from fiscal 1998 net sales
of $50.1 million. Revenue growth from the sale of moving support
items (i.e. boxes, etc.) accounted for the increase during the
quarter.
Cost of sales was $30.2 million in the second quarter of fiscal
1999, which represents an increase of 1.7% from $29.7 million for the
same period in fiscal 1998. The increase in cost of sales primarily
reflects increased material costs from the sale of moving support
items which can be attributed to a higher sales level.
Operating expense was relatively stable at $222.1 million for the
second quarter of fiscal 1999 compared to $220.3 million for fiscal
1998.
Lease expense increased to $29.6 million for the second quarter
of fiscal 1999 compared to $22.4 million in fiscal 1998. Additional
leasing activity over the past nine months reflects the increase.
Net depreciation expense for the second quarter of fiscal 1999
was $14.3 million, as compared to $10.8 million in fiscal 1998. An
increase in gain on sale of property offset by an increase in
depreciation expense relating to rental equipment accounted for the
change.
Property and Casualty
RWIC gross premium writings for the quarter ended June 30, 1998
were $50.8 million as compared to $54.9 million in 1997. The
decreased premium writings resulted primarily from reduced insurance
transactions with U-Haul. The rental industry share of total premiums
declined to 54.1% for the quarter ended June 30, 1998 as compared to
58.7% for 1997. RWIC underwrites professional reinsurance via broker
markets, and premiums in this area decreased during the second quarter
of 1998 to 27.9% of total gross premiums, from 28.8% during 1997.
Direct multiple peril coverage of various commercial properties and
businesses accounted for 13.8% of total gross written premium during
the second quarter of 1998, as compared to 11.4% in 1997. General
agency premiums increased to 4.2% of gross written premiums during the
second quarter of 1998 as compared to 1.3% in 1997. This increase can
be attributed to decreased rental industry and professional
reinsurance written premiums and increased writing of excess workers
compensation.
Net earned premiums decreased to $42.5 million for the quarter
ended June 30, 1998, compared with $44.5 million for 1997. The
premium decrease resulted from the U-Haul Liability programs in the
rental industry market which decreased $3.8 million from $26.8 million
for 1997. Offsetting this decrease in net earned premiums was a $1.1
million increase in the general agency and direct multiple peril
business, which consisted of $1.6 million and $4.9 million for June
30, 1998 and $1.4 million and $4.0 million in 1997, respectively.
Assumed treaty increased to $13.0 million for the quarter ended June
30, 1998 as compared to $12.3 million for 1997.
Net investment income was $8.5 million for the quarter ended June
30, 1998, an increase of 6.3% over 1997 net investment income of $8.0
million. The increase resulted from enhanced yield provided by an
increased investment in preferred stock.
Underwriting expenses incurred were $46.7 million for the quarter
ended June 30, 1998, a decrease of $5.1 million, or 9.8% from 1997.
The losses and loss adjustment expenses incurred a decrease of $4.7
million resulting primarily from the reduction in insurance
transactions with U-Haul and corresponds to the decrease in
liabilities for unpaid claims due to estimated future losses for
current and prior policies for those transactions. Net commissions
decreased $1.3 million due to decreased assumed reinsurance deferred
acquisition costs, which corresponds to the decrease in unearned
premiums compared to 1997. All other underwriting expenses increased
in the aggregate by $0.9 million.
<PAGE> 24
RWIC completed the second quarter of 1998 with income before tax
expense of $4.3 million as compared to $0.8 million for the same
period in 1997. This represents an increase of $3.5 million, or
437.5% over 1997. The increase resulted primarily from decreased
underwriting expenses.
Life Insurance
Total premiums from Oxford and its subsidiaries were $20.3
million for the quarter ended June 30, 1998, an increase of $13.5
million compared to 1997. These increases are due to new Single
Premium Whole Life Writings and the acquisition of NAI and SML.
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $6.1 million for the quarter ended June 30, 1998, a
decrease of $700 thousand or 10.2% over 1997 and accounted for 30.0%
of Oxford's premiums in the quarter ended June 30, 1998. These
premiums are primarily from term life insurance and deferred annuity
contracts that have matured. Decreases in premiums are primarily from
these matured reinsurance agreements.
Premiums from Oxford's direct lines before intercompany
eliminations were $2.5 million in the quarter ended June 30, 1998, an
increase of $500 thousand or 25.0% compared to 1997. This increase in
direct premium is primarily attributable to the new writings of Single
Premium Whole Life policies. Oxford's direct business related to
group life and disability coverage issued to employees of the Company
accounted for 3.0% of premiums. Other direct lines, including credit
life and health business, accounted for 8.9% of Oxford's premium in
the quarter ended June 30, 1998. Premiums from Oxford's subsidiaries,
NAI and SML, were $11.7 million and accounted for 57.8% of premiums
for the quarter ended June 30, 1998.
Net investment income before intercompany eliminations was $5.0
million for the quarter ended June 30, 1998 and $4.4 million for 1997.
Benefits and expenses incurred were $23.7 million for the quarter
ended June 30, 1998. Oxford's benefits and expenses were $12.2
million, an increase of 32.6% compared to 1997. This increase is
primarily due to increases in the amortization of policy acquisition
costs. Benefits and expenses related to Oxford's subsidiaries were
$11.5 million.
Operating profit before tax and intercompany eliminations
increased by $1.1 million, or 57.9%, in the quarter ended June 30,
1998 to $3.0 million, primarily due to the acquisition of NAI.
Interest Expense, net
Net interest expense was $14.7 million in the second quarter of
fiscal 1999 versus $16.2 million for 1997. The decrease can be
attributed to a decrease in average debt levels outstanding and a
reduction in the average cost of debt.
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 $4.1 million, net of tax of $2.3 million ($0.19
per share).
Consolidated Group
As a result of the foregoing, pretax earnings of $65.3 million
were realized during the second quarter of fiscal 1999, as compared to
$59.1 million for fiscal 1998. After providing for income taxes and
extraordinary losses from the extinguishment of debt, net earnings for
the second quarter of fiscal 1999 were $42.2 million, as compared to
$34.9 million for fiscal 1998.
<PAGE> 25
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 September 30, 1998, net
property, plant and equipment represented approximately 66.9% of total
U-Haul assets and approximately 43.9% of consolidated assets. In the
second quarter of fiscal 1999, capital expenditures were $190.0
million, as compared to $284.0 million for fiscal 1998, reflecting
expansion of the rental truck fleet. These acquisitions were funded
with internally generated funds from operations and lease financings.
Cash flows provided by operating activities were $100.1 million
for the first six months of fiscal 1999, as compared to $106.9 million
in fiscal 1998. An increase in receivables was a contributing factor
of the decrease.
Property and Casualty
Cash flows provided (used) by operating activities were $(8.8)
million and $1.7 million for the six months ended June 30, 1998 and
1997, respectively. The change resulted primarily from increased paid
losses recoverable, decreased loss and expense reserves, and a smaller
unearned premium increase compared to 1997. Offsetting were increases
in accounts receivable, due from affiliates and other liabilities.
RWIC's cash and cash equivalents and short-term investment
portfolio were $2.9 million and $5.5 million at June 30, 1998 and
1997, respectively. This balance reflects funds in transition from
maturity proceeds to long-term investments. This level of liquid
assets, combined with budgeted cash flow, is adequate to meet periodic
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 94.6% 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 118.4% of total liabilities.
Stockholder's equity increased $3.0 million from $196.6 million
at June 30, 1997 to $199.6 at June 30, 1998. RWIC considers current
shareholder'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.
Life Insurance
Oxford's primary sources of cash are premiums, deferred annuity
sales 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.
Cash flows provided by operating activities were $2.4 million and
$14.5 million for the six months ended June 30, 1998 and 1997,
respectively. Cash flows provided (used) by financing activities were
$7.1 million and $(17.6) million for the six months ended June 30,
1998 and 1997, respectively. Cash flows from deferred annuity sales
are a component of financing activities and result in 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 June 30, 1998 and 1997, short-term investments
amounted to $33.0 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 $89.6 million in 1998
from $77.8 million in 1997 primarily as a result of earnings from
operations.
<PAGE> 26
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 $0.6 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 zero at June 30, 1998. 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 an average of
approximately $30-$115 million in annual long-term debt maturities
during this same period, are expected to create annual average funding
needs of approximately $325-$375 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 September 30, 1998, the Company had
$998.0 million in total notes and loans payable outstanding, as
compared with $1,025.3 million at March 31, 1998, and $1,059.0 million
at September 30, 1997. Unutilized committed lines of credit are
$225.0 million at September 30, 1998.
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 September 30, 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 a 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.
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. The Company has completed the assessment phase.
The Company's internal information technology conversion phase is
underway and on schedule with the testing phase scheduled for
completion by fiscal year end. In particular, the Company has an
outside consulting firm on-site currently making the necessary
modifications to existing systems.
The Company is also reviewing its non-information technology
items for Year 2000 compliance, such as rental vehicles and storage
facilities security systems.
The Company expects to be fully Year 2000 compliant by March 1999
at an estimated cost of approximately $2.0 million, of which $1.0 million
has been incurred through September 30, 1998. 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
<PAGE> 27
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.
The Company is communicating with its major business partners to determine the
efforts being made on their part for compliance. Critical vendors with
electronic data interchange will be scheduled for testing during the Company's
fourth quarter, with other vendor testing to be scheduled during the remainder
of the calendar year 1999. The Company is in the process of developing a
contingency plan to be used, if in the most reasonably likely worst case
scenario, a business partner is not Year 2000 compliant. It is anticipated
that the contingency plan will be completed by fiscal year end.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the Company's Form 10-K for the year ended March
31, 1998, a judgment was entered on February 21, 1995 in 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. CV 88-20139
- -------------------------------------------------------
(the "Shoen Litigation") against Edward J. Shoen in the amount of
$7.0 million as punitive damages. On July 15, 1998, Edward J. Shoen
filed an appeal with the United States Supreme Court with
respect to the award of punitive damages. On October 5, 1998, the
punitive damage award in the Shoen Litigation (which was subsequently
reduced by partial settlement to $6.0 million) became final when the
United States Supreme Court denied certiorari.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Stockholders was held August 28, 1998.
At the 1998 Annual Meeting of Stockholders, William E. Carty and
Charles J. Bayer were elected to serve until the 2002 Annual Meeting
of Stockholders; John P. Brogan and James J. Grogan were elected to
fill vacated seats until the 1999 Annual Meeting of Stockholders.
Edward J. Shoen and Richard J. Herrera continue as directors with
terms that expire at the 2000 Annual Meeting of Stockholders; John M.
Dodds and James P. Shoen continue to serve as directors until the 2001
Annual Meeting of Stockholders.
The following table sets forth the votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes
with respect to each matter voted on at the 1998 Annual Meeting of
Stockholders:
Matters Submitted Votes cast Votes cast Votes Broker
To a Vote For Against Withheld Abstentions Non-Votes
- -----------------------------------------------------------------------------
1. Election of Directors
John P. Brogan 20,334,779 53,992 63,520 - -
James J. Grogan 20,341,242 46,023 65,026 - -
William E. Carty 20,344,328 41,797 66,166 - -
Charles J. Bayer 20,353,788 33,703 63,800 - -
<PAGE> 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
Exhibit No. Description
----------- -----------
3.1 Restated Articles of Incorporation (1)
3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2)
27 Financial Data Schedule
b. Reports on Form 8-K.
No report on Form 8-K was filed during the quarter ended
September 30, 1998.
_____________________________________
(1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1992, file no. 0-7862.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, file no. 0-7862.
<PAGE> 29
SIGNATURES
Pursuant to the requirements 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.
___________________________________
(Registrant)
Dated: November 9, 1998 By: /S/ DONALD W. MURNEY
___________________________________
Donald W. Murney, Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 14,150
<SECURITIES> 0
<RECEIVABLES> 308,267<F1>
<ALLOWANCES> 0
<INVENTORY> 75,236
<CURRENT-ASSETS> 0<F2>
<PP&E> 2,419,780
<DEPRECIATION> 1,115,708
<TOTAL-ASSETS> 2,931,468
<CURRENT-LIABILITIES> 0
<BONDS> 997,982
0
0
<COMMON> 10,563
<OTHER-SE> 617,576
<TOTAL-LIABILITY-AND-EQUITY> 2,931,468
<SALES> 107,567
<TOTAL-REVENUES> 829,509
<CGS> 62,909
<TOTAL-COSTS> 621,936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,272
<INTEREST-EXPENSE> 29,757
<INCOME-PRETAX> 112,635
<INCOME-TAX> 39,234
<INCOME-CONTINUING> 73,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,401
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
<FN>
<F1>THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNT NET OF THEIR ALLOWANCES.
<F2>AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
</FN>
</TABLE>
