<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 December 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, 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 February 12, 1999.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par
value, were outstanding at February 12, 1999. 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 December 31, 1998,
March 31, 1998 and December 31, 1997.................. 4
b) Consolidated Statements of Earnings for the Nine
months ended December 31, 1998 and 1997............... 6
c) Consolidated Statements of Changes in Stockholders'
Equity for the Nine months ended December 31, 1998
and 1997.............................................. 7
d) Consolidated Statements of Earnings for the
Quarters ended December 31, 1998 and 1997............. 8
e) Consolidated Statements of Cash Flows for the Nine
months ended December 31, 1998 and 1997............... 9
f) Notes to Consolidated Financial Statements -
December 31, 1998, March 31, 1998 and
December 31, 1997..................................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 28
Item 6. Exhibits and Reports on Form 8-K.......................... 29
<PAGE> 3
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INTENTIONALLY BLANK
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
December 31, March 31, December 31,
ASSETS 1998 1998 1997
------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Cash and cash equivalents $ 34,949 31,606 31,822
Receivables 407,200 317,620 251,064
Inventories 70,891 68,887 78,242
Prepaid expenses 19,668 21,154 19,294
Investments, fixed maturities 878,770 886,873 864,321
Investments, other 157,849 164,064 147,545
Deferred policy acquisition costs 63,397 44,255 41,257
Other assets 107,422 103,062 73,355
------------------------------------
Property, plant and equipment, at
cost:
Land 196,977 208,028 208,334
Buildings and improvements 800,137 838,419 830,747
Furniture and equipment 226,724 214,513 208,374
Rental trailers and other rental
equipment 202,751 179,225 179,733
Rental trucks 943,761 939,561 1,041,591
------------------------------------
2,370,350 2,379,746 2,468,779
Less accumulated depreciation 1,109,388 1,103,990 1,117,734
------------------------------------
Total property, plant and
equipment 1,260,962 1,275,756 1,351,045
------------------------------------
$ 3,001,108 2,913,277 2,857,945
====================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
December 31, March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998 1997
------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Liabilities:
Accounts payable and accrued
expenses $ 102,032 144,201 94,284
Notes and loans 1,023,452 1,025,323 1,074,409
Policy benefits and losses, claims
and loss expenses payable 570,592 592,642 493,003
Liabilities from premium deposits 433,647 425,347 423,777
Cash overdraft 34,130 21,414 24,978
Other policyholders' funds and
liabilities 40,203 34,911 26,695
Deferred income 111,584 45,298 42,803
Deferred income taxes 63,680 29,082 39,944
------------------------------------
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
December 31, 1998, March 31, 1998
and December 31, 1997 - - -
Series B preferred stock, with no par
value, 100,000 shares authorized,
50,000 shares issued and outstanding
as of December 31, 1998, 75,000 shares
issued and outstanding as of March 31,
1998 and 100,000 shares issued and
outstanding as of December 31, 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
December 31, 1998, March 31, 1998
and December 31, 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
December 31, 1998, March 31, 1998
and December 31, 1997 9,122 9,122 9,122
Additional paid-in capital 288,444 313,444 337,444
Accumulated other comprehensive income (14,862) (9,384) (9,243)
Retained earnings 714,432 658,227 677,078
------------------------------------
998,577 972,850 1,015,842
Less:
Cost of common shares in treasury,
(19,635,913 shares as of
December 31, 1998, March 31, 1998
and December 31, 1997) 359,723 359,723 359,723
Unearned employee stock
ownership plan shares 17,066 18,068 18,067
------------------------------------
Total stockholders' equity 621,788 595,059 638,052
Contingent liabilities and commitments
$ 3,001,108 2,913,277 2,857,945
====================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Nine months ended December 31,
(Unaudited)
1998 1997
-------------------------
(in thousands except
share and per share data)
Revenues
Rental revenue $ 848,771 804,356
Net sales 143,169 140,041
Premiums 165,492 119,890
Net investment income 40,647 36,388
-----------------------
Total revenues 1,198,079 1,100,675
Costs and expenses
Operating expense 663,509 618,116
Cost of sales 84,568 80,834
Benefits and losses 130,468 130,914
Amortization of deferred acquisition
costs 16,902 10,679
Lease expense 87,632 67,027
Depreciation, net 53,480 48,795
-----------------------
Total costs and expenses 1,036,559 956,365
Earnings from operations 161,520 144,310
Interest expense, net of interest
income of $10,417 and $10,307 in
1998 and 1997, respectively 44,586 49,301
-----------------------
Pretax earnings 116,934 95,009
Income tax expense (41,055) (32,169)
-----------------------
Earnings from operations before
extraordinary loss on early
extinguishment of debt 75,879 62,840
Extraordinary loss on early
extinguishment of debt, net - (13,984)
-----------------------
Net earnings $ 75,879 48,856
=======================
Earnings per common share (both
basic and diluted):
Earnings from operations before
extraordinary loss on early
extinguishment of debt $ 2.85 2.15
Extraordinary loss on early
extinguishment of debt, net - (0.64)
-----------------------
Net earnings $ 2.85 1.51
=======================
Weighted average common shares outstanding 21,934,264 21,890,250
=======================
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
Nine months ended December 31, 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
---------------------------------------------------------------------------------------------------
<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 (201) (201)
Repayments from loan 1,203 1,203
Preferred stock dividends:
Series A ($1.59 per share) (9,723) (9,723)
Series B ($69.64 per share) (3,756) (3,756)
Indemnification in settlement
of litigation (6,195) (6,195)
Comprehensive income:
Net income 75,879 75,879 $ 75,879
Other comprehensive income,
net of tax:
Foreign currency
translation (6,420) (6,420) (6,420)
Unrealized loss on
investments 5,761 5,761 5,761
Fair market value -
cash flow hedge (4,819) (4,819) (4,819)
------
Comprehensive income $ 70,401
------ ----- ------- ------- ------- -------- ------- ------- ======
Balance at December 31, 1998 $ 1,441 9,122 288,444 (14,862) 714,432 (359,723) (17,066) 621,788
====== ===== ======= ======= ======= ======== ======= =======
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:
Issuance of shares 511 511
Purchase of shares (4) (4)
Repayments from loan 2,677 2,677
Preferred stock dividends:
Series A ($1.59 per share) (9,723) (9,723)
Series B ($60.64 per share) (6,064) (6,064)
Comprehensive income:
Net income 48,856 48,856 $ 48,856
Other comprehensive income,
net of tax:
Foreign currency
translation (2,859) (2,859) (2,859)
Unrealized loss on
investments 3,338 3,338 3,338
------
Comprehensive income $ 49,335
------ ----- ------- ------- ------- -------- ------- ------- ======
Balance at December 31, 1997 $ 1,441 9,122 337,444 (9,243) 677,078 (359,723) (18,067) 638,052
====== ===== ======= ======= ======= ======== ======= =======
<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 December 31,
(Unaudited)
1998 1997
------------------------
(in thousands except
share and per share data)
Revenues
Rental revenue $ 249,870 233,026
Net sales 35,602 34,430
Premiums 69,269 40,045
Net investment income 13,829 12,752
-----------------------
Total revenues 368,570 320,253
Costs and expenses
Operating expense 216,525 201,119
Cost of sales 21,659 20,314
Benefits and losses 50,477 48,881
Amortization of deferred acquisition
costs 8,103 3,556
Lease expense 31,100 21,572
Depreciation, net 21,578 17,380
-----------------------
Total costs and expenses 349,442 312,822
Earnings from operations 19,128 7,431
Interest expense, net of interest
income of $3,539 and $3,243 in
1998 and 1997, respectively 14,829 15,657
-----------------------
Pretax earnings (loss) from operations 4,299 (8,226)
Income tax benefit (expense) (1,821) 2,836
-----------------------
Earnings (loss) from operations before
extraordinary loss on early
extinguishment of debt 2,478 (5,390)
Extraordinary loss on early
extinguishment of debt, net - (9,846)
-----------------------
Net earnings (loss) $ 2,478 (15,236)
=======================
Earnings (loss) per common share:
Earnings (loss) from operations before
extraordinary loss on early
extinguishment of debt $ (0.07) (0.49)
Extraordinary loss on early
extinguishment of debt, net - (0.45)
-----------------------
Net earnings (loss) $ (0.07) (0.94)
=======================
Weighted average common shares outstanding 21,942,190 21,901,521
=======================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended December 31,
(Unaudited)
1998 1997
--------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 75,879 48,856
Depreciation and amortization 80,717 81,099
Provision for losses on accounts
receivable 3,545 3,496
Net gain on sale of real and
personal property (681) (667)
Net gain on sale of investments (1,745) (315)
Changes in policy liabilities and
accruals 7,368 19,765
Additions to deferred policy
acquisition costs (36,117) (4,890)
Net change in other operating assets
and liabilities (98,843) (37,167)
--------------------
Net cash provided by operating activities 30,123 110,177
--------------------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (235,035) (317,189)
Fixed maturities (141,792) (94,451)
Equity investment - (24,500)
Preferred stock (20,700) -
Mortgage loans (1,582) (13,380)
Common stock (2,553) -
Proceeds from sale of investments:
Property, plant and equipment 196,506 163,503
Fixed maturities 177,162 95,562
Real estate 5,196 685
Preferred stock 1,858 -
Mortgage loans 14,661 15,222
Changes in other investments (3,560) 1,793
--------------------
Net cash used by investing
activities (9,839) (172,755)
--------------------
Cash flows from financing activities:
Net change in short-term borrowings 44,500 171,500
Debt issuance costs (378) (2,936)
Proceeds from notes - 300,000
Principal payments on notes (46,370) (380,641)
Extraordinary loss on early
extinguishment of debt, net - (13,984)
Leveraged Employee Stock Ownership Plan:
Purchase of shares (201) (4)
Repayments from loan 1,203 2,677
Net change in cash overdraft 12,716 1,372
Preferred stock dividends paid (13,479) (15,787)
Repurchase of preferred stock (25,000) -
Investment contract deposits 56,217 35,628
Investment contract withdrawals (46,149) (45,177)
--------------------
Net cash provided (used) by
financing activities (16,941) 52,648
--------------------
Increase (decrease)in cash and
cash equivalents 3,343 (9,930)
Cash and cash equivalents at
beginning of period 31,606 41,752
--------------------
Cash and cash equivalents at
end of period $ 34,949 31,822
====================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, March 31, 1998 and December 31, 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 December 31, 1998 and 1997,
and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the nine months ended December
31, 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 nine months ended December 31, 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:
September 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 $ 15,165 $ 15,031 1,939 - 16,970
U.S. government
agency mortgage-
backed securities $ 32,975 32,801 877 (18) 33,660
Obligations of
states and
political
subdivisions $ 10,975 10,904 942 - 11,846
Corporate
securities $ 135,714 137,052 6,502 (248) 143,306
Mortgage-backed
securities $ 76,832 75,788 2,723 (200) 78,311
Redeemable preferred
stocks 4,434 112,694 1,359 (1,621) 112,432
----------------------------------------
384,270 14,342 (2,087) 396,525
----------------------------------------
September 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 $ 16,505 16,612 1,348 - 17,960
U.S. government
agency mortgage-
backed securities $ 33,405 32,958 1,899 - 34,857
States,
municipalities
and political
subdivisions $ 7,925 8,348 441 (18) 8,771
Corporate
securities $ 329,860 332,637 17,730 (1,639) 348,728
Mortgage-backed
securities $ 49,421 49,270 1,885 (5) 51,150
Redeemable preferred
stocks 1,286 32,747 645 (358) 33,034
----------------------------------------
472,572 23,948 (2,020) 494,500
----------------------------------------
Total $ 856,842 38,290 (4,107) 891,025
========================================
<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:
September 30,
---------------------
1998 1997
---------------------
(in thousands)
Investments - fixed maturities $ 407,755 413,196
Other investments 23,720 22,571
Receivables 139,145 119,368
Deferred policy acquisition costs 8,472 5,663
Due from affiliate 24,831 33,020
Deferred federal income taxes 14,475 17,531
Other assets 24,821 18,916
-------------------
Total assets $ 643,219 630,265
===================
Policy liabilities and accruals $ 360,657 361,146
Unearned premiums 54,200 50,586
Other policyholders' funds and liabilities 21,272 23,028
-------------------
Total liabilities 436,129 434,760
Stockholder's equity 207,090 195,505
-------------------
Total liabilities and
stockholder's equity $ 643,219 630,265
===================
A summarized consolidated income statement for RWIC is presented
below:
Nine months ended Quarter ended
September 30, September 30,
------------------- ----------------
1998 1997 1998 1997
------------------------------------------
(in thousands)
Premiums $ 104,737 118,753 39,476 39,757
Net investment income 24,621 23,222 7,969 7,942
----------------- ----------------
Total revenue 129,358 141,975 47,445 47,699
Benefits and losses 86,711 113,749 30,171 43,831
Amortization of deferred
policy acquisition costs 5,402 6,466 3,001 2,155
Other expenses 23,093 19,902 6,639 5,678
----------------- ----------------
Total expenses 115,206 140,117 39,811 51,664
Income from operations 14,152 1,858 7,634 (3,965)
Federal income tax expense (4,515) (35) (2,555) 1,610
----------------- ----------------
Net income $ 9,637 1,823 5,079 (2,355)
================= ================
<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:
September 30,
---------------------
1998 1997
---------------------
(in thousands)
Investments - fixed maturities $ 471,015 451,125
Other investments 115,010 102,467
Receivables 42,083 12,357
Deferred policy acquisition costs 54,925 35,594
Due from affiliate 3,046 260
Other assets 34,143 1,667
-------------------
Total assets $ 720,222 603,470
===================
Policy liabilities and accruals $ 155,735 81,271
Premium deposits 433,647 423,777
Other policyholders' funds and liabilities 22,147 5,524
Deferred taxes 12,471 10,457
-------------------
Total liabilities 624,000 521,029
Stockholder's equity 96,222 82,441
-------------------
Total liabilities and
stockholder's equity $ 720,222 603,470
===================
A summarized consolidated income statement for Oxford is presented below:
Nine months ended Quarter ended
September 30, September 30,
-----------------------------------------
1998 1997 1998 1997
-----------------------------------------
(in thousands)
Premiums $ 71,389 19,259 35,087 6,559
Net investment income 14,486 13,400 5,046 4,491
---------------- ----------------
Total revenue 85,875 32,659 40,133 11,050
Benefits and losses 43,757 17,165 20,306 5,050
Amortization of deferred
policy acquisition costs 11,500 4,213 5,102 1,401
Other expenses 20,908 4,063 11,768 1,287
---------------- ----------------
Total expenses 76,165 25,441 37,176 7,738
Income from operations 9,710 7,218 2,957 3,312
Federal income tax expense (2,991) (2,036) (903) (951)
---------------- ----------------
Net income $ 6,719 5,182 2,054 2,361
================ ================
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), domiciled in Wisconsin. NAI's
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:
Unrealized Fair market Accumulated
Foreign gain (loss) value of other
currency on cash flow comprehensive
translation investments hedge income
-------------------------------------------------
(in thousands)
Balance at March 31, 1998 $ (18,675) 9,291 - (9,384)
Foreign currency
translation (6,420) - - (6,420)
Unrealized gain (loss)
on investments - 5,761 - 5,761
Fair market value of
cash flow hedge - - (4,819) (4,819)
-----------------------------------------------
Balance at December 31, 1998 $ (25,095) 15,052 (4,819) (14,862)
===============================================
Balance at March 31, 1997 $ (14,133) 4,411 - (9,722)
Foreign currency
translation (2,859) - - (2,859)
Unrealized gain (loss)
on investments - 3,338 - 3,338
-----------------------------------------------
Balance at December 31, 1997 $ (16,992) 7,749 - (9,243)
===============================================
5. CONTINGENT LIABILITIES AND COMMITMENTS
During the nine months ended December 31, 1998, a subsidiary of U-
Haul entered into twelve transactions, whereby the Company sold rental
trucks and subsequently leased back. The Company has guaranteed
$20,651,000 of residual values at December 31, 1998 for these assets
at the end of the respective lease terms. U-Haul also 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 nine months ended December 31, 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 $ 9,252 - 9,252
2000 14,554 - 14,554
2001 14,554 - 14,554
2002 14,554 - 14,554
2003 14,554 - 14,554
Thereafter 35,027 - 35,027
------------------------------------
$ 102,495 - 102,495
====================================
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. 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. In response to a
request for indemnification by Edward J. Shoen, the Board of
Directors, in conjunction with Independent Counsel and pursuant to
Nevada state law, approved the indemnification of the $6.0 million
punitive damage judgment. The indemnification payment was made on
December 31, 1998, and is reflected in the financial statements as a
reduction of retained earnings.
7. SUPPLEMENTAL CASH FLOWS INFORMATION
The (increase) decrease in receivables, inventories and accounts
payable and accrued liabilities net of other operating and investing
activities follows:
Nine Months ended
December 31,
1998 1997
------------------------------
(in thousands)
Receivables $ (131,711) (12,262)
==============================
Inventories $ (2,004) (12,448)
==============================
Accounts payable and
accrued liabilities $ (52,556) (38,065)
==============================
Income taxes paid in cash amounted to $1,065,000 and $1,367,000
for the nine months ended December 31, 1998 and 1997, respectively.
Interest paid in cash amounted to $57,094,000 and $55,631,000 for
the nine months ended December 31, 1998 and 1997, respectively.
<PAGE> 16
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
8. EARNINGS PER SHARE
The following table reflects the calculation of the earnings per share:
Nine months ended Quarter ended
December 31, December 31,
1998 1997 1998 1997
---------------------------------------------
(in thousands except share and per share data)
Earnings (loss) from operations
before extraordinary
loss on early extinguishment
of debt $ 75,879 62,840 2,478 (5,390)
Less dividends
on preferred shares 13,292 15,863 4,046 5,292
-------------------- ---------------------
62,587 46,977 (1,568) (10,682)
Extraordinary loss on early
extinguishment of debt - (13,984) - (9,846)
-------------------- ---------------------
Net earnings (loss) for per
share calculation $ 62,587 32,993 (1,568) (20,528)
==================== =====================
Net earnings (loss) per share:
Earnings (loss) from operations
before extraordinary loss
on early extinguishment
of debt $ 2.85 2.15 (0.07) (0.49)
Extraordinary loss on early
extinguishment of debt, net - (0.64) - (0.45)
-------------------- ---------------------
Net earnings (loss) $ 2.85 1.51 (0.07) (0.94)
==================== =====================
Weighted average common
shares outstanding 21,934,264 21,890,250 21,942,190 21,901,521
===================== ======================
9. RELATED PARTIES
During the nine months ended December 31, 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 interest payments of $5,988,000
from SAC Holdings during the nine months ended December 31, 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 $1,620,000 during
the nine months ended December 31, 1998. The management fee
percentage is consistent with the fees received by the Company for
other properties managed by the Company.
As of December 31, 1998, a subsidiary of the Company funded the
purchase of nineteen properties by SAC Holdings for approximately
$18,112,000.
In December 1998, the Company completed the sale of twenty-six
storage properties to Six SAC Self-Storage Corporation, a subsidiary of SAC
Holding Corporation, for $99,685,000. The Company received cash and
notes from the sale. The gain was recorded on the balance sheet.
<PAGE> 17
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
10. 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.
On October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement standardizes the accounting
for derivative instruments by requiring an entity to 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. The Company recorded an after
tax adjustment of $4,819,000 to accumulated other comprehensive
income recognizing the fair value of derivatives designated as cash
flow hedges. The Company uses interest rate swap agreements to
potentially mitigate the impact of changes in interest rates on its
variable rate debt. For the nine months ended December 31, 1998, the
Company recognized $99,000 as interest expense, representing the
ineffectiveness of the cash flow hedging activity.
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.
11. 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)
Nine months ended December 31, 1998
-----------------------------------
Revenues:
Outside $ 993,480 119,626 84,973 - 1,198,079
Intersegment - 9,732 902 (10,634) -
----------------------------------------------------------
Total revenue $ 993,480 129,358 85,875 (10,634) 1,198,079
Depreciation/
amortization $ 54,226 6,757 19,734 - 80,717
Interest expense,
net of interest
income
of $10,417 $ 44,586 - - - 44,586
Pretax earnings $ 93,072 14,152 9,710 - 116,934
Income tax $ (33,549) (4,515) (2,991) - (41,055)
Identifiable
assets $1,983,356 643,219 720,222 (345,689) 3,001,108
<PAGE> 18
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
11. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments
and Storage Casualty Life and
Operations Insurance Insurance Eliminations Consolidated
------------------------------------------------------------
(in thousands)
Nine months ended December 31, 1997
-----------------------------------
Revenues:
Outside $ 944,163 124,771 31,741 - 1,100,675
Intersegment - 17,204 918 (18,122) -
----------------------------------------------------------
Total revenue $ 944,163 141,975 32,659 (18,122) 1,100,675
Depreciation/
amortization $ 68,909 8,084 4,106 - 81,099
Interest expense,
net of interest
income
of $10,307 $ 49,301 - - - 49,301
Pretax earnings $ 85,933 1,858 7,218 - 95,009
Income tax $ (30,099) (35) (2,035) - (32,169)
Identifiable
assets $1,952,967 630,265 603,470 (328,757) 2,857,945
Quarter ended December 31, 1998
-------------------------------
Revenues:
Outside $ 286,286 42,464 39,820 - 368,570
Intersegment - 4,981 313 (5,294) -
----------------------------------------------------------
Total revenue $ 286,286 47,445 40,133 (5,294) 368,570
Depreciation/
amortization $ 20,650 3,319 9,072 - 33,041
Interest expense,
net of interest
income
of $3,539 $ 14,829 - - - 14,829
Pretax earnings $ (6,292) 7,634 2,957 - 4,299
Income tax $ 1,637 (2,555) (903) - (1,821)
Quarter ended December 31, 1997
-------------------------------
Revenues:
Outside $ 267,775 41,740 10,738 - 320,253
Intersegment - 5,959 312 (6,271) -
----------------------------------------------------------
Total revenue $ 267,775 47,699 11,050 (6,271) 320,253
Depreciation/
amortization $ 34,660 2,747 1,324 - 38,731
Interest expense,
net of interest
income
of $3,243 $ 15,657 - - - 15,657
Pretax earnings $ (7,573) (3,965) 3,312 - (8,226)
Income tax $ 2,177 1,610 (951) - 2,836
<PAGE> 19
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
11. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
<TABLE>
<CAPTION>
Geographic Area Data - United United
(All amounts are in States Canada Consolidated States Canada Consolidated
U.S. $'s) -------------------------------- -----------------------------
Nine months ended Quarter ended
-------------------------------- -----------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
- -----------------
Total revenues $ 1,173,328 24,751 1,198,079 362,108 6,642 368,570
Depreciation/amortization
$ 78,396 2,321 80,717 32,358 683 33,041
Interest expense, net $ 44,706 (120) 44,586 14,832 (3) 14,829
Income tax $ 41,055 - 41,055 (1,821) - (1,821)
Identifiable assets $ 2,962,672 38,436 3,001,108 n/a n/a n/a
December 31, 1997
- -----------------
Total revenues $ 1,074,885 25,790 1,100,675 313,559 6,694 320,253
Depreciation/amortization
$ 79,198 1,901 81,099 38,107 624 38,731
Interest expense, net $ 49,527 (226) 49,301 15,791 (134) 15,657
Income tax $ 32,169 - 32,169 2,836 - 2,836
Identifiable assets $ 2,846,724 11,221 2,857,945 n/a n/a n/a
</TABLE>
12. SUBSEQUENT EVENTS
On January 15, 1999, the Company repurchased 25,000 shares of its
Series B Convertible Preferred Stock for $25,000,000.
On February 2, 1999, the Company declared a cash dividend of
$3,241,000 ($0.53125 per preferred share) to preferred stockholders of
record as of February 12, 1999.
<PAGE> 20
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 11 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
NINE MONTHS ENDED DECEMBER 31, 1998 VERSUS NINE MONTHS ENDED DECEMBER
31, 1997
Moving and Storage Operations
Revenues consist of rental revenues and net sales.
Rental revenue increased by $44.4 million, 5.5%, to $848.8
million during the first nine months of fiscal 1999. An increase of
$38.1 million is attributable to the rental of moving related
equipment, primarily due to higher truck rental revenues. The growth
in truck rental revenues reflects transactional growth due to higher
inventory levels and improved in-town utilization. Additionally,
storage income increased by 8.9% to $83.7 million. An increase in
revenue generated for each rentable square foot was primarily
responsible.
Net sales revenues were $143.2 million during the first nine
months of fiscal 1999, which represents an increase of 2.2%, compared
to fiscal 1998 net sales of $140.0 million. Revenue growth from the
sale of moving support items (i.e. boxes, etc.), which was up by 6.5%
during this period, led to the improvement.
Cost of sales was $84.6 million during the first nine months of
fiscal 1999, which represents an increase of 4.6%, compared to $80.8
million in fiscal 1998. This increase reflects a $3.1 million
increase in material costs from the sale of moving support items
reflecting higher sales activity during the period.
Operating expenses increased to $630.1 million during the first
nine months of fiscal 1999 from $612.3 million compared to fiscal
1998, an increase of 2.9%. A 4.9% increase in equipment maintenance
costs and a 4.3% increase in personnel costs accounted for the
increase. All other operating expense categories declined slightly.
Lease expense increased to $87.6 million during the first nine
months of fiscal 1999 compared to $67.0 million in fiscal 1998. The
increase reflects additional leasing activity over the past year.
Leasing costs are within the planned target range for fiscal 1999.
Net depreciation expense was $53.5 million during the first nine
months of fiscal 1999 compared to $48.8 million in fiscal 1998.
Property and Casualty
RWIC gross premium writings for the nine months ended September
30, 1998 were $128.6 million compared to $129.8 million for 1997. The
decrease in premium writings resulted primarily from reduced insurance
transactions with U-Haul. The rental industry share of gross premium
writings declined to 42.9% in 1998 as compared to 53.9% in 1997 due to
the decrease in U-Haul transactions. RWIC underwrites professional
reinsurance via broker markets. Premiums in this area increased to
33.9% of gross premium writings from 27.6% in 1997. RWIC's direct
multiple peril coverage accounted for 15.1% of gross premium writings
compared to 13.2% in 1997. Premiums in selected general agency lines
increased to 8.1% of gross premium writings in 1998 compared to 5.3%
in 1997. Increased written premium on the excess workers compensation
business contributed to this increase.
<PAGE> 21
Net earned premiums decreased to $104.7 million for the nine
months ended September 30, 1998, compared to $118.8 million for 1997.
The premium decrease resulted from the U-Haul Liability programs in
the rental industry business which decreased to $50.9 million from
$69.7 million in 1997. Offsetting this decrease was a $3.4 million
increase in the general agency and direct multiple peril business,
which totalled $4.6 million and $15.2 million, respectively, at
September 30, 1998, and $4.0 million and $12.4 million, respectively,
at September 30, 1997. Assumed treaty reinsurance increased to $34.0
million for the nine months ending September 30, 1998, compared to
$32.7 million in 1997.
Net investment income was $24.6 million for the nine months ended
September 30, 1998, an increase of 6.0% over the 1997 net investment
income of $23.2 million. The increase resulted from enhanced yield
provided by an increased investment in preferred stock.
Underwriting expenses incurred were $115.2 million for the nine
months ended September 30, 1998, a decrease of $24.9 million, or 17.8%
from 1997. The loss and loss adjustment expenses incurred decreased
$28.0 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 $3.1 million.
RWIC completed the nine months ended September 30, 1998 with
income before tax expense of $14.2 million compared to $1.9 million
for 1997. This represents an increase of $12.3 million, or 647.4%
over 1997. The increase resulted primarily from decreased
underwriting expenses.
Life Insurance
Total premiums from Oxford and its subsidiaries were $71.4
million for the nine months ended September 30, 1998, an increase of
$52.1 million over 1997. These increases are primarily due to
premiums generated through the acquisitions of North American
Insurance Company (NAI), Safe Mate Life Insurance Company (SML), a new
Medicare supplement reinsurance block and direct new business
writings.
Premiums from Oxford's reinsurance lines before intercompany
eliminations, not including subsidiaries, were $24.6 million for the
nine months ended September 30, 1998, an increase of $11.5 million or
approximately 87.8% over 1997. These premiums accounted for 34.4% of
Oxford's premiums in 1998. These premiums are primarily from Medicare
supplement insurance, term life insurance, credit life and accident
and health insurance, and deferred annuity contracts that have
matured. Increases in premiums are primarily from new Medicare
supplement insurance reinsurance contracts. Reinsurance premiums from
NAI and SML totaled $4.9 million and accounted for 6.9% of total
premiums for the nine months ended September 30, 1998.
Premiums from Oxford's direct lines before intercompany
eliminations, not including subsidiaries, were $14.9 million for the
nine months ended September 30, 1998, an increase of $8.7 million or
140.3% over 1997. This increase in direct premium is primarily
attributable to writing of new Single Premium Whole Life policies and
new credit life and disability insurance. Oxford's direct business
related to group life and disability coverage issued to employees of
the Company accounted for 2.7% of premiums for the nine months ended
September 30, 1998. Other direct lines, including credit life and
health business, accounted for approximately 18.2% of Oxford's
premiums for the nine months ended September 30, 1998. Premiums from
Oxford's subsidiaries, NAI and SML, were $24.6 million and $2.4
million, respectively. These premiums accounted for 37.8% of premiums
for the nine months ended September 30, 1998.
Net investment income before intercompany eliminations was $14.5
million and $13.4 million for the nine months ended September 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 $76.2 million for the nine
months ended September 30, 1998. Oxford's benefits and expenses, not
including subsidiaries, were $47.0 million, an increase of 85.0% over
1997. This increase is primarily due to the acquisition of new
Medicare supplement reinsurance and increases in the amortization of
policy acquisition costs for new credit insurance policies. Benefits
and expenses related to Oxford's subsidiaries were $29.2 million for
the nine months ended September 30, 1998.
Operating profit before tax and before intercompany eliminations
increased by $2.5 million or approximately 34.5% in 1998 to $9.7
million, primarily due to the acquisition of NAI.
<PAGE> 22
Interest Expense
Net interest expense declined to $44.6 million during the first
nine months of fiscal 1999, compared to $49.3 million in fiscal 1998.
The decrease can be attributed to a reduction in the average cost of
debt and a decrease in average debt levels outstanding.
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).
During the third quarter of fiscal 1998, the Company extinguished
$256.0 million of 6.61% to 8.13% interest-bearing notes originally due
in fiscal 1999 through fiscal 2010. This resulted in an extraordinary
loss of $9.8 million, net of tax of $5.4 million ($0.45 per share).
Consolidated Group
As a result of the foregoing, pretax earnings of $116.9 million
were realized during the first nine months of fiscal 1999, compared to
$95.0 million for fiscal 1998. After providing for income taxes and
an extraordinary loss from the extinguishment of debt, net earnings
for the first nine months of fiscal 1999 were $75.9 million, compared
to $48.9 million for fiscal 1998.
QUARTERLY RESULTS
The following table presents unaudited quarterly results for the
eleven quarters in the period beginning April 1, 1996 and ending
December 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 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 Dec 31
1998 1998 1998
----------------------------------
Total revenues $ 389,338 440,171 368,570
Net earnings 31,230 42,171 2,478
Weighted average common
shares outstanding (4) 21,924,749 21,935,854 21,942,190
Net earnings (loss)
per common share (both basic
and diluted) (1) 1.21 1.71 (0.07)
Quarter Ended
----------------------------------------------
Jun 30 Sep 30 Dec 31 Mar 31
1997 1997 1997 1998
----------------------------------------------
Total revenues $ 372,021 412,774 320,253 304,894
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> 23
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 (loss) 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> 24
QUARTER ENDED DECEMBER 31, 1998 VERSUS QUARTER ENDED DECEMBER 31, 1997
Moving and Storage Operations
Revenues consist of rental revenue and net sales.
Rental revenue increased by $16.8 million, 7.3%, to $249.9
million in the third quarter of fiscal 1999. This reflects a $13.3
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 $35.6 million in the third quarter of fiscal 1999,
which represents an increase of 3.5% from fiscal 1998 net sales of
$34.4 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 $21.7 million in the third quarter of fiscal
1999, which represents an increase of 6.9% from $20.3 million in
fiscal 1998. The increase in cost of sales reflects increased
material costs from the sale of moving support items which can be
attributed to a higher sales level.
Operating expenses increased to $203.4 million during the third
quarter of fiscal 1999 from $200.4 million in fiscal 1998, an increase
of 1.5%. The increase reflects slightly higher costs in most
operating categories.
Lease expense increased to $31.1 million for the third quarter of
fiscal 1999 compared to $21.6 million in fiscal 1998. The increase
reflects increased leasing activity related to rental fleet and self-
storage center acquisitions. Leasing costs are within the planned
target range for fiscal 1999.
Net depreciation expense for the third quarter of fiscal 1999 was
$21.6 million, compared to $17.4 million in fiscal 1998.
Property and Casualty
RWIC gross premium writings for the third quarter ended September
30, 1998 were $51.7 million compared to $41.9 million for 1997. The
rental industry share of gross premium writings declined to 44.7% for
the third quarter of 1998 compared to 60.2% for 1997. Offsetting this
decrease was an increase in assumed treaty reinsurance. RWIC
underwrites professional reinsurance via broker markets. Premiums in
this area increased during the third quarter of 1998 to 31.9% of gross
premium writings, from 12.8% for 1997. RWIC's direct multiple peril
coverage accounted for 14.1% of gross premium writings during the
third quarter of 1998, compared to 15.6% in 1997. General agency
premiums decreased to 9.3% of gross premiums writings during the third
quarter of 1998 compared to 11.4% in 1997. This decrease can be
attributed to decreased writings on the rental industry and increased
assumed treaty reinsurance written premium.
Net earned premiums decreased to $39.5 million for the third
quarter ended September 30, 1998, compared to $39.8 million for 1997.
The premium decrease resulted from the U-Haul Liability programs in
the rental industry business which decreased to $22.2 million for the
third quarter from $24.7 million for 1997. Offsetting this decrease
in net earned premiums was a $1.7 million increase in the general
agency and direct multiple peril business, which consisted of $1.4
million and $5.4 million, respectively, for the third quarter ended
September 30, 1998 and $0.5 million and $4.6 million, respectively,
for 1997. Assumed treaty reinsurance increased to $10.5 million for
the third quarter of 1998 compared to $10.0 million for 1997.
Net investment income was $7.9 million for both quarters ended
September 30, 1998 and 1997.
Underwriting expenses incurred were $39.8 million for the third
quarter ended September 30, 1998, a decrease of $11.8 million, or
22.9% from 1997. A decrease of $14.1 million resulted from the losses
and loss adjustment expenses incurred. This decrease was 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. All other underwriting expenses increased in the
aggregate by $2.2 million.
<PAGE> 25
RWIC completed the third quarter of 1998 with income before tax
expense of $7.7 million compared to $(3.9) million for 1997. This
represents an increase of $11.6 million, or 297.4% over 1997. The
increase resulted primarily from decreased underwriting expenses.
Life Insurance
Total premiums from Oxford and its subsidiaries were $35.1
million for the third quarter ended September 30, 1998, an increase of
$28.5 million over 1997. These increases are due to new Single
Premium Whole Life Writings, a new Medicare supplement reinsurance
contract and premiums generated through the acquisition of NAI and
SML.
Premiums from Oxford's reinsurance lines, excluding subsidiaries,
and before intercompany eliminations were $18.6 million for the third
quarter ended September 30, 1998, an increase of $14.2 million or
322.7% over 1997, and accounted for 53.0% of Oxford's premiums. These
premiums are primarily from term life insurance, deferred annuity
contracts that have matured and Medicare supplement insurance. The
premiums have increased due to the acquisition of a large reinsurance
block of Medicare supplement insurance.
Premiums from Oxford's direct lines, excluding subsidiaries, and
before intercompany eliminations were $16.5 million for the third
quarter ended September 30, 1998, an increase of $14.2 million or
645.5% over 1997. This increase in direct premium is primarily
attributable to the new writings of Single Premium Whole Life
policies, credit life and disability, and premiums generated from the
acquisition of NAI and SML. Oxford's direct business related to group
life and disability coverage issued to employees of the Company was
$0.7 million and accounted for 2.0% of premiums. Premiums from other
direct lines, excluding subsidiaries, including credit life and
disability business, accounted for 12.5% of Oxford's premium in the
third quarter ended September 30, 1998. Premiums from Oxford's
subsidiaries, NAI and SML, were $10.6 million and $0.8 million,
respectively, and accounted for 32.5% of premiums for the third
quarter ended September 30, 1998.
Net investment income before intercompany eliminations was $5.0
million for the third quarter ended September 30, 1998 and $4.5
million for 1997.
Benefits and expenses incurred were $37.2 million for the third
quarter ended September 30, 1998. Oxford, excluding subsidiaries,
incurred benefits and expenses of $26.7 million, an increase of 241.6%
over 1997. This increase is primarily due to the assumption of the
Medicare supplement reinsurance and an increase in the amortization of
new policy acquisition costs. Benefits and expenses related to
Oxford's subsidiaries were $10.5 million.
Operating profit before tax and before intercompany eliminations
decreased by $0.5 million, or 14.3%, in the third quarter ended
September 30, 1998 to $3.0 million, primarily due to the acquisition
of new insurance business costs.
Interest Expense, net
Net interest expense was $14.8 million in the third quarter of
fiscal 1999 versus $15.7 million for fiscal 1998. The decrease can be
attributed to a reduction in average debt levels outstanding.
Extraordinary Loss on Extinguishment of Debt
During the third quarter of fiscal 1998, the Company extinguished
$256.0 million of 6.61% to 8.13% interest-bearing notes originally due
in fiscal 1999 through fiscal 2010. This resulted in an extraordinary
loss of $9.8 million, net of tax of $5.4 million ($0.45 per share).
Consolidated Group
As a result of the foregoing, pretax earnings of $4.3 million
were recognized during the third quarter of fiscal 1999, compared to a
pretax loss of $8.2 million for fiscal 1998. After providing for
income taxes and extraordinary losses from the extinguishment of debt,
net earnings for the third quarter of fiscal 1999 were $2.5 million,
compared to a net loss of $15.2 million for fiscal 1998.
<PAGE> 26
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 December 31, 1998, net
property, plant and equipment represented approximately 63.6% of total
U-Haul assets and approximately 42.0% of consolidated assets. Through
the third quarter of fiscal 1999, capital expenditures were $235.0
million, compared to $317.2 million for fiscal 1998. These
acquisitions were funded with internally generated funds from
operations and lease financings.
Cash flows provided by operating activities were $58.4 million
for the first nine months of fiscal 1999, compared to $95.9 million in
fiscal 1998. A decrease in accounts payable and increases in
inventories and prepaid expenses contributed to the decrease.
In December 1998, the Company completed the sale of twenty-six
storage properties receiving cash and notes in exchange. Using the proceeds
from the real estate sale, the Company repurchased $25.0 million of
its Series B Convertible Preferred Stock in January 1999. These
transactions are consistent with management's objectives to increase
shareholder value by raising operating profits and margins, reducing
leverage, improving coverage ratios and elevating credit ratings.
Ongoing analysis of the balance sheet and capital structure may lead
the Company to execute similar types of transactions in the future.
Property and Casualty
Cash flows provided (used) by operating activities were $(29.6)
million and $7.9 million for the nine months ended September 30, 1998
and 1997, respectively. The change resulted mainly from increases in
funds withheld and paid losses recoverable and the change in loss and
expense reserves. Offsetting were increases in net income and federal
income tax payable, decreases in accounts receivable and other assets,
and a larger unearned premium increase compared to 1997.
RWIC's cash and cash equivalents and short-term investment
portfolio were $9.3 million and $13.8 million at September 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 100.9% of total liabilities.
Stockholder's equity increased $11.6 million from $195.5 million
at September 30, 1997 to $207.1 million at September 30, 1998. 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.
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 $11.3 million
and $6.4 million for the nine months ended September 30, 1998 and
1997, respectively. Cash flows provided (used) by financing
activities were $10.1 million and $(9.5) million for the nine months
ended September 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 September 30,
1998 and 1997, short-term investments amounted to $32.3 million and
$6.1 million, respectively. Management believes that the overall
sources of liquidity will continue to meet foreseeable cash needs.
Stockholder's equity of Oxford increased to $96.2 million at
September 30, 1998 from $82.4 million at September 30, 1997, primarily
as a result of earnings from operations.
<PAGE> 27
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 September 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 December 31, 1998, the Company had
$1,023.5 million in total notes and loans payable outstanding, as
compared with $1,025.3 million at March 31, 1998, and $1,074.4 million
at December 31, 1997. Unutilized committed lines of credit are $169.0
million at December 31, 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 December 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 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
complete 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 the last two digit entries in the date code
field instead of four digits to indicate the year. Such programs may
interpret the year 2000 to mean 1900 instead, producing erroneous
information or date-related transactional failures.
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. Replacing, upgrading or modifying key
financial systems has been on-going 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, with the testing phase going on at the same time. In
particular, the Company has an outside consulting firm on-site
currently making the Year 2000 compliance related modifications to
existing systems.
The Company is also assessing its non-information technology
items for Year 2000 compliance, such as rental vehicles and storage
facilities security systems.
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. 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.
<PAGE> 28
The Company expects to be Year 2000 compliant by the fall of
calendar year 1999. The Company started with an initial budget of
$2.0 million; as the conversion process continues, it is now
anticipated that an additional $0.8 million may be incurred. Through
December 31, 1998, $1.4 million has been incurred. The Company is
accelerating the replacement of its payroll system due to year 2000
non-compliance at an estimated cost of $0.3 million to be incurred
starting in June 1999. The Company has not deferred any critical path
functions due to Year 2000 efforts. Although the Company believes it
will achieve compliance on a timely basis, no assurance can be given
that the Company's computer systems will be Year 2000 compliant by the
fall of 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.
The Company is in the process of developing and refining
contingency plans to be used for processing of rental transactions,
payments to employees and vendors, licensing of equipment, preparation
of financial statements and the movement of funds, if in the most
reasonably likely worst case scenario, a business partner is not Year
2000 compliant. It is anticipated that the contingency plans will be
completed by fiscal year end, with refinement continuing until the
year 2000.
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. In response to a
request for indemnification by Edward J. Shoen, the Board of
Directors, in conjunction with Independent Counsel and pursuant to
Nevada state law, approved the indemnification of the $6.0 million
punitive damage judgment. The indemnification payment was made on
December 31, 1998.
<PAGE> 29
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
December 31, 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 December 31, 1997, file no. 0-7862.
<PAGE> 30
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: February 12, 1999 By: /S/ DONALD W. MURNEY
___________________________________
Donald W. Murney, Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTACTED FROM
FORM 10-Q DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 34,949
<SECURITIES> 0
<RECEIVABLES> 407,200<F1>
<ALLOWANCES> 0
<INVENTORY> 70,891
<CURRENT-ASSETS> 0<F2>
<PP&E> 2,370,350
<DEPRECIATION> 1,109,388
<TOTAL-ASSETS> 3,001,108
<CURRENT-LIABILITIES> 0
<BONDS> 1,023,452
0
0
<COMMON> 10,563
<OTHER-SE> 611,225
<TOTAL-LIABILITY-AND-EQUITY> 3,001,108
<SALES> 143,169
<TOTAL-REVENUES> 1,198,079
<CGS> 84,568
<TOTAL-COSTS> 948,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,545
<INTEREST-EXPENSE> 44,586
<INCOME-PRETAX> 116,934
<INCOME-TAX> 41,055
<INCOME-CONTINUING> 75,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,879
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.85
<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>
