-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NW4ZFtMl+AzM2XY+OnHg+CgjfZi+pD0w2XXbkAU2TARvZ+T/aWMogRdLHzDh2PeC jFf1lFj+GaOwhmq0XpR12w== 0000004457-96-000044.txt : 19960701 0000004457-96-000044.hdr.sgml : 19960701 ACCESSION NUMBER: 0000004457-96-000044 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960628 SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11255 FILM NUMBER: 96588147 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7027860488 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 10-K 1 03/96 AMERCO 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] -------------------------------- For the fiscal year ended March 31, 1996 ---------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] --------------------------------- For the transition period from ______________________ to _______________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 0-7862 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Suite 100 Reno, Nevada 89502-3239 Telephone (702) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Registrant Title of Class on Which Registered - ---------- -------------- ------------------------ AMERCO Series A 8 1/2% New York Stock Exchange Preferred Stock U-Haul International, Inc. None Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class ---------- -------------- AMERCO Common U-Haul International, Inc. None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 32,790,923 shares of AMERCO Common Stock, $0.25 par value, were outstanding at June 24, 1996. The aggregate market value of AMERCO Common Stock held by non-affiliates (i.e., stock held by persons other than officers and directors of AMERCO or those persons who are parties to the stockholder agreement referenced in footnote 1 to the stock ownership Table in Part III, Item 12 of this report) based on the latest closing price as of June 24, 1996 was $357,483,986. The aggregate market value was computed using the closing price for the Common Stock trading on Nasdaq on June 24, 1996. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at June 24, 1996. None of these shares were held by non- affiliates. U-Haul International, Inc. meets the conditions set forth in General Instructions (J)(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. 2 TABLE OF CONTENTS PAGE NO. ITEM 1. BUSINESS...................................... 3 A. THE COMPANY.............................. 3 B. HISTORY.................................. 4 C. BUSINESS STRATEGY........................ 4 D. U-HAUL OPERATIONS........................ 6 E. INSURANCE OPERATIONS..................... 8 F. AMERCO REAL ESTATE OPERATIONS............ 12 G. ENVIRONMENTAL MATTERS.................... 12 ITEM 2. PROPERTIES.................................... 14 ITEM 3. LEGAL PROCEEDINGS............................. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 17 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............... 18 ITEM 6. SELECTED FINANCIAL DATA....................... 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................... 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ................................... 35 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS............................... 36 ITEM 11. EXECUTIVE COMPENSATION........................ 39 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 47 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............ 50 3 PART I ITEM 1. BUSINESS THE COMPANY AMERCO, a Nevada corporation (AMERCO or Company), is the holding company for U-Haul International, Inc. (U-Haul), Ponderosa Holdings, Inc. (Ponderosa), and Amerco Real Estate Company (AREC). Throughout this Form 10-K, unless the context otherwise requires, the term "Company" includes all of the Company's subsidiaries. The Company's principal executive offices are located at 1325 Airmotive Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number of the Company is (702) 688-6300. As used in this Form 10-K, all references to a fiscal year refer to the Company's fiscal year ended March 31 of that year. See Note 20 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the Company's three primary industry segments, which are represented by U-Haul (Rental Operations) and Ponderosa's two principal subsidiaries (Life Insurance and Property/Casualty Insurance). U-HAUL MOVING OPERATIONS U-Haul is primarily engaged, through subsidiaries, in the rental of trucks, automobile-type trailers and support rental items to the do-it-yourself moving customer. The Company's do-it- yourself moving business operates under the registered tradename U-Haul through an extensive and geographically diverse distribution network throughout the United States and Canada. Additionally, U-Haul sells related products (such as boxes, tapes and packaging materials) and rents various kinds of equipment (such as floor polishing and carpet cleaning equipment). U-HAUL SELF-STORAGE RENTAL OPERATIONS U-Haul entered the self-storage business in 1974 and offers for rent more than 18.2 million square feet of self-storage space through Company-owned or managed storage locations. The Company believes its self-storage operations are complementary to its do-it- yourself moving business. PONDEROSA Ponderosa serves as the holding company for the Company's insurance businesses. Ponderosa's two principal subsidiaries are Oxford Life Insurance Company (Oxford) and Republic Western Insurance Company (RWIC). Oxford and RWIC have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1995, 1994, and 1993 corresponds to the Company's fiscal years 1996, 1995, and 1994, respectively. Oxford primarily reinsures life, health, and annuity type insurance products and administers the Company's self-insured employee health and dental plans. RWIC originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, the Company's customers, and the Company. RWIC's principal strategy is to capitalize on its knowledge of insurance products aimed at the moving and rental markets. AREC AREC owns and actively manages most of the Company's real estate assets, including the Company's U-Haul Center locations. In addition to its U-Haul operations, AREC actively seeks to lease or dispose of the Company's surplus properties. 4 HISTORY The Company was founded in 1945 under the name "U-Haul Trailer Rental Company". From 1945 to 1975, the Company rented trailers and trucks on a one-way and in-town (round-trip) basis through independent dealers (at that time principally independent gasoline service stations). Since 1974, the Company has developed a network of Company-owned rental centers (U-Haul Centers) through which U-Haul rents its trucks and trailers and provides a number of other related products and services and has expanded the number and geographic diversity of its independent dealers. At March 31, 1996, the Company's distribution network included approximately 1,100 U-Haul Centers and approximately 13,800 independent dealers. In March 1974, in conjunction with the acquisition and construction of U-Haul Centers, the Company entered the self- storage business. As of March 31, 1996, approximately 72% of the Company's U-Haul Centers were located at or near U-Haul self storage locations. Beginning in 1974, the Company introduced the sale and installation of hitches and towing systems, as well as the sale of support items such as packing and moving aids. During 1983, the Company expanded its range of do-it-yourself rental products to include tools and equipment for the homeowner and small contractor and other general rental items. In 1969, the Company acquired Oxford to provide employee health and life insurance for the Company in a cost-effective manner. In 1973, the Company formed RWIC to provide automobile liability insurance for the U-Haul truck and trailer rental customers. Commencing in 1987, the Company began the implementation of a strategic plan designed to emphasize reinvestment in its core do-it- yourself rental, moving, and storage business. The plan included a fleet renewal program (see "Business - U-Haul Operations - Rental Equipment Fleet"), and provided for the discontinuation of certain unprofitable and unrelated operations. As part of its plan, the Company discontinued the operation of its full-service moving van lines, initiated the phase out of its recreational vehicle rental operations, and began the disposition of its recreational vehicle rental fleet. The disposition of the moving van lines' assets and the recreational vehicle rental fleet were completed in 1988 and 1992, respectively. The Company also eliminated various types of rental equipment and closed certain warehouses and repair facilities. The Company believes that its refocused business strategy enabled U-Haul to generate higher revenues and to achieve significant cost savings. Since 1987, the Company has sold surplus real estate assets with a book value of approximately $43.6 million for total proceeds of approximately $87.9 million. In 1990, the Company reorganized its operations into separate legal entities, each with its own operating, financial, and investment strategies. The reorganization separated the Company into three parts: U-Haul rental operations, insurance, and real estate. The purpose of the reorganization was to increase management accountability and to allow the allocation of capital based on defined performance measurements. BUSINESS STRATEGY U-HAUL OPERATIONS The Company's present business strategy remains focused on the do-it-yourself moving customer. The objective of this strategy is to offer, in an integrated manner over a diverse geographical area, a wide range of products and services to the do-it-yourself moving customer. 5 Integrated Approach to Moving Through its "Moving Made Easier" program, the Company strives to offer its customers a high quality, reliable, and convenient fleet of trucks and trailers at reasonable prices while simultaneously offering other related products and services, including moving accessories, self-storage facilities, and other items often desired by the do-it-yourself mover. The rental trucks purchased in the fleet renewal program have been designed with the do-it-yourself customer in mind to include features such as low decks, air conditioning, power steering, automatic transmissions, soft suspensions, AM/FM cassette stereo systems, and over-the-cab storage. The Company has introduced certain insurance products, including "Safemove" and "Safestor", to provide the do-it-yourselfmover with certain moving-related insurance coverage. In addition,the Company provides rental customers the option of storing their possessions at either their points of departure or destination. Wide Geographic Distribution The Company believes that the customer access, in terms of truck or trailer availability and proximity of rental locations, is critical to its success. Since 1987, the Company has more than doubled the number of U-Haul rental locations, with a net addition of over 8,300 independent dealers. High Quality Fleet To effectively service the U-Haul customer at these additional rental locations with equipment commensurate with the Company's commitment to product excellence, the Company, as part of the fleet renewal program, purchased approximately 80,000 new trucks between March 1987 and March 1996 and reduced the overall average age of its truck fleet from approximately 11 years at March 1987 to approximately five years at March 1996. During this period, approximately 64,000 trucks were retired or sold. Since 1990, U-Haul has replaced approximately 61% of its trailer fleet with new, more aerodynamically designed trailers better suited to the low height profile of many newly manufactured automobiles. Given the mechanical simplicity of a trailer relative to a truck as well as a trailer's longer useful life, the Company expects to replace trailers only as necessary. Network Management System Beginning in 1983, the Company implemented a point-of-sale computer system for all of its Company-owned locations. The system was designed primarily to handle the Company's reservations, traffic, and reporting of rental transactions. The Company believes that the implementation of the system has been a significant factor in allowing the Company to increase its fleet utilization. On an ongoing basis, the Company is enhancing and revising the system to include managerial tools, such as budgeting and profit and loss reporting. The Company is also expanding the system to include transaction reporting from independent dealers and managed storage facilities. INSURANCE OPERATIONS Oxford's business strategy emphasizes long-term capital growth funded through earnings from reinsurance and investment activities. In the past, Oxford has selectively reinsured life, health, and annuity-type insurance products. Oxford anticipates pursuing its growth strategy by providing reinsurance facilities to well-managed insurance or reinsurance companies which offer similar products and are in need of additional capital either as a result of rapid growth or regulatory demands, or are interested in divesting non- core business lines. RWIC's principal business strategy is to capitalize on its knowledge of insurance products aimed at the moving and rental markets. RWIC believes that providing U-Haul and U-Haul customers with property and casualty insurance coverage has enabled it to develop expertise in the areas of rental vehicle lessee insurance coverage, self-storage property coverage, motor home insurance coverage, and general rental equipment coverage. RWIC has used, and plans to continue to use, this knowledge to expand its customer base by offering similar products to insureds other than U-Haul and its customers. In addition, RWIC plans to expand its involvement in specialized areas by offering commercial multi-peril and excess workers' compensation. 6 U-HAUL OPERATIONS GENERAL The Company's do-it-yourself moving business operates under the U-Haul name through an extensive and geographically diverse distribution network of Company-owned U-Haul Centers and independent dealers throughout the United States and Canada. Substantially all of the Company's rental revenue is derived from do-it-yourself moving customers. Other occasional use customers provide the remaining rental revenue. Moving rentals include: (i) in-town (round-trip) rentals, where the equipment is returned to the originating U-Haul Center or independent dealer and (ii) one-way rentals, where the equipment is returned to a U-Haul Center or independent dealer in another city. Typically, the number of in-town rental transactions is substantially greater than the number of one-way rental transactions. However, total revenues generated by one-way transactions typically exceed total revenues from in-town rental transactions. As part of the Company's integrated approach to the do-it- yourself moving market, U-Haul has a variety of product offerings. U-Haul's "Moving Made Easier " program is designed to offer clean, well-maintained rental trucks and trailers at a price the customer can afford and to provide support items such as furniture pads, hand trucks, appliance and utility dollies, mirrors, tow bars, tow dollies, and bumper hitches. The Company also sells boxes, tape, and packaging materials and rents additional items such as floor polishers and carpet cleaning equipment at its U-Haul Center locations. U-Haul Centers also sell and install hitches, sell propane, and some of them sell gasoline. U-Haul sells insurance packages such as (i) "Safemove", which provides moving customers with a damage waiver, cargo protection, and medical and life coverage, and (ii) "Safestor", which provides self-storage rental customers with various insurance coverages. The U-Haul truck and trailer rental business tends to be seasonal with proportionally more transactions and revenues generated in the spring and summer months than during the balance of the year. The Company attributes this seasonality to the preference of do-it-yourself movers to move during this time. Also, consistent with do-it-yourself mover preferences, the number of rental transactions tends to be higher on weekends than on weekdays. RENTAL EQUIPMENT FLEET As of March 31, 1996, U-Haul's rental equipment fleet consisted of approximately 85,000 trucks and approximately 100,000 trailers. Rental trucks are offered in five sizes and range in size from the ten-foot "Mini-Mover" to the twenty-six-foot "Super-Mover". In addition, U-Haul offers pick-up trucks and cargo vans at many of its locations. Trailers range between six feet and twelve feet in length and are offered in both open and closed box configurations. DISTRIBUTION NETWORK The Company's U-Haul products and services are marketed across the United States and Canada through approximately 1,100 Company- owned U-Haul Centers and approximately 13,800 independent dealers as of March 31, 1996. The independent dealers, which include gasoline station operators, general equipment rental operators, and others, rent U-Haul trucks and trailers in addition to carrying on their principal lines of business. U-Haul Centers, however, are dedicated to the U-Haul line of products and services. Independent dealers are commonly located in suburban and rural markets, while U-Haul Centers are concentrated in urban and suburban markets. Independent dealers receive U-Haul equipment on a consignment basis and are paid a commission on gross revenues generated from their rentals. Independent dealers also may earn referral commissions on U-Haul products and services provided at other U-Haul locations. The Company maintains contracts with its independent dealers that can be canceled upon thirty days' written notice by either party. 7 In addition, the Company has sought to improve the productivity of its rental locations by installing computerized reservations and network management systems in each U-Haul Center and with a limited number of independent dealers. The Company believes that these systems have been a major factor in enabling the Company to deploy equipment more effectively throughout its network of locations and anticipates expanding these systems to cover additional independent dealers. The Company's U-Haul Center and independent dealer network in the United States and Canada is divided into ten districts, each supervised by an area district vice president. Within the districts, the Company has established local marketing companies, each of which, guided by a marketing company president, is responsible for retail marketing at all U-Haul Centers and independent dealers within its respective geographic area. Although rental dealers are independent, U-Haul area field managers work with the dealer network by reviewing each independent dealer's facilities, auditing their activities, and providing training on securing more customers on a regular basis. In addition, the area field managers recruit new independent dealers for expansion or replacement purposes. U-Haul has instituted performance compensation programs that focus on accomplishment and reward strong performers. SELF-STORAGE BUSINESS U-Haul entered the self-storage business in 1974 and since that time has increased the rentable square footage of its storage locations through the acquisition of existing facilities and new construction. In addition, the Company has entered into management agreements to manage self-storage properties owned by others and is expanding its ownership of self-storage facilities. The Company also provides financing and management services for independent self-storage businesses. Through approximately 800 Company-owned or managed storage locations in the United States and Canada, the Company offers for rent more than 18.2 million square feet of self-storage space. The Company's self-storage facility locations range in size from 1,000 to 149,000 square feet of storage space, with individual storage spaces ranging in size from 16 square feet to 200 square feet. The primary market for storage rooms is the storage of household goods. The majority of customers renting storage rooms are in the process of a move. Even with an increase of over 25,000 new and acquired storage rooms during fiscal 1996, average occupancy remained high, rates in the mid 80% range, with very little seasonal variation. During fiscal 1996 and fiscal 1995, delinquent rentals as a percentage of total storage rentals were approximately 6% in each year. The Company considers this rate to be satisfactory. EQUIPMENT DESIGN, MANUFACTURE AND MAINTENANCE The Company designs and manufactures its truck van boxes, trailers, and various other support rental equipment items. With the needs of the do-it-yourself moving customer in mind, the Company's equipment is designed to achieve high safety standards, simplicity of operation, reliability, convenience, durability, and fuel economy. Truck chassis are manufactured to Company specifications by both foreign and domestic truck manufacturers. These chassis receive certain post-delivery modifications and are joined with van boxes at seven Company-owned manufacturing and assembly facilities in the United States. The Company services and maintains its trucks and trailers through an extensive preventive maintenance program. Regular vehicle maintenance is generally performed at Company-owned facilities located throughout the United States and Canada. Major repairs are performed either by the chassis manufacturers' dealers or by Company-owned repair shops. To the extent available, the Company takes advantage of manufacturers' warranties. COMPETITION The do-it-yourself moving truck and trailer rental market is highly competitive and dominated by national operators in both the in-town and one-way markets. These competitors include the truck rental divisions of Ryder System, Penske Truck Leasing, and Budget Rent-A-Car. Management believes that there are 8 two distinct users of rental trucks: commercial users and do-it- yourself users. As noted above, the Company focuses on the do-it- yourself mover. The Company believes that the principal competitive factors are price, convenience of rental locations, and availability of quality rental equipment. The self-storage industry is also highly competitive. The top three national firms, including the Company, Public Storage and Shurgard, only account for ten percent of total industry square footage. Efficient management of occupancy and delinquency rates, as well as price and convenience, are key competitive factors. EMPLOYEES For the period ended March 31, 1996, the Company's non- seasonal workforce consisted of approximately 13,000 employees comprised of approximately 39% part-time and 61% full-time employees. During the summer months, the Company increases its workforce by approximately 450 employees and the percentage of part- time employees increases to approximately 43% of the total workforce. The Company's employees are non-unionized, and management believes that its relations with its employees are satisfactory. INSURANCE OPERATIONS OXFORD - LIFE INSURANCE Oxford underwrites life, health and annuity insurance, both as a direct writer and as an assuming reinsurer. Oxford's direct writings are primarily related to the underwriting of credit life and accident and health business which accounted for 20.8% of Oxford's premium revenues for the year ended December 31, 1995. Oxford's other direct lines are related to group life and disability coverage issued to employees of the Company. For the year ended December 31, 1995, approximately 7.2% of Oxford's premium revenues resulted from business with the Company. In addition, direct premium revenue includes individual life insurance acquired from other insurers. Oxford administers the Company's self-insured group health and dental plans. Oxford's reinsurance assumed lines, which accounted for approximately 71.8% of Oxford's premium revenues for the year ended December 31, 1995, include individual life insurance coverage, annuity coverages, excess loss health insurance coverage, credit life, credit accident and health, and short-term travel accident coverage. These reinsurance arrangements are entered into with unaffiliated insurers, except for travel accident products reinsured from RWIC. RWIC - PROPERTY AND CASUALTY RWIC's underwriting activities consist of three basic areas: U-Haul and U-Haul-affiliated underwriting, direct underwriting, and assumed reinsurance underwriting. U-Haul underwritings include coverage for U-Haul and U-Haul employees, and U-Haul-affiliated underwritings consist primarily of coverage for U-Haul customers. For the year ended December 31, 1995, approximately 39% of RWIC's written premiums resulted from U-Haul and U-Haul-affiliated underwriting activities. RWIC's direct underwriting is done through home office underwriters and selected general agents. The products provided include liability coverage for rental vehicle lessees and storage rental properties, and coverage for commercial multiple peril and excess workers' compensation. RWIC's assumed reinsurance underwriting is done via broker markets and includes, among other things, reinsurance of municipal bond insurance written through MBIA, Inc. 9 RWIC's liability for unpaid losses is based on estimates of the ultimate cost of settling claims reported prior to the end of the accounting period, estimates of reinsurers and estimates of incurred but unreported losses which are based on RWIC's experience and insurance industry historical experience. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expense paid to losses paid. The liabilities are estimates of the amount necessary to settle all claims as of the date of the stated reserves and all incurred but not reported claims. RWIC updates the reserves as additional facts regarding claims become available. In addition, court decisions, economic conditions and public attitudes impact the estimation of reserves and also the ultimate cost of claims. In estimating reserves, no attempt is made to isolate inflation from the combined effect of numerous factors including inflation. Unpaid losses and unpaid loss expenses are not discounted. RWIC's unpaid loss and loss expenses are certified annually by an independent actuarial consulting firm as required by state regulation. Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows: 1995 1994 1993 --------------------------- (in thousands) Balance at January 1 $ 329,741 314,482 320,509 Less reinsurance recoverable 74,663 76,111 81,747 --------------------------- Net balance at January 1 255,078 238,371 238,762 Incurred related to: Current year 114,110 102,782 91,044 Prior years 8,292 6,576 12,688 --------------------------- Total incurred 122,402 109,358 103,732 Paid related to: Current year 22,576 22,269 20,200 Prior years 86,796 70,382 83,923 --------------------------- Total paid 109,372 92,651 104,123 Net balance at December 31 268,108 255,078 238,371 Plus reinsurance recoverable 73,873 74,663 76,111 --------------------------- Balance at December 31 $ 341,981 329,741 314,482 =========================== As a result of changes in estimates of insured events in prior years, the provision for unpaid loss and loss adjustment expenses (net of reinsurance recoveries of $26.7 million and $26.5 million in 1995 and 1994, respectively) increased by $8.3 million and $6.6 million in 1995 and 1994, respectively, because of higher than anticipated losses and related expenses for claims associated with assumed reinsurance and certain retrospectively rated policies. The table on page 10 illustrates the change in unpaid loss and loss adjustment expenses. The first line shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to that reserve. The third section, reading down, shows revised estimates of the original recorded reserve as of the end of successive years. The last section compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be summed. 10
Unpaid Loss and Loss Adjustment Expenses December 31 - ------------------------------------------------------------------------------------------------------------------------- 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 - ------------------------------------------------------------------------------------------------------------------------- (in thousands) Adjustment Expenses: $123,342 146,391 168,688 199,380 207,939 226,324 236,019 238,762 314,482 329,741 341,981 Paid (Cumulative) as of: One year later 41,170 54,627 49,681 59,111 50,992 55,128 65,532 83,923 70,382 86,796 Two years later 77,697 92,748 91,597 89,850 87,850 97,014 105,432 123,310 115,467 Three years later 105,160 124,278 110,834 114,979 116,043 120,994 126,390 153,030 Four years later 126,734 137,744 129,261 133,466 132,703 133,338 143,433 Five years later 133,421 151,354 142,618 145,864 142,159 144,764 Six years later 142,909 161,447 152,579 153,705 151,227 Seven years later 151,379 169,601 158,531 161,498 Eight years later 158,728 173,666 165,021 Nine years later 162,082 178,101 Ten years later 165,923 Reserve Reestimated as of: One year later 138,287 167,211 187,663 200,888 206,701 229,447 231,779 251,450 321,058 338,033 Two years later 147,968 192,272 190,715 202,687 206,219 221,450 224,783 254,532 323,368 Three years later 168,096 192,670 194,280 203,343 199,925 211,998 223,403 253,844 Four years later 168,040 199,576 195,917 199,304 198,986 207,642 214,854 Five years later 175,283 201,303 195,203 200,050 197,890 200,629 Six years later 178,232 202,020 196,176 198,001 194,601 Seven years later 182,257 202,984 196,770 197,112 Eight years later 184,266 202,654 196,072 Nine years later 187,247 203,285 Ten years later 188,301 Initial Reserve in Excess of (Less than) Reestimated Reserve: Amount (Cumulative) $(64,959) (56,894) (27,384) 2,268 13,338 25,695 21,165 (15,082) (8,886) (8,292)
11 The operating results of the property and casualty insurance industry, including RWIC, are subject to significant fluctuations due to numerous factors, including premium rate competition, catastrophic and unpredictable events (including man-made and natural disasters), general economic and social conditions, interest rates, investment returns, changes in tax laws, regulatory developments, and the ability to accurately estimate liabilities for unpaid losses and loss adjustment expenses. INVESTMENTS Oxford's and RWIC's investments must comply with the insurance laws of the State of Arizona where the companies are domiciled. These laws prescribe the type, quality, and concentration of investments that may be made. In general, these laws permit investments in federal, state, and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages, and real estate, within specified limits and subject to certain qualifications. Moreover, in order to be considered an acceptable reinsurer by cedents and intermediaries, a reinsurer must offer financial security. The quality and liquidity of invested assets are important considerations in determining such security. The investment philosophies of Oxford and RWIC emphasize protection of principal through the purchase of investment grade fixed income securities. Approximately 97% of Oxford's portfolio and 98% of RWIC's portfolio consist of investment grade securities. The maturity distributions are designed to provide sufficient liquidity to meet future cash needs. REINSURANCE The Company's insurance operations assume and cede insurance from and to other insurers and members of various reinsurance pools and associations. Reinsurance arrangements are utilized to provide greater diversification of risk and to minimize exposure on large risks. However, the original insurer remains liable should the assuming insurer not be able to meet its obligations under the reinsurance agreements. REGULATION The Company's insurance subsidiaries are subject to considerable regulation and supervision in the states in which they transact business. The purpose of such regulation and supervision is primarily to provide safeguards for policyholders. As a result of federal legislation, the primary regulation of the insurance industry is performed by the states. State regulation extends to such matters as licensing companies; restricting the types or quality of investments; regulating capital and surplus and actuarial reserve maintenance; setting solvency standards; requiring triennial financial examinations, market conduct surveys, and the filing of reports on financial condition; licensing agents; regulating aspects of the insurance companies' relationship with their agents; restricting expenses, commissions, and new business issued; imposing requirements relating to policy contents; restricting use of some underwriting criteria; regulating rates, forms, and advertising; limiting the grounds for cancellations or non-renewal of policies; regulating solicitation and replacement practices; and specifying what constitutes unfair practices. State laws also regulate transactions and dividends between an insurance company and its parent or affiliates, and generally require prior approval or notification for any change in control of the insurance subsidiary. In the past few years, the insurance and reinsurance regulatory framework has been subjected to increased scrutiny by the National Association of Insurance Commissioners (the NAIC), state legislatures, insurance regulators, and the United States Congress. State legislatures have considered or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems. The NAIC and state insurance regulators have been examining existing laws and regulations with an emphasis on insurance company investment and solvency issues. Legislation has been introduced in Congress that could result in the federal government assuming some role in the regulation of the insurance industry. It is not possible to predict the future impact of changing state and federal regulation on the operations of Oxford and RWIC. 12 Oxford and RWIC have adopted the NAIC minimum risk-based capitalization requirements for insurance companies. As of December 31, 1995, Oxford and RWIC are in compliance with these requirements. COMPETITION The insurance industry is competitive. Competitors include a large number of life insurance companies and property and casualty insurance companies, some of which are owned by stockholders and others of which are owned by policyholders (mutual). Many companies in competition with Oxford and RWIC have been in business for a longer period of time or possess substantially greater financial resources. Competition in the insurance business is based upon price, product design, and services rendered to producers and policyholders. AMERCO REAL ESTATE OPERATIONS AREC owns and manages most of the Company's real estate assets, including the Company's U-Haul Center locations. AREC has responsibility for acquiring and developing properties suitable for new U-Haul Centers and self-storage locations. AREC is also responsible for managing any environmental risks associated with the Company's real estate. In addition to the U-Haul operations, AREC actively seeks to lease or dispose of surplus properties. ENVIRONMENTAL MATTERS UNDERGROUND STORAGE TANKS The Company owns properties that, as of March 31, 1996, contained approximately 850 underground storage tanks (USTs). The USTs are used to store various petroleum products, including gasoline, fuel oil, and waste oil. The USTs are subject to various federal, state, and local laws and regulations that require testing and removal of leaking USTs, and remediation of polluted soils and groundwater under certain circumstances. In addition, if leakage from USTs has migrated, the Company may be subject to civil liability to third parties. In fiscal years 1990 through 1996, the Company incurred expenditures totaling approximately $25.8 million for removal and remediation of 2,127 USTs, a portion of which may be recovered from insurance and certain states' funds for the removal of USTs. Expenditures incurred through the end of fiscal 1996 may not be representative of future experience. However, the Company believes that compliance with laws and regulations, and cleanup and liability costs related to USTs will not have a material adverse effect on the Company's financial condition or operating results. In fiscal 1989, the Company began its current program emphasizing removal of all but approximately 100 USTs by the year 2000. The USTs expected to remain at the year 2000 are currently anticipated to consist primarily of waste oil tanks not required to be removed under current laws and regulations and gasoline tanks located at its remote rental locations where their use is deemed necessary to service the Company's moving customers. The Company has budgeted $7.0 million for fiscal 1997 for UST testing, removal, and remediation. The Company treats these costs as capital costs. To the extent the costs improve the safety or efficiency of the properties or are incurred in preparing the properties for sale, the costs are capitalized. FEDERAL SUPERFUND SITES The Company has been named as a "potentially responsible party" (PRP) with respect to the disposal of hazardous wastes at fourteen federal superfund hazardous waste sites located in eleven states. Under applicable laws and regulations the Company could be held jointly and severally liable for the costs to clean up these sites. Currently, the Company has entered into settlements for nine of the sites for de minimis amounts. One of the sites has been disputed by the Company with no response for eight years. Based upon the information currently available to the Company regarding these fourteen sites, the current anticipated magnitude of the cleanup, the number of PRPs, and the volumes of hazardous waste currently anticipated to be attributed to the Company and other PRPs, the Company believes its share of the cost of investigation and cleanup at the fourteen superfund sites will not have a material adverse effect on the Company's financial condition or operating results. 13 WASHINGTON STATE HAZARDOUS WASTE SITES A subsidiary of U-Haul owns one property located within two different state hazardous waste sites in the State of Washington. The property is located in Yakima, Washington and is believed to contain elevated levels of pesticide and other contaminant residue as a result of onsite operations conducted by one or more former owners. The State of Washington has designated the property as a state hazardous waste site known as the "Yakima Valley Spray Site". The subsidiary, U-Haul Co. of Inland Northwest (Inland Northwest), has been named by the State of Washington as a "potentially liable party" (PLP) under state law with respect to this site, along with approximately 100 other companies and individuals. Inland Northwest, together with eight other companies and persons, has formed a committee that has retained an environmental consultant. The process of site assessment on the Yakima Valley Spray Site is ongoing and, based upon the information currently available to Inland Northwest regarding the volume and nature of wastes present, Inland Northwest is unable to reasonably assess the potential investigation and cleanup costs, but the costs could be substantial. Although Inland Northwest has entered into an agreement with such other companies and persons under which Inland Northwest has assumed responsibility for 20% of the costs to investigate the site, no agreement among the parties with respect to cleanup costs has been entered into at the date hereof. In addition, Inland Northwest has been named by the State of Washington as a PLP along with 300 other PLPs with respect to another state- listed hazardous waste site known as the "Yakima Railroad Site". The Yakima Valley Spray Site is located within the Yakima Railroad Site. Inland Northwest has been notified that the Yakima Railroad Site involves potential groundwater contamination in an area of approximately two square miles. Inland Northwest has contested its designation as a PLP at this site, but, at the date hereof, no formal ruling has been issued in this matter. In February 1992, the State of Washington issued an enforcement order to Inland Northwest and eight other parties requiring an interim remedial action and the provision of bottled water to households that obtain drinking water from wells within the Yakima Railroad Site. Without conceding any liability, Inland Northwest and several of the other PLPs have implemented the bottled water program. Over the past four years, Inland Northwest has incurred an average annual expense of $720 for the bottled water program. The State of Washington has stated its intention to expand the existing municipal water system to supply municipal water to those households currently receiving bottled water, and it is estimated that the cost thereof will be approximately $6 million, with such cost being allocated among the 300 PLPs. In addition, there will be costs associated with remedial measures to address the regional groundwater contamination issue. The process of site assessment on the Yakima Railroad Site is ongoing and, based upon the information currently available to Inland Northwest regarding the volume and nature of wastes present, Inland Northwest is unable to reasonably assess the potential investigation and clean-up costs, but the costs could be substantial. Moreover, the investigative and remedial costs incurred by the State can be imposed upon Inland Northwest and any other PLP as a joint and several liability. At the date of this report, other than the indication of the expansion of the municipal water system, there has been no formal indication from the State of Washington of its intentions regarding future cost recoveries at the Yakima Railroad Site. OTHER Subsidiaries of the Company own twelve facilities that manufacture and assemble various components of the Company's equipment. In addition, the subsidiaries own various facilities engaged in the maintenance and servicing of its equipment. Various individual properties owned and operated by the Company are subject to various state and local laws and regulations relating to the methods of disposal of solvents, tires, batteries, antifreeze, waste oils and other materials. Compliance with these requirements is monitored and enforced at the local level. Based upon information currently available to the Company, compliance with these local laws and regulations has not had, and is not expected to have, a material adverse effect on the Company's financial condition or operating results. 14 AREC currently leases approximately 200 properties to various businesses. AREC has a policy of leasing properties subject to an environmental indemnification from the lessee for operations conducted by the lessee. It should be recognized, however, that such indemnifications do not cover pre-existing conditions and may be limited by the lessee's financial capabilities. In any event, to the extent that any lessee does not perform any of its obligations under applicable environmental laws and regulations, the Company may remain potentially liable to governmental authorities and other third parties for environmental conditions at the leased properties. Furthermore, as between the Company and its lessees, disputes may arise as to allocation of liability with respect to environmental conditions at the leased properties. ITEM 2. PROPERTIES The Company and its subsidiaries own property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and that provide offices for the Company. See Note 13 of Notes to Consolidated Financial Statements in Item 8 for information regarding the leasing obligations of the Company and its subsidiaries, including those under U-Haul TRAC leases. Such facilities exist throughout the United States and Canada. The majority of land and buildings used by U-Haul is owned in fee and is substantially unencumbered. In addition, U-Haul owns certain real estate not currently used in its operations. U-Haul operates approximately 1,100 U-Haul Centers, 12 manufacturing and assembly facilities, and 23 repair facilities. ITEM 3. LEGAL PROCEEDINGS Shoen Litigation A judgment was entered on February 21, 1995, in an action in the Superior Court of the State of Arizona, Maricopa County, entitled Samuel W. Shoen, M.D., et al. v. Edward J. Shoen, et al., No. CV88-20139, instituted - ------------------------------------------------ August 2, 1988 (the Shoen Litigation) against Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty, who are current members of the Board of Directors of the Company and against Paul F. Shoen, who is a former director. The Company was also a defendant in the action as originally filed, but was dismissed from the action on August 15, 1994. The plaintiffs alleged, among other things, that certain of the individual plaintiffs were wrongfully excluded from sitting on the Company's Board of Directors in 1988 through the sale of Company Common Stock to certain key employees. That sale allegedly prevented the plaintiffs from gaining a majority position in the Company's Common Stock and control of the Company's Board of Directors. The plaintiffs alleged various breaches of fiduciary duty and other unlawful conduct by the individual defendants and sought equitable relief, compensatory damages, punitive damages, and statutory post judgment interest. Based on the plaintiffs' theory of damages, the court ruled that the plaintiffs elected as their remedy in this lawsuit to transfer their shares of stock in AMERCO to the defendants upon the satisfaction of the judgment. The judgment was entered against the defendants in the amount of approximately $461.8 million plus interest and taxable costs. In addition, on February 21, 1995, judgment was entered against Edward J. Shoen in the amount of $7 million as punitive damages. On March 23, 1995, Edward J. Shoen filed a notice of appeal with respect to the award of punitive damages. Pursuant to separate indemnification agreements, the Company has agreed to indemnify the defendants to the fullest extent permitted by law or the Company's Articles of Incorporation or By-Laws, for all expenses and damages incurred by the defendants in this proceeding, subject to certain exceptions. In addition, the transfer of Common Stock from the plaintiffs to the defendants would implicate rights held by the Company. For example, pursuant to the Company's By-Laws, the Company has certain rights of first refusal with respect to the transfer of the plaintiffs' stock. Furthermore, the defendants' rights to acquire the plaintiffs' stock may present a corporate opportunity which the Company is entitled to exercise. 15 On February 21, 1995, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty (the Director-Defendants) filed for protection under Chapter 11 of the federal bankruptcy laws, resulting in the issuance of an order automatically staying the execution of the judgment against those defendants. In late April 1995, the Director- Defendants, in cooperation with the Company, filed plans of reorganization in the United States Bankruptcy Court for the District of Arizona, all of which propose the same funding and treatment of the plaintiffs' claims resulting from the judgment in the Shoen Litigation. The plans of reorganization, as amended and restated on February 29, 1996, were confirmed by the bankruptcy court on March 15, 1996. The plans, as confirmed, shall collectively be referred to as the "Plan". On April 25, 1995, the Director-Defendants filed an action in the bankruptcy court seeking injunctive relief to prevent the Company from conducting its annual meetings of stockholders until the Plan is confirmed and/or to prevent the plaintiffs from voting the common stock that they are required to transfer pursuant to the Shoen Litigation. On June 8, 1995, the bankruptcy court issued a memorandum decision and an order enjoining the Company from holding its 1994 Annual Meeting of Stockholders (which was originally delayed as a result of litigation initiated by Paul F. Shoen) or any subsequent annual meeting of stockholders until the court enters an order confirming or denying confirmation of the Plan or until further order of the court. On June 21, 1996, the bankruptcy court issued an order enjoining the annual meetings until consummation of the Plan. The Company has not scheduled the 1994, 1995, or 1996 Annual Meetings of Stockholders. However, the Company anticipates that such meetings will occur as soon as practicable after the consummation of the Plan. In early October 1995, the Director-Defendants made written demand upon the Company to make them whole for losses resulting from the judgment in the Shoen Litigation. The Director-Defendants also asserted substantial claims against the Company related to or arising from the Shoen Litigation, including, but not limited to, claims for financial losses, emotional distress, loss of business and/or professional reputation, loss of credit standing and breach of contract. The Director-Defendants claim that their actions that form the basis for the judgment in the Shoen Litigation were actions within the scope of the Director-Defendants' duties and that such actions were undertaken in good faith and for the benefit of the Company. In addition, the Director-Defendants had retained unexpired appeal rights with respect to the Shoen Litigation. If the Director-Defendants exercised such appeal rights, the damage award may have increased and the Company may have been exposed to increased liability to the Director- Defendants under existing indemnity agreements. In recognition of the foregoing and of the substantial risks associated with an appeal of the Shoen Litigation, on October 17, 1995, the Company entered into an agreement (the Agreement) with the Director- Defendants resolving the foregoing issues. Under the Agreement, the Company agreed, among other things, to fund the Plan and to release the Director-Defendants from all claims the Company may have against them arising from the Shoen Litigation. In addition, the Director-Defendants agreed, (i) to release, subject to certain exceptions, the Company from any claim they may have against it pursuant to any indemnification agreements, (ii) to assign all rights they have under the Shoen Litigation to the Company, (iii) to waive all appeal rights related to the Shoen Litigation (not including Edward J. Shoen's appeal of the punitive damage award), and (iv) not to oppose the Company should it elect to exercise its right of first refusal on any Common Stock to be transferred by the plaintiffs upon satisfaction of the judgment in the Shoen Litigation. On September 19, 1995, the Director-Defendants entered into a Stock Purchase Agreement with one of the plaintiffs in the Shoen Litigation, Maran, Inc., a Nevada corporation (Maran). All of Maran's voting stock was held by Mary Anna Shoen Eaton (Shoen Eaton), who was also a plaintiff in the Shoen Litigation. Under the Stock Purchase Agreement, the Director- Defendants agreed to purchase 3,343,076 shares of Common Stock held by Maran in exchange for approximately $22.7 million. The Stock Purchase Agreement was approved by the bankruptcy court on October 10, 1995. On October 18, 1995, the Company exercised its right of first refusal and repurchased the 16 Common Stock that was the subject of the Stock Purchase Agreement for the price set forth therein. In addition, on September 19, 1995, the Director- Defendants, Shoen Eaton, Maran, and the Company entered into a Settlement Agreement, providing for the payment to Shoen Eaton of approximately $41.4 million in exchange for a full release of all claims against the Company and the Director-Defendants, including all claims asserted by her in the Shoen Litigation. The Settlement Agreement was approved by the bankruptcy court on October 10, 1995, and the payment was made on October 18, 1995. As a result of the foregoing, and after giving effect to the discount achieved through settlement, approximately $84.6 million of the judgment in the Shoen Litigation was satisfied. Pursuant to the judgment in the Shoen Litigation, on January 30, 1996, the Company acquired 833,420 shares of Common Stock held by L.S.S., Inc. (L.S.S.) in exchange for approximately $5.7 million and paid damages to L.S. Shoen of approximately $15.4 million. The Company also funded a total of approximately $2.1 million of statutory post-judgment interest on the above amounts. In addition, on February 7, 1996, the Company acquired 1,651,644 shares of Common Stock held by Thermar, Inc. (Thermar) by paying Thermar approximately $41.8 million, including damages of approximately $30.6 million. The Company also paid to Thermar approximately $4.1 million of statutory post-judgment interest on such amount. As a result of the foregoing transactions, the balance of the judgment has been reduced to approximately $315.2 million, plus interest claimed by the plaintiffs. With respect to the remaining plaintiffs in the Shoen Litigation, the Plan provides for the payment by the Company of approximately $84.5 million in exchange for 12,426,836 shares of Common Stock held by four of the plaintiffs and for the payment by the Company of approximately $230.7 million to certain of the plaintiffs as damages. As of the date hereof, an issue remains regarding whether or not the remaining plaintiffs are entitled to statutory post-judgment interest at the rate of 10% per year. As of June 24, 1996, total accrued interest on the outstanding balance of the judgment is approximately $42.2 million and is accruing at the rate of approximately $86,000 per day. Briefing regarding post-petition date interest and the computation thereof was completed June 21, 1996. A July 19, 1996 hearing date has been set by the bankruptcy court. Those reserved issues do not affect the finality of the bankruptcy court's order confirming the Plan (Confirmation Order). If the dispute regarding post-petition date interest is decided adversely to the Director-Defendants and the Company, they intend to appeal any such decision. Pending the final resolution of the post-petition date interest dispute (including all appeals by either side), the Company intends, if necessary, to deposit either cash or, in appropriate circumstances, an irrevocable letter of credit into an escrow account to secure payment of the post-petition date interest. The amount of the escrow deposit would be in such case equal to the accrued interest to the date funds are deposited into escrow. As provided in the Plan, the escrow deposit, plus interest thereon, will remain until all aspects of the post-petition date interest dispute have been finally decided, including dischargeability litigation which the plaintiffs filed against the Director-Defendants in the bankruptcy court as an alternative means of trying to collect post-petition date interest. The dischargeability litigation has not been set for trial and is likely to await the outcome of the other aspects of the post- petition date interest dispute. On March 15, 1996, the bankruptcy court issued a Confirmation Order in each Director-Defendant's Chapter 11 case. This order provided that the effective date for the Plan (i.e., the date on which the Company will pay the plaintiffs an aggregate of approximately $315.2 million and the plaintiffs will surrender their Common Stock) will be no later than October 1, 1996 (absent compelling circumstances justifying an extension of that date). As of the date hereof, the Company has not yet determined all of the sources of cash which will be used to fund the Plan. The Company has identified approximately $150 million of surplus or non-essential assets, including, but not limited to, surplus real estate and mortgage notes, which will be sold to raise a portion of the cash needed to fund the Plan. In order to comply with certain covenants in the Company's 17 current credit agreements following the repurchase of the remaining plaintiffs' stock, it may be necessary to increase stockholders' equity by issuing capital stock. Such capital stock may consist of dividend paying preferred stock, Series B Common Stock, Common Stock, or a combination of the foregoing. Because the Company has not determined all of the sources of cash to fund the Plan, the Company is unable to determine with certainty the impact the Plan will have on the Company's prospective financial condition, results of operations, cash flows, or capital expenditure plans. However, as a result of funding the Plan, the Company may incur additional costs in the future in the form of dividends on any dividend paying stock issued to fund the Plan and/or interest on borrowed funds. Furthermore, following consummation of the Plan, and without giving effect to any capital stock which may be issued as part of the Plan funding, the Company's outstanding Common Stock would be reduced by 12,426,836 shares, in addition to the 3,343,076 shares repurchased from Maran on October 18, 1995, the 833,420 shares repurchased from L.S.S. on January 30, 1996, and the 1,651,644 shares repurchased from Thermar on February 7, 1996. Other uncertainties remain about the Plan, including the tax treatment of the payments made and to be made by the Company pursuant to the Plan. Specifically, the Company plans to deduct for income tax purposes approximately $324.3 million of the payments made or to be made by the Company to the plaintiffs, which will reduce the Company's income tax liability. While the Company believes that such income tax deductions are appropriate, there can be no assurance that any such deductions ultimately will be allowed in full. Accordingly, for tax and other reasons, the Plan could result in material changes in the Company's financial condition, results of operations, and earnings per common share. Furthermore, in the event the fair value of the consideration paid by the Company to the plaintiffs is in excess of the fair value of the stock repurchased by the Company, the Company will be required to record an expense equal to that difference. Based upon the uncertainties surrounding the funding of the Plan, the amount of such expense, if any, is not estimable as of the date hereof. No such expense was recorded for book purposes related to the Maran/Shoen Eaton, L.S.S. and Thermar transactions. No provision has been made in the Company's financial statements for any payments to be made to the plaintiffs in the future. For the reasons set forth above, the Plan could have the effect of reducing the Company's net income. In the normal course of business, the Company is a defendant in a number of suits and claims. The Company is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of such suits, claims, or proceedings involving the Company, individually or in the aggregate, are expected to result in a material loss. See "Item 1. Business-Environmental Matters". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise. The 1994 annual meeting of stockholders was originally delayed on July 20, 1994 by the United States District Court for the District of Nevada. On June 8, 1995, the United States Bankruptcy Court enjoined the Company from holding its 1994 and 1995 Annual Meeting of Stockholders. In addition, on June 21, 1996 the United States Bankruptcy Court enjoined the Company from conducting its 1994, 1995 and 1996 Annual Meetings of Stockholders until after the effective date of the Director-Defendants' plans of reorganization. See "Item 3. Legal Proceedings". As of the date of this Form 10-K, the Company has not scheduled the 1994, 1995 or 1996 Annual Meetings of Stockholders. 18 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of June 24, 1996, there were approximately 7,600 holders of record of the Company's common stock in comparison to approximately 1,500 as of June 26, 1995. Prior to November 1994, no established public trading market existed for the Company's common stock. Since November 1994, the Company's common stock has been quoted on Nasdaq National Market (Nasdaq) under the symbol "AMOO". The following table sets forth the high and low closing prices of the common stock of AMERCO trading on Nasdaq for the periods indicated. For the Years Ended March 31, --------------------------------------------- 1996 1995 --------------------------------------------- High Low High Low ----------------- ----------------- First quarter 23 3/4 19 1/2 - - Second quarter 19 3/4 14 3/4 - - Third quarter 21 16 1/2 18 15 3/4 Fourth quarter 25 1/2 17 22 1/2 17 3/8 The Company has not declared any cash dividends to common stockholders for the two most recent fiscal years. The Company does not have a formal dividend policy. The Company's Board of Directors periodically considers the advisability of declaring and paying dividends in light of existing circumstances. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Credit Agreements", and Note 5 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain contractual restrictions on the Company's ability to pay dividends. See Note 19 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain statutory restrictions on Ponderosa's ability to pay dividends to the Company. See Note 15 of Notes to Consolidated Financial Statements in Item 8 for a discussion of the Company's non-cash dividends. See Note 6 of Notes to Consolidated Financial Statements in Item 8 for a discussion of changes to common shares outstanding and per share amounts. The common stock of U-Haul is wholly-owned by the Company. As a result, no active trading market exists for the purchase and sale of such common stock. No cash dividends were declared to the Company by U-Haul during the two most recent fiscal years. 19
AMERCO AND CONSOLIDATED SUBSIDIARIES ITEM 6. SELECTED FINANCIAL DATA For the Years Ended March 31, ------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------------------- (in thousands, except per share data and ratios) Summary of Operations: Rental, net sales and other revenue $ 1,094,185 1,058,499 967,743 900,863 845,128 Premiums and net investment income 200,238 177,733 162,151 139,465 126,756 ---------- ---------- ---------- ---------- ---------- 1,294,423 1,236,232 1,129,894 1,040,328 971,884 ---------- ---------- ---------- ---------- ---------- Operating and advertising expense and cost of sales 880,429 779,302 730,880 697,117 661,229 Benefits, losses and amortization of deferred acquisition costs 168,363 144,303 130,168 115,969 99,091 Depreciation 81,847 151,409 133,485 110,105 109,641 Interest expense 67,558 67,762 68,859 67,958 76,189 ---------- ---------- ---------- ---------- ---------- 1,198,197 1,142,776 1,063,392 991,149 946,150 ---------- ---------- ---------- ---------- ---------- Pretax earnings from operations 96,226 93,456 66,502 49,179 25,734 Income tax expense (35,832) (33,424) (19,853) (17,270) (4,940) ---------- ---------- ---------- ---------- ---------- Earnings from operations before extraordinary loss on early extinguishment of debt and cumulative effect of change in accounting principle 60,394 60,032 46,649 31,909 20,794 Extraordinary loss on early extinguishment of debt - - (3,370) - - Cumulative effect of change in accounting principle - - (3,095) - - ---------- ---------- ---------- ---------- ---------- Net earnings $ 60,394 60,032 40,184 31,909 20,794 ========== ========== ========== ========== ========== Earnings from operations before extraordinary loss on early extinguishment of debt and cumulative effect of change in accounting principle per common share $ 1.33 1.23 1.06 .83 .53 Net earnings per common share 1.33 1.23 .89 .83 .53 Weighted average common shares outstanding 35,736,335 38,190,552 38,664,063 38,664,063 38,880,069 Cash dividends declared: Preferred stock 12,964 12,964 4,753 - - Common stock - - 3,147 1,994 - Ratio of earnings to fixed charges 1.89 1.87 1.64 1.45 1.21 20 AMERCO AND CONSOLIDATED SUBSIDIARIES ITEM 6. SELECTED FINANCIAL DATA For the Years Ended March 31, ----------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------------------------------------------------------------- (in thousands) Balance Sheet Data: Total property, plant and equipment, net $ 1,316,715 1,274,246 1,174,236 989,603 987,095 Total assets 2,827,978 2,605,989 2,344,442 2,024,023 1,979,324 Notes and loans payable 998,220 881,222 723,764 697,121 733,322 Stockholders' equity 649,548 686,784 651,787 479,958 451,888 For purposes of computing the ratio of earnings to fixed charges, "earnings" consists of pretax earnings from operations plus total fixed charges excluding interest capitalized during the period and "fixed charges" consists of interest expense, preferred stock dividends, capitalized interest, amortization of debt expense and discounts and one-third of the Company's annual rental expense (which the Company believes is a reasonable approximation of the interest factor of such rentals). Reflects the adoption of Statement of Position 93-6, "Employer's Accounting for Employee Stock Ownership Plans." For the fiscal year ended March 31, 1996, 1995 and 1994, Earnings and net earnings per common share were computed after giving effect to the dividends on the Company's Series A 8 1/2% preferred stock. See "Item 3. Legal Proceedings" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Stockholder Litigation" for a discussion of material uncertainties. Reflects the adoption of Statement of Position 93-7 "Reporting on Advertising Costs" during the year ended March 31, 1996. Reflects the change in estimated salvage value during the year ended March 31, 1996. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". Reflects the adoption of Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits other than Pensions".
21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-K, including, without limitation, the statements regarding the funding of the Plan resulting from the Shoen Litigation contained in "Item 3. Legal Proceedings" and Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" and the statements regarding the Company's capital expenditure plans contained in "Liquidity and Capital Resources", are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations (Cautionary Statements) are disclosed in this Form 10-K, including, without limitation, in connection with the forward-looking statements included in this Form 10-K. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. GENERAL For financial statement preparation, the Company's insurance subsidiaries report on a calendar year basis while the Company reports on a fiscal year basis ending March 31. Accordingly, with respect to the Company's insurance subsidiaries, any reference to the years 1995, 1994, and 1993 corresponds to the Company's fiscal years 1996, 1995, and 1994, respectively. There have been no events related to such subsidiaries between January 1 and March 31 of 1996, 1995, or 1994 that would materially affect the Company's consolidated financial position or results of operations as of and for the fiscal years ended March 31, 1996, 1995, and 1994, respectively. The following management's discussion and analysis should be read in conjunction with Notes 1, 19, and 20 of Notes to Consolidated Financial Statements in Item 8, which discuss the principles of consolidation, summarized consolidated financial information, and industry segment and geographic area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses, and expenses are retained by the insurance companies. RESULTS OF OPERATIONS FISCAL YEARS ENDED MARCH 31, 1996, 1995, AND 1994 The following table shows industry segment data from the Company's three industry segments: rental operations, life insurance, and property and casualty insurance, for the fiscal years ended March 31, 1996, 1995, and 1994. Rental operations is composed of the operations of U-Haul and AREC. Life insurance is composed of the operations of Oxford. Property and casualty insurance is composed of the operations of RWIC. Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------- (in thousands) 1996 Revenues: Outside $1,085,711 49,103 159,609 - 1,294,423 Intersegment (656) 1,281 12,763 (13,388) - ---------------------------------------------------------- Total revenues 1,085,055 50,384 172,372 (13,388) 1,294,423 ========================================================== Operating profit $ 129,092 12,600 21,436 656 163,784 =========================================== Interest expense 67,558 -------- Pretax earnings from operations $ 96,226 -------- Identifiable assets $1,921,105 599,713 619,454 (312,294) 2,827,978 ========================================================== 22 Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ----------------------------------------------------------- (in thousands) 1995 Revenues: Outside $1,052,243 39,347 144,642 - 1,236,232 Intersegment (42) 1,444 20,657 (22,059) - ---------------------------------------------------------- Total revenues 1,052,201 40,791 165,299 (22,059) 1,236,232 ========================================================== Operating profit $ 128,278 9,824 23,074 42 161,218 ============================================ Interest expense 67,762 ------- Pretax earnings from operations $ 93,456 ====== Identifiable assets $1,827,995 479,778 579,821 (281,605) 2,605,989 ========================================================== Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------- (in thousands) 1994 Revenues: Outside $ 960,878 31,357 137,659 - 1,129,894 Intersegment (357) 2,834 18,862 (21,339) - --------------------------------------------------------- Total revenues 960,521 34,191 156,521 (21,339) 1,129,894 ========================================================= Operating profit $ 106,248 9,106 20,705 (698) 135,361 =========================================== Interest expense 68,859 ------- Pretax earnings from operations $ 66,502 ======== Identifiable assets $1,593,044 461,464 550,795 (260,861) 2,344,442 ========================================================= 23 FISCAL YEAR ENDED MARCH 31, 1996 VERSUS FISCAL YEAR ENDED MARCH 31, 1995 U-HAUL OPERATIONS U-Haul revenues consist of (i) total rental and other revenue and (ii) net sales. Total rental and other revenue increased by $29.2 million, approximately 3.3%, to $912.1 million during fiscal 1996. The increase in fiscal 1996 is primarily attributable to an increase in net revenues from the rental of moving related equipment and self-storage facilities which increased in the aggregate by $33.9 million to $919.1 million, as compared to $885.2 million for fiscal 1995. In excess of 53% of the rental revenue growth was realized during the fourth quarter of fiscal 1996. Moving related rental revenues benefited from transactional growth (volume) within the rental fleet. Revenues from the rental of self- storage facilities were positively impacted by an increase in same store rents realized per rentable square foot, higher management fees derived from storage facilities managed for others and additional rentable square footage. Other revenues decreased in the aggregate by $4.7 million. Net sales revenues were $173.8 million for fiscal 1996, which represents an increase of approximately 2.1% from fiscal 1995 net sales of $170.2 million. Revenue growth from the sale of moving support items (i.e., boxes, etc.), hitches, and propane resulted in a $9.1 million increase during the year, which was offset by a $1.2 million decrease in revenue from gasoline sales consistent with the Company's ongoing efforts to remove underground storage tanks and gradually discontinue gasoline sales. Other sales decreased by $5.2 million due to the sale of discontinued repair parts during the fourth quarter of fiscal 1995. Cost of sales was $108.7 million for fiscal 1996, which represents an increase of approximately 16.2% from $93.5 million for fiscal 1995. This increase in cost of sales reflects a $7.0 million increase in material costs from the sale of moving support items, hitches, and propane as a result of higher sales levels and an $8.1 million increase in allowances for inventory shrinkage and other inventory adjustments. Operating expenses increased to $726.5 million during fiscal 1996 from $649.9 million during fiscal 1995, an increase of approximately 11.8%. The change from the prior year primarily reflects a $53.6 million increase in rental equipment maintenance costs related to rental fleet expansion and transactional growth and an $18.1 million increase in personnel costs due to the increase in rental, sales and repair activity. All other operating expense categories increased in the aggregate by $4.9 million, approximately 2.3%, to $214.1 million. Advertising expense increased to $38.9 million during fiscal 1996 from $29.1 million for fiscal 1995. The increase primarily reflects a one-time expense of $8.7 million recognized during the first quarter of fiscal 1996, due to the adoption of Statement of Position 93-7 which requires immediate recognition of advertising costs not qualifying as direct-response. Depreciation expense for fiscal 1996 was $81.8 million, as compared to $151.4 million for fiscal year 1995. During the third and fourth quarters of fiscal 1996, based on the Company's in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks. The effect of the change in estimate reduced depreciation expense for fiscal 1996 by $71.4 million ($35.7 million during the third quarter, $26.6 million during the fourth quarter for the fourth quarter change and $9.1 million during the fourth quarter for the third quarter change). OXFORD - LIFE INSURANCE Premiums from Oxford's reinsurance lines before intercompany eliminations were $19.4 million for the year ended December 31, 1995, an increase of $2.0 million or approximately 11.5% over 1994 and accounted for 71.8% of Oxford's premiums in 1995. These premiums are primarily from term life insurance and 24 deferred annuity contracts that have matured. Increases in premiums are primarily from the anticipated increase in annuitizations as a result of the maturing of deferred annuities and from additional production in the credit life and credit accident and health business. Premiums from Oxford's direct lines before intercompany eliminations were $7.6 million in 1995, an increase of $1.4 million or 22.6% from the prior year. This increase in direct premium is primarily attributable to the credit life and credit accident and health business ($5.6 million in premium). Oxford's direct business related to group life and disability coverage issued to employees of the Company accounted for approximately 7.2% of premiums for the year ended December 31, 1995. Other direct lines, including the credit business, accounted for approximately 21.0% of Oxford's premiums in 1995. Net investment income before intercompany eliminations was $16.5 million and $14.1 million for the years ended December 31, 1995 and 1994, respectively. This increase is due to increasing margins on the interest sensitive business. Gains on the disposition of fixed maturity investments were $3.5 million and $1.3 million for 1995 and 1994, respectively. Oxford reported $2.0 million and $1.9 million of other income for 1995 and 1994, respectively. Benefits and expenses incurred were $37.8 million for the year ended December 31, 1995, an increase of 21.9% over 1994. Comparable benefits and expenses incurred for 1994 were $31.0 million. This increase is primarily due to disability, credit life and credit disability benefits incurred and an increase in the amortization of deferred acquisition costs, primarily as a result of the increase in realized capital gains on the disposition of fixed maturities. Operating profit before intercompany eliminations increased by $2.9 million, or approximately 29.9%, in 1995 to $12.6 million, primarily due to the increasing margins on the interest sensitive business and gains on the disposition of fixed maturity investments, which were partially offset by the increase in the amortization of deferred acquisition costs. RWIC - PROPERTY AND CASUALTY RWIC gross premium writings for the year ended December 31, 1995 were $174.2 million as compared to $179.2 million in 1994. As in prior years, the rental industry market accounts for a significant share of total premiums, approximately 45.2% and 42.8% in 1995 and 1994, respectively. These writings include U-Haul customers, fleetowners and U-Haul as well as other rental industry insureds with similar characteristics. RWIC continues underwriting professional reinsurance via broker markets. Premiums in this area decreased in 1995 to $50.1 million, or 28.7% of total gross premiums, from comparable 1994 figures of $58.3 million, or 32.5% of total premiums. This decrease can be primarily attributed to RWIC electing not to renew several treaties because of inadequate pricing or terms. Also contributing to the decrease was the discontinuation of a significant fronting arrangement. Premium writings in selected general agency lines were 16.3% of total gross written premiums in 1995 as compared to a 15.1% in 1994. RWIC expanded its direct business in 1995 to include multiple peril coverage for a variety of commercial properties and businesses. These premiums accounted for 9.1% of the total gross written premium during the year ended December 31, 1995. Net earned premiums increased $7.4 million, or 5.6%, to $140.8 million for the year ended December 31, 1995, compared with premiums of $133.4 million for the year ended December 31, 1994. This increase was primarily due to increased earnings on the assumed treaty reinsurance business and the expanded commercial coverage discussed above, offset by decreased premiums on canceled agent programs and rental industry liability lines. 25 Underwriting expenses incurred were $150.9 million for the twelve months ended December 31, 1995, an increase of $8.8 million or 6.2% over 1994. The increase occurred in incurred loss and loss adjusting expense, offset by decreased commissions expense. The change in incurred loss and loss adjusting expense resulted from increases on general agency, rental industry liability and assumed treaty reinsurance, partially offset by improved underwriting results in other programs. The decrease in commission expense resulted from an adjustment made to realize a margin on a canceled general agency program. The ratio of underwriting expenses to net earned premium remained the same, 1.07, in both 1995 and 1994. Net investment income was $29.9 million for the year ended December 31, 1995, an increase of 3.1% over 1994 net investment income of $29.0 million. The increase is the result of favorable interest rates along with a larger portfolio due to growth in business. Income before tax expense was $21.4 million as compared to $23.2 million for the comparable period ended December 1994. This represents a decrease of $1.8 million, or 7.8% over 1994. Increased premium earnings and investment income were offset by a disproportionate increase in underwriting expenses as discussed above. INTEREST EXPENSE Interest expense decreased by $0.2 million to $67.6 million in fiscal 1996, as compared to $67.8 million in fiscal 1995. Despite average debt levels increasing, interest expense declined reflecting a reduction in the average cost of funds. RESULTS OF OPERATIONS - CONSOLIDATED GROUP As a result of the foregoing, pre-tax earnings of $96.2 million were realized in fiscal 1996 as compared to $93.5 million in fiscal 1995. After providing for income taxes, net earnings for fiscal 1996 were $60.4 million as compared to $60.0 million for the same period of the prior year. 26 FISCAL YEAR ENDED MARCH 31, 1995 VERSUS FISCAL YEAR ENDED MARCH 31, 1994 U-HAUL OPERATIONS U-Haul revenues consist of (i) total rental and other revenue and (ii) net sales. Total rental and other revenue increased by $78.2 million, approximately 9.7%, to $887.6 million in fiscal 1995. The increase from fiscal 1994 is primarily attributable to a $68.6 million increase in net revenues from the rental of moving related equipment. Moving related revenues benefited from transactional growth (volume) within the truck and trailer fleets. Revenues from the rental of self-storage facilities increased by $9.7 million to $80.2 million in fiscal 1995, an increase of approximately 13.8%. Storage revenues continue to be positively impacted by additional rentable square footage and higher average rental rates. Other revenue categories decreased in the aggregate by $0.1 million, with declines in general rental item revenues and other miscellaneous revenues, offset by increases in interest income and gains on the sale of property, plant and equipment. Net sales were $170.2 million in fiscal 1995 which represents an increase of approximately 9.1% from fiscal 1994 net sales of $156.0 million. Revenue growth from moving support sale items (i.e., boxes, etc.), hitches and propane resulted in an $11.2 million increase, offset by a $1.9 million decrease in revenue from gasoline sales consistent with the Company's ongoing efforts to remove underground storage tanks and gradually discontinue gasoline sales. Cost of sales was $93.5 million in fiscal 1995, as compared to $92.2 million in fiscal 1994. The increase in cost of sales reflects increased material costs from the sale of moving support sale items and propane, which can be primarily attributed to higher sales levels. The increase was offset by a reduction in the provision obsolete inventory between the two years due to management's continued emphasis on disposing of such inventory, including the complete liquidation of RV parts inventory during fiscal 1994. Improved margins on hitch sales also offset the increased cost of sales. Operating expenses increased to $649.9 million in fiscal 1995 from $602.3 million in fiscal 1994, an increase of approximately 7.9%. The change from the prior year reflects a $36.9 million increase in rental equipment maintenance costs. Efforts to minimize downtime, an increase in fleet size and higher transaction levels are primarily responsible for the increase. Lease expense declined by $17.9 million to $66.5 million reflecting lease terminations, lease restructuring, and lower finance costs on new leases originated during the past two years. All other operating expense categories increased in the aggregate by $31.0 million, approximately 8.3%, to $402.5 million. These increases are consistent with the growth in revenues. Depreciation expense during fiscal 1995 was $151.4 million as compared to $133.5 million in the prior year, reflecting the increase in fleet size and real property acquisitions. OXFORD - LIFE INSURANCE Premiums from Oxford's reinsurance lines before intercompany eliminations were $17.4 million for the year ended December 31, 1994, an increase of $1.6 million, approximately 10.1% over 1993 and accounted for 73.8% of Oxford's premiums in 1994. These premiums are primarily from term life insurance and matured deferred annuity contracts. Increases in premiums are primarily from the anticipated increase in annuitizations as a result of the maturing of deferred annuities. 27 Premiums from Oxford's direct lines before intercompany eliminations were $6.2 million in 1994, an increase of $4.2 million, or 210% from the prior year. This increase in direct premium revenues is primarily attributable to Oxford's entrance into the credit life and credit accident and health business ($4.4 million in premium revenues). Oxford's direct business related to group life and disability coverage issued to employees of the Company accounted for approximately 7.2% of premiums for the year ended December 31, 1994. Other direct lines, including the credit business, accounted for approximately 19.0% of Oxford's premiums in 1994. Net investment income before intercompany eliminations was $14.1 million and $12.6 million for the years ended December 31, 1994 and 1993, respectively. This increase is due to increasing margins on the interest sensitive business. Gains on the disposition of fixed maturity investments were $1.3 million and $2.1 million for 1994 and 1993, respectively. Oxford had $1.9 million and $1.8 million of other income for 1994 and 1993, respectively. Benefits and expenses incurred were $31.0 million for the year ended December 31, 1994, an increase of 27.0% over 1993. Comparable benefits and expenses incurred for 1993 were $24.4 million. This increase is primarily due to the increase in reserves caused by the increase in annuitizations discussed above. Operating profit before intercompany eliminations decreased by $0.1 million, or approximately 1.0%, in 1994 to $9.7 million, primarily due to the decrease in gains on sale of fixed maturity investments. Such decrease was partially offset by the increasing margins on the interest sensitive business. RWIC - PROPERTY AND CASUALTY RWIC gross premium writings for the year ended December 31, 1994 were $179.2 million as compared to $175.1 million in 1993. This represents an increase of $4.1 million, or 2.3%. As in prior years, the rental industry market accounts for a significant share of total premiums, approximately 42.8% and 36.6% in 1994 and 1993, respectively. These writings include U-Haul customers, fleetowners and U-Haul as well as other rental industry insureds with similar characteristics. Growth is also occurring in selected general agency lines. These premiums accounted for approximately 15.1% of gross written premiums for 1994, compared to 12.9% in 1993. RWIC continues underwriting professional reinsurance via broker markets, and premiums in this area decreased in 1994 to $58.3 million, or 32.5% of total gross premiums, from comparable 1993 figures of $70.2 million, or 40.1% of total premiums. Net earned premiums increased $8.0 million, or 6.38% to $133.4 million for the year ended December 31, 1994, compared with premiums of $125.4 million for the year ended December 31, 1993. The premium increase was primarily due to planned increased writings in the rental industry and general agency lines. Underwriting expenses incurred were $142.1 million for the twelve months ended December 31, 1994, an increase of $5.6 million, or 4.1% over 1993. Comparable underwriting expenses incurred for 1993 were $136.5 million. The increase in underwriting expenses is due to the larger premium volume being written in 1994, which increased acquisition costs and commensurate reserves. The ratio of underwriting expenses to net earned premiums decreased from 1.09 in 1993 to 1.07 in 1994. This improvement is primarily attributable to improved loss experience combined with continued market rate strength which affects the Company's assumed reinsurance area. Net investment income was $29.0 million for the year ended December 31, 1994, an increase of 5.8% over 1993 net investment income of $27.4 million. The increase is due to an increased asset base generated from larger premium volume. 28 RWIC completed 1994 with income before taxes before intercompany eliminations of $23.2 million as compared to $19.9 million for the comparable period ended December 1993. This represents an increase of $3.3 million or 16.6% over 1993. Improved underwriting results in the Company's assumed reinsurance area was offset by declines in its workers' compensation and rental industry liability lines. INTEREST EXPENSE Interest expense decreased by $1.0 million to $67.8 million in fiscal 1995, as compared to $68.8 million in fiscal 1994. While average debt levels outstanding increased, the decrease in interest expense reflects a reduction in the average cost of funds. EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT During the first and third quarters of fiscal 1994, the Company extinguished $25.2 million of its medium-term notes originally due in fiscal 1995 through 2000. The weighted average rate of the notes purchased was 9.34%. The purchase resulted in an extraordinary charge of $1.9 million, net of $1.0 million of tax benefit. During the fourth quarter of fiscal 1994, the Company terminated swaps with a notional value of $77.0 million originally due in fiscal 1995. The terminations resulted in an extraordinary charge of $1.5 million, net of $0.8 million of tax benefit. RESULTS OF OPERATIONS - CONSOLIDATED GROUP As a result of the foregoing, pre-tax earnings of $93.5 million were realized in fiscal 1995 as compared to $66.5 million in fiscal 1994. After providing for income taxes, net earnings for fiscal 1995 were $60.0 million as compared to $40.2 million for the same period of the prior year. The consolidated results for the prior year reflect a cumulative effect adjustment resulting from the adoption of Statement of Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and extraordinary costs associated with early extinguishment of debt. 29 QUARTERLY RESULTS The following table presents unaudited quarterly results for the eight quarters in the period beginning April 1, 1994 and ending March 31, 1996. 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 per share data). Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1995 1995 1995 1996 ---------------------------------------------- Total revenues $ 330,509 371,267 307,452 285,195 Net earnings (loss) 15,177 35,332 7,701 2,184 Weighted average common shares outstanding 37,958,426 37,931,825 36,796,961 32,554,458 Net earnings (loss) per common share 0.31 0.85 0.13 (0.04) Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1994 1994 1994 1995 ---------------------------------------------- Total revenues $ 322,333 359,520 294,858 259,521 Net earnings (loss) 29,413 40,071 1,907 (11,359) Weighted average common shares outstanding 37,107,536 37,053,707 37,025,575 38,072,543 Net earnings (loss) per common share 0.71 1.00 (0.04) (0.44) - --------------- Net earnings (loss) per common share amounts were computed after giving effect to the dividend on the Company's Series A 8 1/2% Preferred Stock. Reflects the adoption of Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plan". Reflects the adoption of Statement of Position 93-7 "Reporting on Advertising Costs" in the first quarter of fiscal 1996. Reflects the change in estimated salvage value during the third and fourth quarters of fiscal 1996. 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". 30 LIQUIDITY AND CAPITAL RESOURCES U-HAUL OPERATIONS To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At March 31, 1996, net property, plant and equipment represented approximately 68.5% of total U-Haul assets and approximately 46.6% of consolidated assets. In fiscal 1996, capital expenditures were $291.1 million as compared to $435.0 million in fiscal 1995, reflecting expansion of the rental fleet in both periods, purchase of trucks previously leased, and real property acquisitions. The capital needs required to fund these acquisitions were funded with internally generated funds from operations, debt, and lease financings. Cash flows from operating activities were $111.7 million in fiscal 1996, as compared to $178.0 million and $163.8 million in fiscal 1995 and 1994, respectively. The decrease results from an increase in operating expenses as discussed above. OXFORD - LIFE INSURANCE Oxford's primary sources of cash are premiums, receipts from interest-sensitive products, and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. Cash provided by operating activities was $9.0 million, $15.2 million and $18.0 million for the years ended December 31, 1995, 1994, and 1993, respectively. In 1995, cash flows from financing activities were approximately $87.9 million. During 1994 and 1993, cash flows provided/(used) by financing activities were $6.0 million and ($3.9) million, respectively. Cash flows from deferred annuity sales increase investment contract deposits which are a component of financing activities, as well as the purchase of fixed maturities which are a component of investing activities. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. At December 31, 1995 and 1994, short-term investments aggregated to $10.8 million and $11.7 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford increased to $106.2 million in 1995 from $85.6 million in 1994. During 1994, Oxford paid cash dividends of $4.9 million to Ponderosa. 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, such amount is $400,000. 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 $6,572,000 at December 31, 1995. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. RWIC - PROPERTY AND CASUALTY Cash flows from operating activities were $31.0 million, $28.8 million and $15.7 million for the years ended December 31, 1995, 1994 and 1993, respectively. The change is due to increased funds withheld, decreased paid losses recoverable and federal income taxes payable, and a smaller increase in accounts receivable than that for the year ended December 31, 1994. These increased cash flows were offset by a smaller change in loss and unearned premium reserves than that of the comparable period in 1994. RWIC's short-term investment portfolio was $6.8 million at December 31, 1995. This level of liquid assets, combined with budgeted cash flow, is 31 adequate to meet periodic needs. This balance also reflects funds in transition from maturity proceeds to long-term investments. The structure of the long-term portfolio is designed to match future cash needs. Capital and operating budgets allow RWIC to accurately schedule cash needs. RWIC maintains a diversified investment portfolio, primarily in bonds at varying maturity levels. Approximately 98% of the portfolio consists of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity is adequate, with current invested assets equal to total liabilities. Stockholder's equity increased 12.0% from $168.1 million at December 31, 1994 to $188.2 million at December 31, 1995. 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. RWIC paid no stockholder dividends during 1995. However, RWIC did declare a $6.7 million dividend during the first quarter of 1996. Applicable laws and regulations of the State of Arizona require the Company's insurance subsidiaries to maintain minimum capital determined in accordance with statutory accounting practices. With respect to RWIC, such amount is $1,000,000. In addition, the amount of dividends that can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. CONSOLIDATED GROUP At March 31, 1996, total notes and loans payable outstanding was $998.2 million as compared to $881.2 million at March 31, 1995. This increase resulted from the repurchase of certain common stock pursuant to the Shoen Litigation. See "Item 3. Legal Proceedings". During each of the fiscal years ending March 31, 1997, 1998, and 1999, U-Haul estimates gross capital expenditures will average approximately $290 million as a result of the expansion of the rental truck fleet and self-storage operation. This level of capital expenditures, combined with an average of approximately $100 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $390 million. Management estimates that U-Haul will fund approximately 75% of these requirements with internally generated funds, including proceeds from the disposition of older trucks and other asset sales. The remainder of the required capital expenditures are expected to be financed through existing credit facilities, new debt placements, lease fundings and equity offerings. Also, see "Item 3. Legal Proceedings" for a discussion of additional funding requirements pursuant to the Shoen Litigation. CREDIT AGREEMENTS The Company's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes, and revolving lines of credit with domestic and foreign banks. Principally to finance its fleet of trucks and trailers, the Company routinely enters into sale and leaseback transactions. As of March 31, 1996, the Company had $998.2 million in total notes and loans payable outstanding and unutilized committed lines of credit of approximately $155.0 million. In May 1996, the Company issued $175.0 million of 7.85% Senior Notes Due May 15, 2003. The Company intends to apply the net proceeds from the sale of the notes to pay down, at maturity, a portion of the Company's long-term debt. Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios, and placing certain additional liens on its properties and assets. At March 31, 1996, the Company was in compliance with these covenants. 32 The Company is also restricted in the amount of dividends that it may pay pursuant to covenants contained in its credit agreements. As of the date hereof, the most restrictive of such covenants provides that the Company may pay cash dividends on its capital stock only in an amount not exceeding, in the aggregate, computed on a cumulative basis, the sum of (i) $15.0 million and (ii) 50% of consolidated net income computed on a cumulative basis for the entire period subsequent to March 31, 1993 (or if such consolidated net income is a deficit figure, then minus 100% of such deficit), less dividends paid after such date. As of March 31, 1996, the amount available for the payment of cash dividends, as calculated above, was $61.5 million. The Company is further restricted in the issuance of certain types of preferred stock. The Company is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment, or mandatory prepayment, or that allow the holders thereof to require the Company or any subsidiary of the Company to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. STOCKHOLDER LITIGATION As disclosed in "Item 3. Legal Proceedings," a judgment has been entered in the Shoen Litigation against five of the Company's current directors (the Director-Defendants) and one former director in the amount of approximately $461.8 million, plus statutory post- judgment interest. Pursuant to separate indemnification agreements, the Company has agreed to indemnify the defendants the fullest extent permitted by law or the Company's Articles of Incorporation or By-Laws, for all expenses and damages incurred by the defendants in this proceeding, subject to certain exceptions. The Director-Defendants have filed for protection under Chapter 11 of the federal bankruptcy laws, resulting in the issuance of an order automatically staying the execution of the judgment against those defendants. Those defendants, in cooperation with the Company, filed plans of reorganization in the United States bankruptcy court for the District of Arizona all of which propose the same funding and treatment of the plaintiffs' claims resulting from the judgment in the Shoen Litigation. The plans of reorganization, as amended and restated on February 29, 1996, were confirmed by the bankruptcy court on March 15, 1996. The plans, as confirmed, shall collectively be referred to as the "Plan". On October 18, 1995, the Company repurchased 3,343,076 shares of Common Stock held by Maran, Inc. a Nevada corporation (Maran), in exchange for approximately $22.7 million and entered into a Settlement Agreement with Mary Anna Shoen Eaton (Shoen Eaton) whereby in exchange for approximately $41.4 million, Shoen Eaton released the Director-Defendants and the Company from any liability relating to Shoen Litigation. As a result of the foregoing, and after giving effect to the discount achieved through settlement, approximately $84.6 million of the judgment in the Shoen Litigation was satisfied. Pursuant to the judgment in the Shoen Litigation, on January 30, 1996, the Company acquired 833,420 shares of Common Stock held by L.S.S., Inc. (L.S.S.) in exchange for approximately $5.7 million and paid damages to L.S. Shoen of approximately $15.4 million. The Company also funded a total of approximately $2.1 million of statutory post-judgment interest on the above amounts. In addition, on February 7, 1996, the Company acquired 1,651,644 shares of Common Stock held by Thermar, Inc. (Thermar) by paying Thermar approximately $41.8 million, including damages of approximately $30.6 million. The Company also paid to Thermar approximately $4.1 million of statutory post-judgment interest on such amount. As a result of the foregoing transactions, the balance of the judgment has been reduced to approximately $315.2 million, plus interest claimed by the plaintiffs. With respect to the remaining plaintiffs in the Shoen Litigation, the Plan provides for the payment by the Company of approximately $84.5 million in exchange for 12,426,836 shares of Common Stock held by four of the plaintiffs 33 and for the payment by the Company of approximately $230.7 million to certain of the plaintiffs as damages. As of the date hereof, an issue remains regarding whether or not the remaining plaintiffs are entitled to statutory post- judgment interest at the rate of 10% per year. As of June 24, 1996, total accrued interest on the outstanding balance of the judgment is approximately $42.2 million and is accruing at the rate of approximately $86,000 per day. Briefing regarding post-petition date interest and the computation thereof was completed June 21, 1996. A July 19, 1996 hearing date has been set by the bankruptcy court. Those reserved issues do not affect the finality of the bankruptcy court's order confirming the Plan (Confirmation Order). If the dispute regarding post-petition date interest is decided adversely to the Director-Defendants and the Company, they intend to appeal any such decision. Pending the final resolution of the post-petition date interest dispute (including all appeals by either side), the Company intends, if necessary, to deposit either cash or, in appropriate circumstances, an irrevocable letter of credit into an escrow account to secure payment of the post- petition date interest. The amount of the escrow deposit would be in such case equal to the accrued interest to the date funds are deposited into escrow. As provided in the Plan, the escrow deposit, plus interest thereon, will remain until all aspects of the post-petition date interest dispute have been finally decided, including dischargeability litigation which the plaintiffs filed against the Director-Defendants in the bankruptcy court as an alternative means of trying to collect post-petition date interest. The dischargeability litigation has not been set for trial and is likely to await the outcome of the other aspects of the post- petition date interest dispute. On March 15, 1996, the bankruptcy court issued a Confirmation Order in each Director-Defendant's Chapter 11 case. This order provided that the effective date for the Plan (i.e., the date on which the Company will pay the plaintiffs an aggregate of approximately $315.2 million and the plaintiffs will surrender their Common Stock) will be no later than October 1, 1996 (absent compelling circumstances justifying an extension of that date). As of the date hereof, the Company has not yet determined all of the sources of cash which will be used to fund the Plan. The Company has identified approximately $150 million of surplus or non- essential assets, including, but not limited to, surplus real estate and mortgage notes, which will be sold to raise a portion of the cash needed to fund the Plan. In order to comply with certain covenants in the Company's current credit agreements following the repurchase of the remaining plaintiffs' stock, it may be necessary to increase stockholders' equity by issuing capital stock. Such capital stock may consist of dividend paying preferred stock, Series B Common Stock, Common Stock, or a combination of the foregoing. Because the Company has not determined all of the sources of cash to fund the Plan, the Company is unable to determine with certainty the impact the Plan will have on the Company's prospective financial condition, results of operations, cash flows, or capital expenditure plans. However, as a result of funding the Plan, the Company may incur additional costs in the future in the form of dividends on any dividend paying stock issued to fund the Plan and/or interest on borrowed funds. Furthermore, following consummation of the Plan, and without giving effect to any capital stock which may be issued as part of the Plan funding, the Company's outstanding Common Stock would be reduced by 12,426,836 shares, in addition to the 3,343,076 shares repurchased from Maran on October 18, 1995, the 833,420 shares repurchased from L.S.S. on January 30, 1996, and the 1,651,644 shares repurchased from Thermar on February 7, 1996. 34 Other uncertainties remain about the Plan, including the tax treatment of the payments made and to be made by the Company pursuant to the Plan. Specifically, the Company plans to deduct for income tax purposes approximately $324.3 million of the payments made or to be made by the Company to the plaintiffs, which will reduce the Company's income tax liability. While the Company believes that such income tax deductions are appropriate, there can be no assurance that any such deductions ultimately will be allowed in full. Accordingly, for tax and other reasons, the Plan could result in material changes in the Company's financial condition, results of operations, and earnings per common share. Furthermore, in the event the fair value of the consideration paid by the Company to the plaintiffs is in excess of the fair value of the stock repurchased by the Company, the Company will be required to record an expense equal to that difference. Based upon the uncertainties surrounding the funding of the Plan, the amount of such expense, if any, is not estimable as of the date hereof. No such expense was recorded for book purposes related to the Maran/Shoen Eaton, L.S.S. and Thermar transactions. No provision has been made in the Company's financial statements for any payments to be made to the plaintiffs in the future. For the reasons set forth above, the Plan could have the effect of reducing the Company's net income. OTHER Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan", was issued by the Financial Accounting Standards Board in May 1993. This standard is effective for years beginning after December 15, 1994. The standard requires that an impaired loan's fair value be measured and compared to the recorded investment in the loan. If the fair value of the loan is less than the recorded investment in the loan, a valuation allowance is established. The Company adopted this statement during the first quarter of fiscal 1996, with no material impact on its financial condition or result of operations. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", was issued by the Financial Accounting Standards Board in March 1995. This standard is effective for fiscal years beginning after December 15, 1995, and establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. The Company does not expect a material impact on its future financial condition or results of operations due to implementation of the statement. 35 Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," was issued by the Financial Accounting Standards Board in October 1995. This standard is effective for transactions entered into in fiscal years that begin after December 15, 1995, and establishes a fair value-based method of accounting for stock options and other equity instruments. Under the fair value-based method of accounting, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. For stock options, fair value is determined using an option-pricing model that takes into account as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the risk-free interest rate for the expected term of the option. The Company has a stock option plan, but to date no stock options have been granted. The adoption of this statement is not expected to have a material effect on the Company's financial statements. Statement of Position 93-7, "Reporting on Advertising Costs", was 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 statement of position requires reporting advertising costs as expenses when incurred or when the advertising first takes place, reporting the costs of direct-response advertising, and amortizing (over the estimated period of benefit) the costs of direct-response advertising reported as assets. The Company had been recording yellow page directory costs as deferred assets and amortizing the costs over the duration of each listing. The majority of listings last one year. The Company adopted this statement effective April 1, 1995 recognizing additional advertising expense of $8.6 million upon implementation. The adoption had the effect of reducing net income by $5.5 million ($0.15 per share). Other pronouncements issued by the Financial Accounting Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. IMPACT OF INFLATION Inflation has had no material financial effect on the Company's results of operations in the years discussed. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants and Consolidated Financial Statements of the Company, including the notes to such statements, are set forth on pages 53 through 99 and are hereby incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT ING AND FINANCIAL DISCLOSURE The Registrants have had no disagreements with their independent accountant in regard to accounting and financial disclosure and have not changed their independent accountant during the two most recent fiscal years. 36 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Directors and/or Executive Officers of the Registrants as of June 24, 1996 were: Name Age Office ---- --- ------ Edward J. Shoen 47 Chairman of the Board and President of AMERCO and U-Haul Mark V. Shoen 45 Director of AMERCO and U-Haul James P. Shoen 36 Vice President of AMERCO; Director of AMERCO and U-Haul William E. Carty 69 Director of AMERCO and U-Haul Aubrey K. Johnson 74 Director of AMERCO John M. Dodds 59 Director of AMERCO and U-Haul Richard J. Herrera 42 Director of AMERCO and U-Haul Charles J. Bayer 56 Director of AMERCO Gary B. Horton 52 Treasurer of AMERCO and Assistant Treasurer of U-Haul Gary V. Klinefelter 48 Secretary and General Counsel of AMERCO and U-Haul John A. Lorentz 69 Assistant Secretary of AMERCO and U-Haul Rocky D. Wardrip 38 Assistant Treasurer of AMERCO Harry B. DeShong, Jr. 47 Director of U-Haul John C. Taylor 38 Director of U-Haul Donald W. Murney 35 Treasurer of U-Haul George R. Olds 54 Assistant Secretary of AMERCO and U-Haul 37 Class I (Term expires at 1995 Meeting) -------------------------------------- Aubrey K. Johnson, was a Director of the Company from 1987 until 1991. From 1991 until his re-election to the Board in August 1993, he served as a consultant and advisor to various organizations and individuals. Richard J. Herrera, a Director of AMERCO since September 1991 and of U-Haul since June 1990, has been associated with the Company since April 1988. He is presently the Vice President of Marketing, Retail Sales for U-Haul. Class II (Term expires at 1996 Meeting) --------------------------------------- William E. Carty, a Director of AMERCO since May 1987 and a Director of U-Haul since June 1990, has been associated with the Company since 1946. He has served in various executive positions in all areas of the Company. He served most recently as Product Director. Mr. Carty retired from the Company in December 1987. Charles J. Bayer, a Director of AMERCO since September 1990, has been associated with the Company since 1967. He has served in various executive positions and has served as President of Amerco Real Estate Company since September 1990. Class III (Term expires at 1997 Meeting) ---------------------------------------- James P. Shoen, a Director of AMERCO since December 1986, Vice President of AMERCO since May 1989 and Director of U-Haul since June 1990, has been associated with the Company since July 1976. He has served from April 1990 to present as Executive Vice President of U-Haul. John M. Dodds, a Director of AMERCO since September 1987, and Director of U-Haul since June 1990, has been associated with the Company since 1963. He served in regional field operations until December 1986, and served in national field operations until May 1994. Mr. Dodds retired from the Company in May 1994. Class IV (Term expires at 1994 Meeting) --------------------------------------- Edward J. Shoen has served as Director and Chairman of the Board of AMERCO since December 1986, as President since June 1987, as a Director of U-Haul since June 1990 and as the President of U-Haul since March 1991. Mr. Shoen has been associated with the Company since May 1971. Mr. Shoen has been an officer of Form Builders, Inc. since 1981. Mark V. Shoen has served as a Director of AMERCO since April 1990 and a Director of U-Haul since June 1990 and has served as President of U-Haul from June 1990 to March 1991. He has served from December 1990 to September 1994 as Executive Vice President of Product for U-Haul. He has served as President, Phoenix Operation, from September 1994 to present. Other Directors and Executive Officers -------------------------------------- Gary B. Horton, has served as Treasurer of AMERCO since 1982 and serves as Assistant Treasurer of U-Haul. His previous positions include Treasurer of U-Haul. He has been associated with the Company since October 1969. Gary V. Klinefelter, Secretary of AMERCO since July 1988, and Secretary of U-Haul since June 1990, is licensed as an attorney in Arizona and has served as General Counsel for AMERCO and U-Haul since June 1988. John A. Lorentz, Assistant Secretary of AMERCO since July 1988 and Assistant Secretary of U-Haul since June 1990, is licensed as an attorney in Oregon and has been associated with the Company since September 1953. His previous positions include Secretary of AMERCO and U-Haul. Rocky D. Wardrip, Assistant Treasurer of AMERCO since September 1990, has been associated with the Company since 1978 in various capacities within accounting and treasury operations. He was previously Assistant Treasurer of U-Haul from 1988 to 1990. Harry B. DeShong, Jr., Director of U-Haul since May 1992, has been associated with the Company since June 1964. He has served as Executive Vice President of U-Haul since November 1988. Mr. DeShong previously held a number of responsible positions in the Company's field management organization, including eight years as a U-Haul Marketing Company President. 38 John C. Taylor, Director of U-Haul since June 1990, has been associated with the Company since 1981. He is presently an Executive Vice President of U-Haul. Donald W. Murney has been Treasurer of U-Haul since June 1990. He was previously employed as the Senior Vice President and Chief Financial Officer of Coury Financial Services. George R. Olds, Assistant Secretary of AMERCO and U-Haul since February, 1993, has been associated with the Company since 1975 as a member of the U-Haul legal department specializing in taxation. Edward J., Mark V. and James P. Shoen are brothers. William E. Carty is the uncle of Edward J. and Mark V. Shoen. On February 21, 1995, Edward J. Shoen, James P. Shoen, William E. Carty, John M. Dodds, and Aubrey K. Johnson filed for protection under Chapter 11 of the federal bankruptcy laws in connection with certain litigation as more fully described in Item 3. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers, directors, and owners of ten percent or more of the Company's common stock to file ownership reports with the Securities and Exchange Commission. Failure to do so can result in substantial monetary penalties in addition to injunctive remedies. Based upon the Company's non-receipt of Section 16 reports required to be furnished to the Company, the persons and corporations listed below have failed to file reports required by Section 16(a) for the fiscal year ended March 31, 1996: L.S. Shoen Cecilia M. Hanlon L.S.S. Inc. Cemar, Inc. Michael L. Shoen Katrina M. Carlson Mickl Inc. Kattydid, Inc. Samuel W. Shoen Mary Anna Shoen-Eaton Sawmill, Inc. Maran, Inc. Theresa M. Romero Paul F. Shoen Thermar, Inc. Sophia M. Shoen Based on the stockholder agreements described in footnotes 1 and 2, pages 45 and 46, the foregoing persons and corporations, during the relevant reporting period, beneficially own more than ten percent of the Company's common stock. To the best of the Company's knowledge, based solely on a review of copies of Section 16 reports it has received, all filings required of the Company's officers and directors are current and in compliance with the Securities Exchange Act of 1934. 39 ITEM 11. EXECUTIVE COMPENSATION The following Summary Compensation Table shows the annual compensation paid to the Company's chief executive officer and the four other most highly compensated executive officers of the Company during each of the last three fiscal years. Summary Compensation Table Annual Compensation --------------------------------- All Other Name and Principal Salary Bonus Compensation Position Year ($) ($) ($) - ----------------------------------------------------------------------- Edward J. Shoen 1996 572,939 - 8,231 Chairman of the Board and President 1995 282,937 - 6,821 of AMERCO and U-Haul 1994 227,456 2,101,490 10,675 Mark V. Shoen 1996 325,255 - 8,231 Director of AMERCO and U-Haul 1995 310,053 - 6,821 1994 258,031 - 9,586 James P. Shoen 1996 240,251 - 8,231 Vice President and Director of AMERCO 1995 236,783 - 6,821 and Director of U-Haul 1994 241,877 - 9,227 Gary V. Klinefelter 1996 201,543 - 8,231 Secretary and General Counsel of AMERCO and 1995 206,312 54,000 6,821 U-Haul 1994 210,005 50,000 10,448 Harry B. DeShong, Jr. 1996 170,116 - 5,927 Director of U-Haul 1995 176,141 19,000 5,651 1994 159,588 - 6,440 The annual fee for all services as a director is $26,400, which is paid in equal monthly installments. The Company's regular board meetings are held quarterly in May, August, November and February. An annual meeting is held in the first month following the annual meeting of stockholders. Represents the value of common stock allocated under the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan. 40 REPORT ON EXECUTIVE COMPENSATION While the Company established a Compensation Committee in fiscal 1995 consisting of Charles J. Bayer, William E. Carty, and Aubrey K. Johnson, the entire Board of Directors reviewed and determined the amount of compensation paid to the Chairman of the Board and President for fiscal 1996. The determination was subjective and not subject to a specific criteria. Although the Board of Directors had primary authority with respect to compensation decisions for the Company's other executive officers during fiscal 1996, the Chairman of the Board and President has historically made these decisions with the counsel of individual Board members, subject to the ability of the full Board to revise or override these decisions. The Chairman of the Board and President has advised the Board that the compensation levels for the Company's executive officers during fiscal year 1996 did not bear a specific relationship to the Company's performance. Rather, executive compensation was set at levels designed to retain the Company's executive officers and was based on subjective factors such as his perception of each officer's performance and changes in functional responsibility. In addition to its involvement in executive compensation matters as described above, the Board of Directors determines the amount, if any, of the Company's contribution pursuant to the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan. The Company's stockholders approved a stock option plan at the 1992 Annual Meeting of Stockholders. The stock option plan is designed to attract and retain employees upon whose judgment and effort the Company's success is dependent. As of June 26, 1996, no awards had been made under such plan. Charles J. Bayer Aubrey K. Johnson William E. Carty COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of Charles J. Bayer, William E. Carty, and Aubrey K. Johnson. Mr. Bayer is President of Amerco Real Estate Company, one of the Company's subsidiaries. Mr. Carty served in various executive positions in all areas of the Company until his retirement in 1987. In May 1990, William E. Carty sold 40,684 shares of the Company's common stock to the ESOP Trust at the then-appraised value of $10.00 per share. The ESOP Trust purchased the shares for cash in the amount of $76,840 and a promissory note for $330,000. The note is payable in six annual installments at an interest rate of 9.6%. Performance on the note is guaranteed by the Company. The Company has agreed to fund the plans of reorganization filed by William E. Carty and Aubrey K. Johnson under Chapter 11 of the federal bankruptcy laws, as discussed in "Item 3. Legal Proceedings". 41 PERFORMANCE GRAPH The following graph compares the cumulative total stockholder return on the Company's Common Stock for the period March 31, 1991 through March 31, 1996 with the cumulative total return on the Dow Jones Composite Average and the Dow Jones Transportation Average. The comparison assumes that $100 was invested on March 31, 1991 in the Company's Common Stock and in each of the comparison indices. Because no active trading market for the Company's Common Stock existed prior to November 1994, the graph reflects the annual Common Stock appraisals obtained in connection with the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan for 1991 through 1994 and the closing price of the Common Stock trading on Nasdaq on March 31, 1995 and 1996. (The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T.) 1991 1992 1993 1994 1995 1996 ------ ------ ------ ------ ------ ------ AMERCO 100.00 117.39 168.48 184.78 232.34 263.59 Dow Jones Transportation Average 100.00 112.25 123.60 125.39 134.15 175.28 Dow Jones Composite Average 100.00 124.72 141.51 147.38 147.43 193.97 42 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the best of the Company's knowledge, the following table lists, as of June 24, 1996, (i) the beneficial ownership of Common Stock of each director and director nominee of the Company, of each executive officer named in Item 11, of all directors and executive officers of the Company as a group, and of those persons who beneficially own more than five percent (5%)of the Company's common stock; and (ii) the beneficial ownership of each director and director nominee of the Company, of each executive officer named in Item 11, and of all directors and executive officers of the Company as a group, of the percentage of net payments made by the Company during the 1996 fiscal year in respect of fleet-owner contracts issued by U-Haul. PERCENTAGE OF SHARES OF NET FLEET NAME AND COMMON STOCK PERCENTAGE OWNER ADDRESS OF BENEFICIALLY OF COMMON CONTRACT BENEFICIAL OWNER OWNED STOCK CLASS PAYMENTS - ---------------- ------------ ----------- ------------- Edward J. Shoen 16,710,981 50.96 .009 Chairman of the Board and President 2727 N. Central Ave. Phoenix, AZ 85004 Mark V. Shoen 16,710,981 50.96 .011 Director 2727 N. Central Ave. Phoenix, AZ 85004 James P. Shoen 16,710,981 50.96 .021 Director and Vice President 1325 Airmotive Way Suite 100 Reno, NV 89502 Paul F. Shoen 16,710,981 50.96 .007 P.O. Box 524 Glenbrook, NV 89413 Sophia M. Shoen 16,710,981 50.96 .019 5104 N. 32nd Street Phoenix, AZ 85018 Irrevocable Trust 16,710,981 50.96 N/A between Edward J. Shoen and Oxford Life Insurance Company, as Trustee 2721 N. Central Ave. Phoenix, AZ 85004 43 PERCENTAGE OF SHARES OF NET FLEET NAME AND COMMON STOCK PERCENTAGE OWNER ADDRESS OF BENEFICIALLY OF COMMON CONTRACT BENEFICIAL OWNER OWNED STOCK CLASS PAYMENTS - ---------------- ------------ ----------- ------------- Irrevocable Trust 16,710,981 50.96 N/A between Mark V. Shoen and Oxford Life Insurance Company, as Trustee 2721 N. Central Ave. Phoenix, AZ 85004 Irrevocable Trust 16,710,981 50.96 N/A between James P. Shoen and Oxford Life Insurance Company, as Trustee 2721 N. Central Ave. Phoenix, AZ 85004 Irrevocable Trust 16,710,981 50.96 N/A between Paul F. Shoen and Oxford Life Insurance Company, as Trustee 2721 N. Central Ave. Phoenix, AZ 85004 Irrevocable Trust 16,710,981 50.96 N/A between Sophia M. Shoen and Oxford Life Insurance Company, as Trustee 2721 N. Central Ave. Phoenix, AZ 85004 The ESOP Trust 16,710,981 50.96 N/A 2727 N. Central Ave. Phoenix, AZ 85004 John M. Dodds 0 0 N/A Director 2727 N. Central Ave. Phoenix, AZ 85004 William E. Carty 0 0 .062 Director 2727 N. Central Ave. Phoenix, AZ 85004 Charles J. Bayer 1,325 ** .004 Director 2727 N. Central Ave. Phoenix, AZ 85004 44 PERCENTAGE OF SHARES OF NET FLEET NAME AND COMMON STOCK PERCENTAGE OWNER ADDRESS OF BENEFICIALLY OF COMMON CONTRACT BENEFICIAL OWNER OWNED STOCK CLASS PAYMENTS - ---------------- ------------ ----------- ------------- Richard J. Herrera 981 ** N/A Director 2727 N. Central Ave. Phoenix, AZ 85004 Aubrey K. Johnson 0 0 N/A Director 2727 N. Central Ave. Phoenix, AZ 85004 Gary V. Klinefelter 2,320 ** N/A Secretary and General Counsel 2727 N. Central Ave. Phoenix, AZ 85004 Harry DeShong 1,772 ** N/A Director of U-Haul 2727 N. Central Ave. Phoenix, AZ 85004 Samuel W. Shoen 12,426,836 37.90 .008 (Katabasis, Inc.)* 1253 Umatilla Street Port Townsend, WA 98368 Michael L. Shoen 12,426,836 37.90 N/A (Mickl, Inc.)* 8202 N.W. 16th Ave. Vancouver, WA 98665 Cecilia M. Hanlon 12,426,836 37.90 .029 (Cemar, Inc.)* 1421 Ranier Falls Drive Atlanta, GA 30329 Katrina M. Carlson 12,426,836 37.90 .057 (Kattydid, Inc.)* 837 15th Street #D Santa Monica, CA 90404 Executive Officers and 16,724,227 51.00 N/A Directors as a group (16 persons) 45 *This corporation is the record owner of the shares of Common Stock beneficially owned by the named individual. To the best of the Company's knowledge, the named individual has sole voting control of the corporation that is the record owner of the Common Stock. **The percentage of the referenced class beneficially owned is less than one percent. This number includes beneficial ownership of shares attributed to a stockholder agreement dated as of May 1, 1992, as amended (the Stockholder Agreement) and includes shares directly owned by Edward J. Shoen (3,483,681); Mark V. Shoen (3,475,520); James P. Shoen (2,278,814); Paul F. Shoen (2,446,058); Sophia M. Shoen (1,638,472); an Irrevocable Trust between Mark V. Shoen and Oxford Life Insurance Company (Oxford), as Trustee (527,604); an Irrevocable Trust between James P. Shoen and Oxford, as Trustee (337,426); an Irrevocable Trust between Paul F. Shoen and Oxford, as Trustee (71,976); an Irrevocable Trust between Sophia M. Shoen and Oxford, as Trustee (108,891); an Irrevocable Trust between Edward J. Shoen and Oxford, as Trustee (559,443); and The ESOP Trust (1,783,096) (collectively the "Stockholder Group"). The shares listed as held by the ESOP Trust include only the unallocated Common Stock and the Common Stock allocated to the accounts of Edward J. Shoen (2,771.59), Mark V. Shoen (2,496.99), James P. Shoen (2,465.92), Paul F. Shoen (779.33), and Sophia M. Shoen (196.87). These shares are not included in the number of shares directly owned by Edward J. Shoen, Mark V. Shoen, James P. Shoen, Paul F. Shoen, and Sophia M. Shoen, as referenced in the first sentence of this footnote 1. The Stockholder Agreement restricts the disposition of shares of Common Stock to certain types of permitted dispositions. James P. Shoen, whose address is listed above, is the appointed attorney and authorized to vote the shares as agreed upon by the stockholders holding a majority of the shares subject to the Stockholder Agreement. As of the date of this Form 10-K, Edward J. Shoen, Mark V. Shoen, and James P. Shoen, each of whom is a director of the Company, collectively hold a majority of the shares subject to the Stockholder Agreement and, therefore, have the ability, if they so agree, to control the vote of the Common Stock that is subject to the Stockholder Agreement. The Stockholder Agreement will expire on March 5, 1999 unless earlier terminated (i) by the consent of stockholders holding more than 60% of the shares held under the Stockholder Agreement, (ii) upon the effective date of certain mergers or consolidations involving the Company, or (iii) at the respective election of Paul F. Shoen or Sophia M. Shoen, upon the Company's failure to effect the registration of securities held by them. The information about the Stockholder Agreement contained in this footnote was obtained from one or more Schedule 13D filings. See footnote 3 below for information about the ESOP Trust and the ESOP Trustee's ability to vote the Common Stock held in the ESOP Trust. This number includes beneficial ownership of shares attributed to a shareholders' agreement and includes shares directly owned by Samuel W. Shoen/Katabasis, Inc. (4,041,924); Michael L. Shoen/Mickl, Inc. (4,036,304); Cecilia M. Hanlon/Cemar, Inc. (2,331,984); and Katrina M. Carlson/Kattydid, Inc. (2,016,624). The agreement, dated as of September 14, 1991, provides for the voting of the subject shares at the direction of a majority of the shareholders (on the basis of one vote per shareholder) party to the agreement. Michael L. Shoen, whose address is listed above, has been granted a proxy to vote the shares as agreed upon by a majority of the shareholders. Unless earlier terminated by a majority of the shareholders, the agreement will terminate on January 1, 2001. The information about the shareholders' agreement contained in this footnote was obtained from one or more Schedule 13D filings. Accordingly, the Company assumes no responsibility for its accuracy. The complete name of the ESOP Trust is the ESOP Trust Fund for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Trust. The ESOP Trustee, which consists of three individuals without a past or present employment history or business relationship with the Company, is appointed by the Company's Board of Directors. Under the ESOP, each participant (or such participant's beneficiary) in the ESOP directs the ESOP Trustee with respect to the voting of all common stock allocated to the participant's account. All shares in the ESOP Trust not allocated to participants continue to be voted by the ESOP Trustee, subject to the Stockholder Agreement. As of June 24, 1996, of the 3,184,237 shares of common stock held by the ESOP Trust, 1,409,852 shares were allocated to participants and 1,774,385 shares remained unallocated. Of 46 the 1,409,852 allocated shares, approximately 8,711 shares are allocated to members of the Stockholder Group, which shares are voted in accordance with the terms of the Stockholder Agreement. Further, additional shares of common stock not presently allocated to participants' accounts in the ESOP Trust will be allocated as certain debt obligations of the ESOP Trust are repaid, resulting in a further reduction in the number of common shares subject to the Stockholder Agreement. The 16,724,227 shares include the shares beneficially owned by directors and executive officers as a result of the Stockholders Agreement discussed in footnote 1 above. Beneficial ownership of the shares of current officers and directors, without giving effect to Stockholder Agreement, discussed in Note 17 of Notes to Consolidated Financial Statements is 10,683,468 shares, or approximately 32.58% of the outstanding shares of Common Stock as of June 24, 1996. The executive officers and directors as a group beneficially own 27,872 shares (0.46%) of the Company's Series A 8 1/2% Preferred Stock. Edward J. Shoen, Mark V. Shoen and William E. Carty beneficially own 12,600 shares (0.21%), 7,700 shares (0.13%) and 6,000 shares (0.10%), respectively. 47 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has agreed to fund the plans of reorganization filed by Edward J. Shoen, James P. Shoen, William E. Carty, Aubrey K. Johnson, and John M. Dodds under Chapter 11 of the federal bankruptcy laws, as described in "Item 3. Legal Proceedings". Edward J. Shoen and James P. Shoen are major stockholders, directors, and officers of the Company. William E. Carty, Aubrey K. Johnson, and John M. Dodds are directors of the Company. On December 18, 1995, the Company reimbursed Paul F. Shoen $1,500,000 for a payment made to the plaintiffs in partial satisfaction of the judgment in the Shoen Litigation. Paul F. Shoen is a major stockholder and is the brother of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On May 31, 1995, the Company purchased 45,000 shares of the Company's Common Stock from Paul F. Shoen, a major stockholder of the Company, for $996,000 or $22.125 per share. The transaction was effected on Nasdaq. On October 18, 1995, pursuant to the judgment in the Shoen Litigation, the Company repurchased 3,343,076 shares of Common Stock held by Maran, Inc. in exchange for approximately $22,733,000 and entered into a Settlement Agreement with Mary Anna Shoen Eaton (Shoen Eaton) whereby in exchange for approximately $41,352,000, Shoen Eaton released the Director-Defendants and the Company from any liability relating to the Shoen Litigation. Shoen Eaton owns all of the voting stock of Maran, Inc. and is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. See "Item 3. Legal Proceedings". On January 30, 1996, pursuant to the judgment in the Shoen Litigation, the Company repurchased 833,420 shares of Common Stock held by L.S.S., Inc. (L.S.S.) in exchange for approximately $5,667,000 and funded damages to L.S. Shoen of approximately $15,433,000. The Company also funded a total of approximately $2,018,000 of statutory post-judgment interest on the above amounts. L.S. Shoen owns all the voting stock of L.S.S. and is the father of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. See "Item 3. Legal Proceedings". On February 7, 1996, pursuant to the judgment in the Shoen Litigation, the Company repurchased 1,651,644 shares of Common Stock held by Thermar, Inc. (Thermar) by paying approximately $41,785,000, including damages. The Company also paid to Thermar approximately $4,110,000 of statutory post-judgment interest on such amount. Thermar's major stockholder, Theresa M. Romero, is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. See "Item 3. Legal Proceedings". Pursuant to a Management Consulting Agreement, dated as of May 1, 1992, Sophia M. Shoen agreed to provide environmental and other consulting services to the Company. In consideration for these services, the Company agreed to pay Sophia M. Shoen a yearly fee of $100,000. The Management Consulting Agreement terminated May 1, 1995. Sophia M. Shoen is a major stockholder of the Company and is the sister of Edward, J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. During fiscal 1996, a tow dolly fleet owned by SAMLO, whose partners include L.S., Samuel W., Michael L., Mark V., Jacqueline Y., Paul F., James P., Sophia M., Bente B., and Esben L.B. Shoen, Theresa M. Romero, Katrina M. Carlson, and Asia A. and Maxwell L. Eaton, generated net operating revenues of $35,000. Mark V. and James P. Shoen are major stockholders and directors of the Company. L.S., Samuel W., Paul F., Sophia M., and Michael L. Shoen, Theresa M. Romero and Katrina M. Carlson are or were major stockholders of the Company during fiscal 1996. During fiscal year 1996, U-Haul purchased $3,122,000 of printing from Form Builders, Inc. Edward J. Shoen is an officer of Form Builders, Inc. and Mark V. Shoen and his minor child are major stockholders of Form Builders, Inc. 48 During fiscal year 1996, U-Haul purchased $1,558,000 of computer hardware from Computer Universe. James P. Shoen's family trust was a stockholder of Computer Universe until June 1, 1996. Pursuant to the conflict of interest policy of the Company, outside legal counsel evaluated the Computer Universe transaction and determined that it was fair to the Company. During fiscal 1996, a subsidiary of the Company received principal payments of $1,214,000, interest payments of $5,905,000 and management fees of $943,000 from SAC Self-Storage Corporation (SAC). Mark V. Shoen, a major stockholder, director and officer of the Company owned all of the issued and outstanding voting common stock of SAC. SAC Non-Business Trust holds the non-voting common stock. During fiscal 1995, a subsidiary of the Company made a loan to SAC in the total principal amount of $54,671,000 for the purchase of 44 self-storage properties by SAC. Of the 44 SAC properties, SAC acquired 24 from the Company or its subsidiaries at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently being managed by the Company pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. The SAC loan consists of a senior note and a junior note with outstanding balances at March 31, 1996 of $44,286,000 and $9,170,000, respectively, bearing interest rates of 8.25% and 13.0%, respectively. The largest aggregate amount outstanding during the year was $54,671,000. During fiscal 1996, a subsidiary of the Company received principal payments of $591,000, interest payments of $2,546,000 and management fees of $170,000 from TWO SAC Self-Storage Corporation (TWO SAC). Mark V. Shoen, a major stockholder, director and officer of the Company owned all of the issued and outstanding voting common stock of TWO SAC. SAC Non-Business Trust holds the non-voting common stock. During fiscal 1996 and 1995, a subsidiary of the Company funded a loan to TWO SAC in the total principal amount of $51,168,000 for the purchase of 38 self-storage properties. Of the 38 TWO SAC properties, TWO SAC acquired 27 from the Company or its subsidiaries at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently managed by the Company pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. The TWO SAC Loan consists of a senior note and a junior note with outstanding balances at March 31, 1996 of $43,532,000 and $7,637,000, respectively, bearing interest rates of 8.25% and 13.0%, respectively. The largest aggregate amount outstanding during the year was $51,168,000. On March 5, 1996, SAC and TWO SAC merged to form a new corporation, Three SAC Self-Storage Corporation (Three SAC). Three SAC's voting common stock is owned by SAC Holding Corporation (SAC Holding) and the non-voting preferred stock is owned by SAC Non- Business Trust. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director and officer of the Company. Subsequent to year end, a subsidiary of the Company received principal payments of $348,000, interest payments of $1,544,000 and management fees of $492,000 from Three SAC. The SAC Non-Business Trust dated as of May 24, 1995 with IBJ Schroder Bank & Trust Company as Trustee, owns all of the issued and outstanding nonvoting preferred stock of Three SAC. Three SAC is capitalized with a contribution of 184,000 shares of Mark V. Shoen's AMERCO common stock. Three SAC has indicated to the Company that it intends, after reserving sufficient funds for expenses and other reasonable amounts, to distribute any remaining Three SAC funds to the SAC Non-Business Trust. The SAC Non- Business Trust is required to distribute funds to its Beneficiary, which must be a non-profit entity benefiting the college age children of the Company's employees. At present, the Beneficiary is the U-Haul Scholarship Foundation, which exists to award scholarships to the children of the Company's qualifying employees. All scholarships will be awarded on behalf of the U-Haul Scholarship Foundation by an independent panel of educators. Subsequent to year end, a subsidiary of the Company funded the purchase of five properties by Four SAC Self-Storage Corporation (Four SAC) for an amount of approximately $5,630,000. Four SAC is owned by SAC Holding. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director, and officer of the Company. Four SAC acquired one property from a subsidiary of the Company at a purchase price equal to the Company's acquisition cost plus 49 capitalized costs. Such properties are currently managed by the Company under which the Company will receive a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. In May 1990, William E. Carty sold 40,684 shares of the Company's common stock to the ESOP Trust at the then-appraised value of $10.00 per share. The ESOP Trust purchased the shares for cash in the amount of $76,840 and a promissory note for $330,000. The note is payable in six annual installments at an interest rate of 9.6%. Performance on the note is guaranteed by the Company. William E. Carty is a director of the Company. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's- length transactions. 50 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: Page No. ------- 1. Financial Statements Report of Independent Accountants - AMERCO and Consolidated Subsidiaries 53 Consolidated Balance Sheets - March 31, 1996 and 1995 54 Consolidated Statements of Earnings - Years ended March 31, 1996, 1995 and 1994 56 Consolidated Statements of Changes in Stockholders' Equity - Years ended March 31, 1996, 1995 and 1994 57 Consolidated Statements of Cash Flows - Years ended March 31, 1996, 1995 and 1994 59 Notes to Consolidated Financial Statements - March 31, 1996, 1995 and 1994 61 2. Additional Information Summary of Earnings of Independent Trailer Fleets 100 Notes to Summary of Earnings of Independent Trailer Fleets 101 3. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14 Condensed Financial Information of Registrant -- Schedule I 103 Supplemental Information (for Property-Casualty Insurance Underwriters) -- Schedule V 108 All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes. 51 3. Exhibits Filed Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen 3.1 Restated Articles of Incorporation 3.2 Restated By-Laws of AMERCO as of August 15, 1995 4.1 Debt Securities Indenture 4.2 First Supplemental Indenture, Dated as of May 6, 1996 10.1 AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.2 U-Haul Dealership Contract 10.3 Share Repurchase and Registration Rights Agreement 10.4 Share Repurchase and Registration Rights Agreement 10.5 ESOP Loan Credit Agreement 10.6 ESOP Loan Agreement 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership 10.8 Amended Indemnification Agreement 10.9 Indemnification Trust Agreement 10.10 W.E. Carty Installment Sales Agreement 10.11 Promissory Notes between SAC Self-Storage Corporation and a subsidiary of AMERCO 10.12 Promissory Notes between Two SAC Self-Storage Corporation and a subsidiary of AMERCO 10.13 Management Agreement between SAC Self-Storage Corporation and a subsidiary of AMERCO 10.14 Management Agreement between SAC Self-Storage Corporation and a subsidiary of AMERCO 10.15 Settlement Agreement, dated September 19, 1995, among Mary Anna Shoen Eaton, Maran, Inc., Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, William E. Carty and AMERCO 10.16 Full and Final Release of All Claims, dated September 19, 1995, executed by Maran, Inc., Mary Anna Shoen Eaton and Timothy Eaton 10.17 Full and Final Release of All Claims, dated September 19, 1995, executed by AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E.Carty 10.18 Stock Purchase Agreement, dated September 19,1995 among Mary Anna Shoen Eaton, Maran, Inc., Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty 10.19 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty 10.20 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO 10.21 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty 10.22 Settlement Agreement with Paul F. Shoen 12 Statements re Computation of Ratios 21 Subsidiaries of AMERCO 27 Financial Data Schedule P28 Information Furnished to State Insurance Regulators 52 3. Exhibits Filed ________________ Incorporated by reference to the Company's Registration Statement on Form S-3, Registration no. 333-1195. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 0- 7862. Incorporated by reference to the Company Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 0-7862. Incorporated by reference to the Company's Report on Form 8-K, dated May 6, 1996. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 0-7862. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 0-7862. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 0- 7862. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 0- 7862. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1995, file no. 0-7862. Filed in paper under cover of Form S-E. (b) No report on Form 8-K has been filed during the last quarter of the period covered by this report. 53 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Stockholders of AMERCO In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (3) on page 50 present fairly, in all material respects, the financial position of AMERCO and its subsidiaries at March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for advertising costs in fiscal 1996. As discussed in Note 11 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits in fiscal 1994. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Summary of Earnings of Independent Trailer Fleets included on pages 100 through 102 of this Form 10-K is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. PRICE WATERHOUSE LLP Phoenix, Arizona June 25, 1996 54 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets March 31, Assets 1996 1995 ----------------------- (in thousands) Cash and cash equivalents $ 31,168 35,286 Receivables 340,564 311,752 Inventories 45,891 50,337 Prepaid expenses 16,415 25,933 Investments, fixed maturities 879,702 705,428 Investments, other 126,587 135,220 Deferred policy acquisition costs 49,995 49,244 Other assets 20,941 18,543 ----------------------- Property, plant and equipment, at cost: Land 212,593 214,033 Buildings and improvements 769,380 735,624 Furniture and equipment 188,734 179,016 Rental trailers and other rental equipment 256,411 245,892 Rental trucks 968,131 913,641 General rental items 24,197 51,890 ----------------------- 2,419,446 2,340,096 Less accumulated depreciation 1,102,731 1,065,850 ----------------------- Total property, plant and equipment 1,316,715 1,274,246 ----------------------- $ 2,827,978 2,605,989 ======================= [FN] The accompanying notes are an integral part of these consolidated financial statements. 55 Liabilities and Stockholders' Equity 1996 1995 ----------------------- (in thousands) Liabilities: Accounts payable and accrued liabilities $ 151,754 127,613 Notes and loans 998,220 881,222 Policy benefits and losses, claims and loss expenses payable 483,561 475,187 Liabilities from premium deposits 410,787 304,979 Cash overdraft 32,159 31,363 Other policyholders' funds and liabilities 25,713 20,378 Deferred income 2,926 7,426 Deferred income taxes 73,310 71,037 ----------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized; 6,100,000 shares issued without par value and outstanding as of March 31, 1996 and 1995 - - Serial common stock, with or without par value, 150,000,000 shares authorized, none issued and outstanding - - Series A common stock of $0.25 par value, 10,000,000 shares authorized, 5,762,495 shares issued in 1996 and 1995 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized, 34,237,505 shares issued in 1996 and 1995 8,559 8,559 Additional paid-in capital 165,756 165,675 Foreign currency translation adjustment (11,877) (12,435) Unrealized gain (loss) on investments 11,097 (6,483) Retained earnings 609,019 561,589 ----------------------- 783,995 718,346 Less: Cost of common shares in treasury (7,209,077 and 1,335,937 shares as of March 31, 1996 and 1995, respectively) 111,118 10,461 Unearned employee stock ownership plan shares 23,329 21,101 ----------------------- Total stockholders' equity 649,548 686,784 Contingent liabilities and commitments ----------------------- $ 2,827,978 2,605,989 ======================= [FN] The accompanying notes are an integral part of these consolidated financial statements. 56 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Years ended March 31, 1996 1995 1994 ---------------------------------- (in thousands except per share data) Revenues Rental and other revenue $ 920,379 888,295 811,705 Net sales 173,806 170,204 156,038 Premiums 154,249 135,648 123,344 Net investment income 45,989 42,085 38,807 ------------------------------------ Total revenues 1,294,423 1,236,232 1,129,894 Costs and expenses Operating expense 732,841 656,693 612,409 Advertising expense 38,926 29,124 26,292 Cost of sales 108,662 93,485 92,179 Benefits and losses 151,232 133,407 120,825 Amortization of deferred acquisition costs 17,131 10,896 9,343 Depreciation 81,847 151,409 133,485 Interest expense 67,558 67,762 68,859 ------------------------------------ Total costs and expenses 1,198,197 1,142,776 1,063,392 Pretax earnings from operations 96,226 93,456 66,502 Income tax expense (35,832) (33,424) (19,853) ------------------------------------ Earnings from operations before extraordinary loss on early extinguishment of debt and cumulative effect of change in accounting principle 60,394 60,032 46,649 Extraordinary loss on early extinguishment of debt, net - - (3,370) Cumulative effect of change in accounting principle, net - - (3,095) ------------------------------------ Net earnings $ 60,394 60,032 40,184 ==================================== Earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt and cumulative effect of change in accounting principle $ 1.33 1.23 1.06 Extraordinary loss on early extinguishment of debt, net - - (.09) Cumulative effect of change in accounting principle, net - - (.08) ------------------------------------ Net earnings $ 1.33 1.23 .89 ==================================== Weighted average common shares outstanding 35,736,335 38,190,552 38,664,063 ==================================== [FN] The accompanying notes are an integral part of these consolidated financial statements. 57 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended March 31, 1996 1995 1994 --------------------------- (in thousands) Series A common stock of $0.25 par value: 10,000,000 shares authorized, 5,762,495 shares issued in 1996 and 1995, 5,754,334 in 1994 Beginning of year $ 1,441 1,438 - Exchange for Series A common stock - 871 1,438 Exchange for common stock - (868) - ----------------------------- End of year 1,441 1,441 1,438 ----------------------------- Common stock of $0.25 par value: 150,000,000 shares authorized in 1996, 1995 and 1994, 34,237,505 shares issued in 1996 and 1995, 34,245,666 in 1994 Beginning of year 8,559 8,562 10,000 Exchange for Series A common stock - (871) (1,438) Exchange for common stock - 868 - ----------------------------- End of year 8,559 8,559 8,562 ----------------------------- Additional paid-in capital: Beginning of year 165,675 165,651 19,331 Issuance of preferred stock - - 146,320 Issuance of common shares under leveraged employee stock ownership plan 81 24 - ----------------------------- End of year 165,756 165,675 165,651 ----------------------------- Foreign currency translation: Beginning of year (12,435) (11,152) (6,122) Change during year 558 (1,283) (5,030) ----------------------------- End of year (11,877) (12,435) (11,152) ----------------------------- Unrealized gains (losses) on investments: Beginning of year (6,483) 679 - Change during year 17,580 (7,162) 679 ----------------------------- End of year 11,097 (6,483) 679 ----------------------------- [FN] The accompanying notes are an integral part of these consolidated financial statements. 58 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity, continued Years ended March 31, 1996 1995 1994 --------------------------- (in thousands) Retained earnings: Beginning of year 561,589 514,521 482,163 Net earnings 60,394 60,032 40,184 Dividends paid to stockholders: Preferred stock: ($2.13, $2.13 and $0.78 per share for 1996, 1995 and 1994, respectively) (12,964) (12,964) (4,753) Common stock: ($0.08 per share for 1994) - - (3,147) Tax benefits related to leveraged employee stock ownership plan dividends - - 74 ----------------------------- End of year 609,019 561,589 514,521 ----------------------------- Less Treasury stock: Beginning of year 10,461 10,461 10,461 Net increase (5,873,140 shares in 1996) 100,657 - - ----------------------------- End of period 111,118 10,461 10,461 ----------------------------- Less Unearned employee stock ownership plan shares: Beginning of year 21,101 17,451 14,953 Increase in loan 4,576 5,672 4,335 Proceeds from loan (2,348) (2,022) (1,837) ----------------------------- End of year 23,329 21,101 17,451 ----------------------------- Total stockholders' equity $ 649,548 686,784 651,787 ============================= [FN] The accompanying notes are an integral part of these consolidated financial statements. 59 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years ended March 31, 1996 1995 1994 ----------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 60,394 60,032 40,184 Depreciation and amortization 102,427 163,890 148,740 Provision for losses on accounts receivable 4,492 4,958 1,938 Net (gain) loss on sale of real and personal property 2,142 (3,390) (2,114) Gain on sale of investments (5,172) (868) (4,195) Cumulative effect of change in accounting principle - - 3,095 Changes in policy liabilities and accruals 20,010 32,489 13,330 Additions to deferred policy acquisition costs (21,507) (12,119) (7,440) Net change in other operating assets and liabilities (10,882) (22,848) 9,312 ------------------------------ Net cash provided by operating activities 151,904 222,144 202,850 Cash flows from investing activities: Purchases of investments: Property, plant and equipment (291,057) (434,992) (530,520) Fixed maturities (332,155) (186,000) (280,345) Real estate (8,127) (11,576) (176) Mortgage loans (10,560) (107,571) (64,467) Proceeds from sales of investments: Property, plant and equipment 165,490 185,098 214,543 Fixed maturities 190,846 192,428 211,437 Real estate 2,749 927 1,552 Mortgage loans 29,447 18,535 81,619 Changes in other investments 9,169 (12,327) 8,539 ------------------------------ Net cash used by investing activities (244,198) (355,478) (357,818) [FN] The accompanying notes are an integral part of these consolidated financial statements. 60 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended March 31, 1996 1995 1994 ----------------------------- (in thousands) Cash flows from financing activities: Net change in short-term borrowings 84,500 178,750 21,750 Proceeds from notes 140,141 68,845 186,000 Debt issuance costs (1,663) (1,422) (531) Loan to leveraged Employee Stock Ownership Plan (4,576) (5,672) (4,335) Proceeds from leveraged Employee Stock Ownership Plan 2,348 2,022 1,837 Principal payments on notes (107,643) (90,137) (181,107) Issuance of preferred stock - - 146,320 Extraordinary loss on early extinguishment of debt - - (3,370) Net change in cash overdraft 796 4,804 1,708 Dividends paid (12,964) (12,964) (7,900) Treasury stock acquisitions (100,657) - - Investment contract deposits 163,423 65,386 31,932 Investment contract withdrawals (75,529) (59,434) (40,185) ------------------------------ Net cash provided by financing activities 88,176 150,178 152,119 ------------------------------ Increase (decrease) in cash and cash equivalents (4,118) 16,844 (2,849) Cash and cash equivalents at beginning of year 35,286 18,442 21,291 ------------------------------ Cash and cash equivalents at end of year $ 31,168 35,286 18,442 ============================== [FN] The accompanying notes are an integral part of these consolidated financial statements. 61 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 1996, 1995 and 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (the Company), is the holding company for U-Haul International, Inc. (U-Haul), Ponderosa Holdings, Inc. (Ponderosa), and Amerco Real Estate Company (AREC). All references to a fiscal year refer to the Company's fiscal year ended March 31 of that year. See Note 20 of Notes to Consolidated Financial Statements for financial information regarding the Company's three primary industry segments, which are represented by U-Haul and Ponderosa's two principal subsidiaries. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its subsidiaries, all of which are wholly-owned. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The operating results and financial position of AMERCO's consolidated insurance operations are determined as of December 31 of each year. There were no effects related to intervening events between January 1 and March 31 of 1996, 1995 or 1994, that would materially affect the consolidated financial position or results of operations for the financial statements presented herein. See Note 19 of Notes to Consolidated Financial Statements for additional information regarding the subsidiary. DESCRIPTION OF BUSINESS U-Haul is primarily engaged, through subsidiaries, in the rental of trucks, automobile-type trailers and support rental items to the do- it-yourself moving customer. The Company's do-it-yourself moving business operates under the registered tradename U-Haul (registered trademark) through an extensive and geographically diverse distribution network throughout the United States and Canada. Additionally, U-Haul sells related products (such as boxes, tapes and packaging materials) and rents various kinds of equipment (such as floor polishing and carpet cleaning equipment). In addition, U-Haul offers for rent self-storage space through Company-owned or managed locations. Ponderosa serves as the holding company for the Company's insurance businesses. Ponderosa's two principal subsidiaries are Oxford Life Insurance Company (Oxford) and Republic Western Insurance Company (RWIC). Oxford and RWIC have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1995, 1994, and 1993 corresponds to the Company's fiscal years 1996, 1995, and 1994, respectively. Oxford primarily reinsures life, health, and annuity type insurance products and administers the Company's self-insured employee health plan. RWIC originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, the Company's customers, and the Company. RWIC's principal strategy is to capitalize on its knowledge of insurance products aimed at the moving and rental markets. AREC owns and actively manages most of the Company's real estate assets, including the Company's U-Haul Center locations. In addition to its U-Haul operations, AREC actively seeks to lease or dispose of the Company's surplus properties. 62 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued FOREIGN CURRENCY The consolidated financial statements include the accounts of U- Haul Co. (Canada) Ltd., a subsidiary of AMERCO. Assets and liabilities, denominated in currencies other than U.S. dollars, are translated to U.S. dollars at the exchange rate as of the balance sheet date. Income and expense amounts are translated at the average exchange rate during the fiscal year. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers liquid investments with an original maturity of three months or less to be cash equivalents. RECEIVABLES Accounts receivable of Ponderosa include premiums and agents' balances due, net of commissions payable, and amounts due from ceding reinsurers. Accounts receivable of Ponderosa are reduced by amounts considered by management to be uncollectible. Accounts receivable of the Company's rental subsidiaries principally include trade accounts receivable and mortgage and other notes receivable. Accounts receivable are reduced by amounts considered by management to be uncollectible based on historical collection loss experience and a review of the current status of existing receivables by the Company's rental subsidiaries. INVENTORIES Inventories are primarily valued at the lower of cost (last-in first-out) (LIFO) or market. INVESTMENTS Fixed maturity investments classified as held-to-maturity are recorded at cost adjusted for the amortization of premiums or accretion of discounts while those classified as available-for-sale are recorded at fair value with unrealized gains or losses reported on a net basis as a separate component of shareholders' equity. The Company does not maintain a trading portfolio. Mortgage loans on real estate are carried at unpaid balances, net of allowance for possible losses and any unamortized premium or discount. Real estate is carried at cost less accumulated depreciation. Policy loans are carried at their unpaid balance. Impaired securities are written down to fair value which becomes the new cost basis. Fair values for investments are based on quoted market prices or dealer quotes. Short-term investments consist of other securities scheduled to mature within one year of their acquisition date. See Note 4 of Notes to Consolidated Financial Statements. Interest on bonds and mortgage loans is recognized when earned. Dividends on common and redeemable preferred stocks are recognized on ex-dividend dates. Realized gains and losses on the sale of investments are recognized at the trade date and included in net income using the specific identification method. 63 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued DEFERRED POLICY ACQUISITION COSTS Commissions and other costs incurred in acquiring traditional life insurance, interest sensitive annuity policies, accident and health insurance and property-casualty insurance which vary with and are primarily related to the production of new business, have been deferred. Traditional life, certain annuity and accident and health acquisition costs are amortized over the premium paying period of the related policies in proportion to the ratio of annual premium income to expected total premium income. Such expected premium income is estimated using assumptions as to mortality and withdrawals consistent with those used in calculating the policy benefit reserves. Credit and health acquisitions costs are deferred and amortized over the term of the contracts in relation to premiums earned. Acquisition costs for annuity policies are being amortized over the lives of the policies in relation to the present value of estimated gross profits from surrender charges and investment, mortality and expense margins. Property-casualty acquisition costs are amortized over the related contract period which generally does not exceed one year. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance and repairs are charged to operating expenses as incurred. Major overhaul costs of rental equipment, principally trucks, are amortized over the estimated period benefited. Renewals and betterments are capitalized. Gains and losses on dispositions of property, plant and equipment are included in other revenue as realized. Interest costs incurred as part of the initial construction of assets are capitalized. Interest expense of $1,807,000, $1,727,000 and $595,000 was capitalized in the years ended 1996, 1995 and 1994, respectively. Based on an in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks. The effect of the change increased net income for the year ended March 31, 1996 by $44,373,000 ($1.24 per share). Certain recoverable environmental costs related to the removal of underground storage tanks or related contamination are capitalized and depreciated over the estimated useful lives of the properties. The capitalized costs improve the safety or efficiency of the property as compared to when the property was originally acquired or are incurred in preparing the property for sale. At March 31, 1996, the book value of the Company's real estate that is no longer necessary for use in the Company's current operations, and available for sale/lease, was approximately $27,585,000. Such surplus real estate is carried at cost, less accumulated depreciation, which is less than or approximate to net realizable value. 64 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued FINANCIAL INSTRUMENTS The Company enters into interest rate swap agreements to reduce its interest rate exposure; the Company does not use them for trading purposes. Amounts to be paid or received under the agreements are accrued. Although the Company is exposed to credit loss for the interest rate differential in the event of nonperformance by the counterparties to the agreements, it does not anticipate nonperformance by the counterparties. At March 31, 1996, interest rate swap agreements with an aggregate notional amount of $168,000,000 were outstanding. Management estimates that at March 31, 1996 and 1995, the Company would be required to pay $9,000,000 and $6,000,000, respectively, to terminate the agreements. Such amounts were determined from current treasury rates combined with swap spreads on agreements outstanding. The Company has mortgage loans receivable which potentially expose the Company to credit risk. The portfolio of notes is principally collateralized by mini-warehouse storage facilities and other residential and commercial properties. The Company has not experienced losses related to the notes from individual notes or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Summary of mortgage loans receivable: Year ended -------------------- 1996 1995 -------------------- (in thousands) Book value $ 154,736 135,424 ==================== Estimated fair value $ 157,867 140,062 ==================== Other financial instruments that are subject to fair value disclosure requirements are carried in the financial statements at amounts that approximate fair value. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many different industries and geographic areas. 65 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued POLICY BENEFITS RESERVES, UNPAID LOSSES AND LOSS EXPENSES Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using the net level premium method and include mortality and withdrawal assumptions which are based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 1995, interest assumptions used to compute policy benefits payable range from 2.5% to 12.8%. With respect to annuity policies accounted for as investment contracts, the liability for investment contract deposits consists of policy account balances that accrue to the benefit of the policyholders, excluding surrender charges. Fair value of investment contract deposits at December 31, 1995 is $380,774,000. Liabilities for accident and health and other policy claims and benefits payable represent estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred but not yet reported. These estimates are based on past claims experience and consider current claim trends as well as social and economic conditions. With respect to property-casualty, the liability for unpaid losses is based on the estimated ultimate cost of settling claims reported prior to the end of the accounting period, estimates received from ceding reinsurers and estimates for unreported losses based on RWIC's historical experience supplemented by insurance industry historical experience. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made. RENTAL AND OTHER REVENUE The Company recognizes its share of rental revenue on the accrual basis pursuant to contractual arrangements between AMERCO, fleet owners, rental dealers and customers. See Note 8 of Notes to Consolidated Financial Statements for further discussion. PREMIUM REVENUE Accident and health, credit life and health, and property- casualty gross premiums are earned on a pro rata basis over the term of the related contracts. Traditional life and annuity premiums are recognized as revenue when due from policyholders. Revenue for annuity policies accounted for as investment contracts consist of margins and surrender charges that have been assessed against policy account balances during the period. The portion of premiums not earned at the end of the period is recorded as unearned premiums. 66 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued REINSURANCE Reinsurance premiums, commissions, and expense reimbursements related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Assets and liabilities relating to reinsured contracts are reported gross of the effects of reinsurance. See also "Policy Benefits Reserves, Unpaid Losses and Loss Expenses" above. INCOME TAXES In addition to charging income for taxes paid or payable, the provision for income taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company files a consolidated federal income tax return with its insurance subsidiaries. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 114 - Accounting by Creditors for Impairment of a Loan. Effective for years beginning after December 15, 1994, the standard requires that an impaired loan's fair value be measured and compared to the recorded investment in the loan. If the fair value of the loan is less than the recorded investment in the loan, a valuation allowance is established. The Company adopted this statement in the first quarter of fiscal 1996, with no material impact on its financial condition or results of operations. Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Effective for fiscal years beginning after December 15, 1995, the standard establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long- lived assets and certain identifiable intangibles to be disposed of. This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. The Company does not expect a material impact on its future financial condition or results of operations due to implementation of the statement. 67 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued NEW ACCOUNTING STANDARDS, continued Statement of Financial Accounting Standards No. 123 - Accounting for Stock-Based Compensation. Effective for transactions entered into in fiscal years that begin after December 15, 1995, the standard establishes a fair value-based method of accounting for stock options and other equity instruments. Under the fair value-based method of accounting, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. For stock options, fair value is determined using an option-pricing model that takes into account as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the risk-free interest rate for the expected term of the option. The Company has a stock option plan, but to date no stock options have been granted. The adoption of this statement is not expected to have a material effect on the Company's financial statements. Statement of Position 93-7, "Reporting on Advertising Costs", was 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 statement of position requires reporting advertising costs as expenses when incurred or when the advertising first takes place, reporting the costs of direct-response advertising, and amortizing (over the estimated period of benefit) the costs of direct-response advertising reported as assets. The Company had been recording yellow page directory costs as deferred assets and amortizing the costs over the duration of each listing. The majority of listings last one year. The Company adopted this statement effective April 1, 1995 recognizing additional advertising expense of $8,647,000 upon implementation. The adoption had the effect of reducing net income by $5,474,000 ($0.15 per share). Other pronouncements issued by the Financial Accounting Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. EARNINGS PER SHARE Earnings per common share are computed based on the weighted average number of shares outstanding, excluding shares of the employee stock ownership plan that have not been committed to be released. Net income is reduced for preferred dividends. See Note 6 of Notes to Consolidated Financial Statements for further discussion. FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the financial statements for the years ended 1995 and 1994 to conform with the current year's presentation. 68 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 2. RECEIVABLES A summary of receivables follows: Year ended -------------------- 1996 1995 -------------------- (in thousands) Trade accounts receivable $ 16,885 12,527 Mortgage and note receivables, net of discount 54,802 78,499 Note receivable and accrued interest from Three SAC 105,327 65,255 Premiums and agents' balances in course of collection 38,345 33,150 Reinsurance recoverable 83,261 84,270 Accrued investment income 15,243 13,377 Independent dealer receivable 11,189 8,749 Other receivables 18,800 20 564 -------------------- 343,852 316,391 Less allowance for doubtful accounts 3,288 4,639 -------------------- $ 340,564 311,752 ===================== During fiscal 1996, a subsidiary of the Company received principal payments of $1,214,000, interest payments of $5,905,000 and management fees of $943,000 from SAC Self-Storage Corporation (SAC). Mark V. Shoen, a major stockholder, director and officer of the Company owned all of the issued and outstanding voting common stock of SAC. SAC Non- Business Trust holds the non-voting common stock. During fiscal 1995, a subsidiary of the Company made a loan to SAC in the total principal amount of $54,671,000 for the purchase of 44 self-storage properties by SAC. Of the 44 SAC properties, SAC acquired 24 from the Company or its subsidiaries at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently being managed by the Company pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. The SAC loan consists of a senior note and a junior note with outstanding balances at March 31, 1996 of $44,286,000 and $9,170,000, respectively, bearing interest rates of 8.25% and 13.0%, respectively. The largest aggregate amount outstanding during the year was $54,671,000. During fiscal 1996, a subsidiary of the Company received principal payments of $591,000, interest payments of $2,546,000 and management fees of $170,000 from TWO SAC Self-Storage Corporation (TWO SAC). Mark V. Shoen, a major stockholder, director and officer of the Company owned all of the issued and outstanding voting common stock of TWO SAC. SAC Non-Business Trust holds the non-voting common stock. During fiscal 1996 and 1995, a subsidiary of the Company funded a loan to TWO SAC in the total principal amount of $51,168,000 for the purchase of 38 self-storage properties. Of the 38 TWO SAC properties, TWO SAC acquired 27 from the Company or its subsidiaries at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently managed by the Company pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. The TWO SAC Loan consists of a senior note and a junior note with outstanding balances at March 31, 1996 of $43,532,000 and $7,637,000, respectively, bearing interest rates of 8.25% and 13.0%, respectively. The largest aggregate amount outstanding during the year was $51,168,000. 69 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 2. RECEIVABLES, continued On March 5, 1996, SAC and TWO SAC merged to form a new corporation, Three SAC Self-Storage Corporation (Three SAC). Three SAC's voting common stock is owned by SAC Holding Corporation (SAC Holding) and the non-voting preferred stock is owned by SAC Non- Business Trust. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director and officer of the Company. Subsequent to year end, a subsidiary of the Company received principal payments of $348,000, interest payments of $1,544,000 and management fees of $492,000 from Three SAC. The SAC Non-Business Trust dated as of May 24, 1995 with IBJ Schroder Bank & Trust Company as Trustee, owns all of the issued and outstanding non-voting preferred stock of Three SAC. Three SAC is capitalized with a contribution of 184,000 shares of Mark V. Shoen's AMERCO common stock. Three SAC has indicated to the Company that it intends, after reserving sufficient funds for expenses and other reasonable amounts, to distribute any remaining Three SAC funds to the SAC Non-Business Trust. The SAC Non-Business Trust is required to distribute funds to its Beneficiary, which must be a non-profit entity benefiting the college age children of the Company's employees. At present, the Beneficiary is the U-Haul Scholarship Foundation, which exists to award scholarships to the children of the Company's qualifying employees. All scholarships will be awarded on behalf of the U-Haul Scholarship Foundation by an independent panel of educators. Subsequent to year end, a subsidiary of the Company funded the purchase of five properties by Four SAC Self-Storage Corporation (Four SAC) for an amount of approximately $5,630,000. Four SAC is owned by SAC Holding. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director, and officer of the Company. Four SAC acquired one property from a subsidiary of the Company at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently managed by the Company for which the Company will receive a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 3. INVENTORIES A summary of inventory components follows: Year ended -------------------- 1996 1995 -------------------- (in thousands) Trailers and truck parts and accessories $ 23,609 31,636 Moving aids and promotional items 9,488 7,127 Hitches and towing components 12,756 11,516 Other 38 58 -------------------- $ 45,891 50,337 ==================== Certain general and administrative expenses are allocated to ending inventories. Such costs remaining in inventory at fiscal years ended 1996, 1995 and 1994 are estimated at $6,773,000, $6,848,000 and $7,679,000, respectively. For the fiscal years ended March 31, 1996, 1995 and 1994, aggregate general and administrative costs were $427,234,000, $377,471,000 and $430,209,000, respectively. LIFO inventories, which represent approximately 97% and 98% of total inventories at March 31, 1996 and 1995, respectively, would have been $4,166,000 and $3,657,000 greater at March 31, 1996 and 1995, respectively, if the consolidated group had used the FIFO method. 70 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS Major categories of net investment income consists of the following: December 31, ---------------------------- 1995 1994 1993 ---------------------------- (in thousands) Fixed maturities $ 59,992 53,236 52,903 Real estate 727 223 142 Policy loans 554 604 609 Mortgage loans 7,887 5,338 4,669 Short-term, amounts held by ceding reinsurers, net and other investments 1,601 2,064 874 ---------------------------- Investment income 70,761 61,465 59,197 Less investment expenses 24,772 19,380 20,390 ---------------------------- Net investment income $ 45,989 42,085 38,807 ============================ A comparison of amortized cost to estimated fair value for fixed maturities is as follows: December 31, 1995 Par Value Gross Gross Estimated - ----------------- Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 18,355 $ 18,271 2,108 (1) 20,378 U.S. government agency mortgage- backed securities $ 60,376 59,912 1,348 (2,211) 59,049 Obligations of states and political subdivisions $ 34,300 33,983 1,742 (34) 35,691 Corporate securities $ 192,334 197,475 6,102 (675) 202,902 Mortgage-backed securities $ 110,561 108,827 2,884 (1,013) 110,698 Redeemable preferred stocks 170 5,210 470 (4) 5,676 ---------------------------------------- 423,678 14,654 (3,938) 434,394 ---------------------------------------- 71 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued December 31, 1995 Gross Gross Estimated - ----------------- Consolidated Amortized unrealized unrealized market Available-for-Sale Par Value cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 11,685 11,789 1,572 - 13,361 U.S. government agency mortgage- backed securities $ 20,711 20,713 637 (39) 21,311 States, municipalities and political subdivisions $ 10,400 10,581 660 (151) 11,090 Corporate securities $ 319,611 324,804 14,595 (610) 338,789 Mortgage-backed securities $ 68,857 68,289 3,465 (281) 71,473 ---------------------------------------- 436,176 20,929 (1,081) 456,024 ---------------------------------------- Total $ 859,854 35,583 (5,019) 890,418 ======================================== December 31, 1994 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 $ 28,157 $ 26,986 415 (407) 26,994 U.S. government agency mortgage- backed securities $ 52,394 52,081 207 (6,414) 45,874 Obligations of states and political subdivisions $ 32,285 31,941 1,822 (359) 33,404 Corporate securities $ 223,825 231,873 898 (6,108) 226,663 Mortgage-backed securities $ 110,785 107,150 382 (9,371) 98,161 Redeemable preferred stocks 35 2,093 266 - 2,359 ---------------------------------------- 452,124 3,990 (22,659) 433,455 ---------------------------------------- 72 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued December 31, 1994 Gross Gross Estimated - ----------------- Consolidated Amortized unrealized unrealized market Available-for-Sale Par Value cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 9,685 9,801 430 (32) 10,199 U.S. government agency mortgage- backed securities $ 8,982 8,868 602 (84) 9,386 States, municipalities and political subdivisions $ 3,325 3,610 - (47) 3,563 Foreign government securities $ 2,500 2,534 28 (17) 2,545 Corporate securities $ 210,184 211,495 864 (8,419) 203,940 Mortgage-backed securities $ 26,699 26,528 126 (2,983) 23,671 ---------------------------------------- 262,836 2,050 (11,582) 253,304 ---------------------------------------- Total $ 714,960 6,040 (34,241) 686,759 ======================================== Fixed maturities fair value are based on publicly quoted market prices at the close of trading December 31, 1995 or December 31, 1994, as appropriate. The amortized cost and estimated market value of debt securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. December 31, 1995 Amortized Estimated - ----------------- Consolidated cost fair value ------------------------- Held-to-Maturity (in thousands) Due in one year or less $ 24,214 24,539 Due after one year through five years 90,889 93,853 Due after five years through ten years 120,876 124,950 After ten years 13,750 15,629 ------------------------ 249,729 258,971 Mortgage-backed securities 168,739 169,747 Redeemable preferred stock 5,210 5,676 ------------------------ 423,678 434,394 ------------------------ 73 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued December 31, 1995 Amortized Estimated - ----------------- Consolidated cost fair value ------------------------- Available-for-sale (in thousands) Due in one year or less 14,692 14,812 Due after one year through five years 136,290 140,347 Due after five years through ten years 159,537 168,771 After ten years 36,655 39,310 ------------------------ 347,174 363,240 Mortgage-backed securities 89,002 92,784 ------------------------ 436,176 456,024 ------------------------ Total $ 859,854 890,418 ======================== December 31, 1994 Amortized Estimated - ----------------- Consolidated cost fair value ------------------------- Held-to-Maturity (in thousands) Due in one year or less $ 27,181 27,037 Due after one year through five years 155,096 155,296 Due after five years through ten years 90,897 87,159 After ten years 17,626 17,569 ------------------------ 290,800 287,061 Mortgage-backed securities 159,231 144,035 Redeemable preferred stock 2,093 2,359 ------------------------ 452,124 433,455 ------------------------ December 31, 1994 Amortized Estimated - ----------------- Consolidated cost fair value ------------------------- Available-for-sale (in thousands) Due in one year or less 12,609 12,596 Due after one year through five years 80,128 78,286 Due after five years through ten years 129,496 123,999 After ten years 5,207 5,366 ------------------------ 227,440 220,247 Mortgage-backed securities 35,396 33,057 ------------------------ 262,836 253,304 ------------------------ Total $ 714,960 686,759 ======================== 74 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued Proceeds from sales of investments in debt securities during 1995 and 1994 were $101,565,000 and $71,242,000, respectively. Gross gains of $4,498,000 and $1,447,000 and gross losses of $419,000 and $332,000 were realized on those sales during 1995 and 1994, respectively. Proceeds from maturities and early redemptions of investments in debt securities during 1995 and 1994 were $86,612,000 and $117,233,000. Gross gains of $257,000 and $633,000 and gross losses of $471,000 and $510,000 were realized on these securities during 1995 and 1994, respectively. At December 31, 1995 and 1994 fixed maturities include bonds with an amortized cost of $18,015,000 and $16,775,000, respectively, on deposit with insurance regulatory authorities to meet statutory requirements. Investments, other consists of the following: Year ended ---------------------- 1996 1995 ---------------------- (in thousands) Short-term investments $ 17,671 26,841 Mortgage loans 73,152 79,498 Real estate, foreclosed properties 19,591 11,464 U.S. government security mutual fund 5,883 5,883 Policy loans 9,372 10,095 Other 918 1,439 --------------------- $ 126,587 135,220 ===================== Real estate held for investment, net of accumulated depreciation of $325,000 in 1995 and $357,000 in 1994, is comprised of land, buildings and building improvements. Depreciation on buildings is computed using the straight-line method. The general range of useful lives for buildings is 15 to 40 years. Depreciation on building improvements is computed utilizing the straight-line method or an accelerated method over the range of useful lives of 10 to 15 years. At December 31, 1995 and 1994, mortgage notes held by Ponderosa with a book value of $73,152,000 and $79,498,000, respectively, were outstanding. The estimated fair value of the notes at December 31, 1995 and 1994 was $81,924,000 and $86,132,000, respectively. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Ponderosa's investment in mortgage loans, included as a component of investments, are reported net of allowance for possible losses of $525,000 in both 1995 and 1994. Short-term investments consists primarily of fixed maturities with maturity of less than one year from acquisition date. Mortgage loans, representing first lien mortgages held by the insurance subsidiaries, are carried at unpaid balances, less allowance for possible losses any unamortized premium or discount. Real estate obtained through foreclosures and held for sale is carried at the lower of cost or net realizable value. U.S. government securities mutual fund is carried at cost which approximates market. Policy loans are carried at their unpaid balance. 75 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: Year ended ------------------- 1996 1995 ------------------- (in thousands) Short-term borrowings $ 73,000 33,500 Notes payable to banks under revolving lines of credit, unsecured 5.61% to 6.18% interest rates, 338,000 293,000 Medium-term notes payable, unsecured 8.55% to 11.50% interest rates, due through 2000 95,050 169,270 Notes payable to insurance companies, unsecured 5.89% to 10.27% interest rates, due through 2006 339,000 270,000 Notes payable to banks, unsecured 4.69% to 7.54% interest rates, due through 2001 84,100 111,700 Notes and Mortgages payable, secured 6.10% to 10.00% interest rates, due through 2016 68,984 3,660 Other notes payable, unsecured 9.50% interest rate, due through 2005 86 92 ------------------- $ 998,220 881,222 =================== Notes and mortgages payable are secured by land and buildings at various locations which carry a net book value of $85,663,000 at March 31, 1996. Revolving credit loans (long-term) are available from participating banks under an agreement which provides for a total credit line of $365,000,000 through the expiration date of the revolving term of June 1, 1998. The Company may elect to borrow under the credit agreement in the form of Eurodollar borrowings or domestic dollar borrowings. Depending on the form of borrowing elected, interest will be based on the prime rate, the certificate of deposit rate, the federal funds effective rate or the interbank offering rate and in addition, margin interest rates will be charged. Loans may also be at a fixed rate based upon the discretion of the borrower and lender. At March 31, 1996, the weighted average interest rate on borrowings outstanding was 5.73%. 76 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE, continued Facility fees, which are based upon the amount of credit line, aggregated $977,000 and $901,000 for 1996 and 1995, respectively. As of March 31, 1996, loans outstanding under the revolving credit line totaled $338,000,000. Management intends to refinance the borrowings on a long-term basis by either replacing them with long-term obligations, renewing or extending them. Year ended ----------------------------- 1996 1995 1994 ----------------------------- (in thousands) A summary of revolving credit activity follows: Weighted average interest rate during the year 6.20% 5.62% 3.62% at year end 5.73% 6.48% 3.93% Maximum amount outstanding during the year $ 343,000 293,000 159,750 Average amount outstanding during the year $ 281,750 191,146 67,354 A summary of notes payable follows: Weighted average interest rate: during the year 6.26% 5.25% 3.80% at year end 5.93% 6.44% 4.04% Maximum amount outstanding during the year $ 73,000 135,000 50,000 Average amount outstanding during the year $ 37,583 46,604 11,380 AMERCO has committed lines of credit with various banks totaling $550,000,000 and uncommitted lines of credit of $62,575,000 at March 31, 1996. The Company has executed interest rate swap agreements (SWAPS) to potentially mitigate the impact of changes in interest rates on its floating rate debt. These agreements effectively change the Company's interest rate exposure on $168,000,000 of floating rate notes to a weighted average fixed rate of 7.51%. The SWAP's mature at the time the related notes mature. During the year a SWAP with a notional value of $25,000,000 matured. Incremental interest expense associated with SWAP activity was $2,959,000, $7,092,000, and $11,989,000 during 1996, 1995 and 1994, respectively. Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios, and placing certain additional liens on its properties and assets. At March 31, 1996, the Company was in compliance with these covenants. In May 1996, the Company issued $175,000,000 of 7.85% Senior Notes Due May 15, 2003. The Company intends to apply the net proceeds from the sale of the notes to pay down, at maturity, a portion of the Company's long-term debt. 77 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE, continued The annual maturities of long-term debt for the next five years, (if the revolving credit lines are outstanding to maturity) adjusted for the transaction referred to in the immediately preceding paragraph, are presented in the table below: Year Ended ----------------------------------------------- 1997 1998 1999 2000 2001 ----------------------------------------------- (in thousands) Mortgages $ 292 507 432 195 276 Medium-Term and Other Notes 66,807 14,258 11,009 3,010 11 Insurance Placements 63,833 45,762 50,762 19,429 24,429 Bank Placements 21,600 1,600 40,900 24,818 24,818 Revolving Credit - - 163,000 - - ----------------------------------------------- $ 152,532 62,127 266,103 47,452 49,534 =============================================== 6. STOCKHOLDERS' EQUITY In October 1992, the stockholders approved an amendment to the Company's Articles of Incorporation to increase the authorized capital stock of the Company to a total of 350,000,000 shares from 65,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The increased capital stock consists of 150,000,000 shares of Common Stock, 150,000,000 shares of Serial Common Stock and 50,000,000 shares of Preferred Stock. The Board of Directors (the Board) may authorize the Serial Common Stock to be issued in such series and on such terms as the Board shall determine. The amendment also clarifies the voting rights of the Preferred Stock and allows the issuance of Preferred Stock with or without par value. In October 1993, the Company issued 6,100,000 shares of 8.5% cumulative, no par, non-voting preferred stock. The preferred stock is not convertible into, or exchangeable for, shares of any other class or classes of stock of the Company. Dividends are payable quarterly in arrears and have priority as to dividends over the Company's common stock. The preferred stock is not redeemable prior to December 1, 2000. On or after December 1, 2000, the Company, at its option, may redeem all or part of the preferred stock, for cash at $25.00 per share plus accrued and unpaid dividends to the redemption date. On February 1, 1994, the Company entered into Exchange Agreements with Mark V. Shoen and James P. Shoen. Pursuant to the exchange agreements, in exchange for 3,475,520 and 2,278,814 shares of common stock owned by Mark V. Shoen and James P. Shoen, Mark V. Shoen and James P. Shoen received 3,475,520 and 2,278,814 shares of Series A common stock, respectively. The common stock and the Series A common stock possess identical rights and privileges. 78 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 6. STOCKHOLDERS' EQUITY, continued On April 13, 1994, the Company and Edward J. Shoen entered into an Agreement in Principle pursuant to which the Company agreed to acquire all of the outstanding capital stock of EJOS, Inc., all of which stock was held by Edward J. Shoen and a certain irrevocable trust established by Edward J. Shoen, in exchange for the same number of shares of the Company's common stock as were held by EJOS, Inc. In exchange for EJOS, Inc.'s capital stock, Edward J. Shoen and the irrevocable trust established by Edward J. Shoen received 3,483,681 and 559,443 shares of the Company's common stock, respectively. The exchange described above was effected in accordance with the terms of an Agreement and Plan of Exchange of Shares of EJOS, Inc. and AMERCO, dated May 18, 1994, among EJOS, Inc., the Company, Edward J. Shoen, and the irrevocable trust established by Edward J. Shoen. Edward J. Shoen is a major stockholder, Chairman of the Board, and President of the Company. On August 24, 1994, the Company entered into an Exchange Agreement with Edward J. Shoen, the Company's Chairman of the Board and President. Pursuant to the exchange agreement, in exchange for 3,483,681 shares of common stock owned by Edward J. Shoen, Edward J. Shoen received 3,483,681 shares of Series A common stock. The common stock and the Series A common stock possess identical rights and privileges. On November 28, 1994, the Company entered into an Exchange Agreement with Mark V. Shoen, a director and major stockholder of the Company. Pursuant to the exchange agreement, in exchange for 3,475,520 shares of Series A common stock owned by Mark V. Shoen, Mark V. Shoen received 3,475,520 shares of common stock. The common stock and the Series A common stock possess identical rights and privileges. On May 31, 1995, the Company purchased 45,000 shares of the Company's Common Stock from Paul F. Shoen, a major stockholder of the Company, for $996,000 or $22.125 per share. The transaction was effected on Nasdaq. Paul F. Shoen is the brother of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On October 18, 1995, pursuant to a judgment in the Shoen Litigation, the Company repurchased 3,343,076 shares of Common Stock held by Maran, Inc. in exchange for approximately $22,733,000 and entered into a Settlement Agreement with Mary Anna Shoen Eaton (Shoen Eaton) whereby in exchange for approximately $41,352,000, Shoen Eaton released the Director-Defendants and the Company from any liability relating to the Shoen Litigation. Shoen Eaton owns all the voting stock of Maran, Inc. and is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On January 30, 1996, pursuant to a judgment in the Shoen Litigation, the Company repurchased 833,420 shares of Common Stock held by L.S.S., Inc. (L.S.S.) in exchange for approximately $5,667,000 and funded damages to L.S. Shoen of approximately $15,433,000. The Company also funded a total of approximately $2,018,000 of statutory post- judgment interest on the above amounts. L.S. Shoen owns all the voting stock of L.S.S. and is the father of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On February 7, 1996, pursuant to a judgment in the Shoen Litigation, the Company repurchased 1,651,644 shares of Common Stock held by Thermar, Inc. (Thermar) by paying approximately $41,785,000, including damages. The Company also paid to Thermar approximately $4,110,000 of statutory post-judgment interest on such amount. Thermar's major stockholder, Theresa M. Romero, is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. The above treasury share transactions were recorded net of tax of $34,938,000. 79 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. INCOME TAXES The components of the consolidated expense for income taxes applicable to operations are as follows: Year ended ------------------------------- 1996 1995 1994 ------------------------------- (in thousands) Current: Federal $ - 12,629 2,112 State 637 1,038 185 Deferred: Federal 33,790 19,678 16,365 State 1,405 79 1,191 ------------------------------ $ 35,832 33,424 19,853 ============================== Deferred tax liabilities (assets) are comprised as follows: Year ended ------------------------------- 1996 1995 1994 ------------------------------- (in thousands) Accelerated depreciation of: property, plant and equipment $ 184,402 155,756 145,391 Benefit of tax NOL and credit carryforwards (89,798) (64,076) (74,905) Rental equipment overhaul costs amortized 169 419 751 Deferred inventory adjustments (2,581) (103) (1,177) Deferred acquisition costs 17,137 15,720 15,361 Deferred gain from intercompany transactions 1,141 459 (894) Bad debt expense (334) (1,935) (1,635) Accrued expense on future dealer benefits (4,356) (3,451) (3,347) Accrued vacation and sick-pay (1,663) (1,338) (1,182) Customer deposit liability (3,790) (2,884) (2,375) Deferred revenue from sale/leaseback (150) (437) (1,357) Accrued retirement expense (2,494) (2,279) (1,755) Policy benefits and losses, claims and loss expenses payable (26,600) (24,671) (24,022) Other (2,344) (2,455) (283) ------------------------------- Total $ 68,739 68,725 48,571 =============================== 80 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. INCOME TAXES, continued Year ended ------------------------------- 1996 1995 1994 ------------------------------- (in thousands) Balance comprised of: Deferred tax assets $ 4,571 2,312 2,220 Deferred tax liability 73,310 71,037 50,791 ------------------------------- Net deferred taxes $ 68,739 68,725 48,571 =============================== Actual tax expense reported on earnings from operations differs from the "expected" tax expense amount (computed by applying the United States federal corporate tax rate of 35% in 1996, 1995 and 1994) as follows: Year ended ------------------------------- 1996 1995 1994 ------------------------------- (in thousands) Computed "expected" tax expense $ 33,679 32,696 23,276 Increases (reductions) in taxes resulting from: Tax-exempt interest income (714) (1,243) (1,525) Dividends received deduction - (62) (101) Net reinsurance effect - 120 120 Canadian subsidiary income tax (expense) benefit unrealized (1,235) (1,078) (204) True-up of prior year estimated current tax 2,112 1,030 (1,327) Federal tax benefit of state and local taxes (223) (391) (482) Other 1,576 1,235 (1,280) ------------------------------- Actual federal tax expense 35,195 32,307 18,477 State and local income tax expense 637 1,117 1,376 ------------------------------ Actual tax expense of operations $ 35,832 33,424 19,853 ============================== 81 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. INCOME TAXES, continued Under the provisions of the Tax Reform Act of 1984 (the Act), the balance in Oxford's account designated "Policyholders' Surplus Account" is frozen at its December 31, 1983 balance of $19,251,000. Federal income taxes (Phase III) will be payable thereon at applicable current rates if amounts in this account are distributed to the stockholder or to the extent the account exceeds a prescribed maximum. Oxford did not incur a Phase III liability for the years ended December 31, 1995, 1994 and 1993. The Internal Revenue Service has examined AMERCO's income tax returns for the years ended 1990 and 1991. All agreed issues have been provided for in the financial statements including the application of such adjustments to open years. The tax effect of the unagreed issues will not have a material impact on the financial statements. At year-end 1996 AMERCO and RWIC have non-life net operating loss carryforwards available to offset taxable income in future years of $181,779,000 for tax purposes. These carryforwards expire in 2003 through 2011. AMERCO has alternative minimum tax credit carry forwards of $15,214,000 which do not have an expiration date, but may only be utilized in years in which regular tax exceeds alternative minimum tax. The use of certain carryforwards may be limited or prohibited if a reorganization or other change in corporate ownership were to occur. Provision for federal income taxes has not been made for the difference between the Company's book and tax bases of its investment in Ponderosa, since the Company believes such difference to be permanent in duration. During 1994, Oxford dividended their investment in RWIC common stock to Ponderosa at its book value. As a result of such dividend, a deferred intercompany gain arose due to the difference between the book value and fair value of such common stock. However, such gain can only be triggered if certain events occur. To date, no events have occurred which would trigger such gain recognition. No deferred taxes have been provided in the accompanying consolidated financial statements as management believes that no events have occurred to trigger such gain. 82 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 8. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS Fleet Owners (independent rental equipment owners) own approximately 15% of all U-Haul rental trailers, .03% of all U-Haul rental trucks and certain other rental equipment. There are over 5,300 fleet owners, including certain officers, directors, employees and stockholders of the Company. All rental equipment is operated under contract with U-Haul, a wholly-owned subsidiary of AMERCO, whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. AMERCO guarantees performance of these contracts. Based on the terms of various contracts, rental fees are distributed to the subsidiaries of AMERCO (for services as operators), to the fleet owners (including certain subsidiaries and related parties of AMERCO) and to Rental Dealers (including Company-operated U-Haul Centers). The Company owns over 99% of all general rental items and the remainder of the rental equipment is consigned to AMERCO and its consolidated subsidiaries. The equipment is operated under various contracts with subsidiaries of AMERCO, whereby the consolidated group administers the operations and marketing of the equipment. In return the investors receive a percentage of the rental fees paid by customers. Oxford reinsures short-term accidental death and medical insurance risks for customers who rent vehicles owned by the Company and fleet owners. Premiums earned were $1,600,000, $1,556,000 and $1,428,000 for the years ended December 31, 1995, 1994 and 1993, respectively. RWIC insures and reinsures general liability, auto liability, and workers' compensation coverage for member companies of the consolidated group. Premiums earned by RWIC on these policies were $12,669,000, $20,575,000 and $18,798,000 during the years ended December 31, 1995, 1994 and 1993, respectively, and were eliminated in consolidation. RWIC insures and reinsures certain risks of U-Haul customers and independent fleet owners. Premiums earned on these policies were $43,400,000, $39,300,000 and $32,800,000 during the years ended December 31, 1995, 1994 and 1993, respectively. 9. DEALER FINANCIAL SECURITY PLAN In September 1984, the Company adopted an unfunded dealer financial security plan (the Security Plan) for its independent dealers and their key employees who elected to enroll in the plan. Subsequent to the initial enrollment in the Security Plan, the Company suspended the plan to additional enrollees. Under the Security Plan, deductions are made from dealer commissions in return for future benefits including death, disability and retirement benefits. These benefits are paid directly from the general assets of the Company. Life insurance is carried on each Security Plan participant in favor of the Company to indirectly fund future benefit payments. Total deductions withheld from commissions were $142,000, $466,000 and $613,000 for the years ended 1996, 1995, and 1994 respectively. Total insurance premium expense amounted to $1,264,000, $1,294,000 and $1,304,000 for the years ended 1996, 1995 and 1994 respectively. Benefits paid under the Security Plan for the years ended 1996, 1995 and 1994 were not material. 83 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 10. EMPLOYEE BENEFIT PLANS AMERCO and its subsidiaries participate in the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (the Plan) which is designed to provide all eligible employees with savings for their retirement and to acquire a proprietary interest in the Company. The Plan has three separate features: a profit sharing feature (the Profit Sharing Plan) under which the Employer may make contributions on behalf of participants; a savings feature (the Savings Plan) which allows participants to defer income under Section 401(k) of the Internal Revenue Code of 1986; and an employee stock ownership feature (the ESOP) under which the Company may make contributions of AMERCO common stock or cash to acquire such stock on behalf of participants. Generally, employees of the Company are eligible to participate in the Plan upon completion of a one year service requirement. At its discretion, profits of such amounts as determined by the Board of Directors (which shall not exceed the amounts that are deductible under the Internal Revenue Code) may be contributed to the Profit Sharing Plan at the end of each Plan year to a designated trustee and administered and applied in accordance with the terms of the trust agreement. The Company did not contribute to the Profit Sharing Plan during the years ended 1996, 1995 and 1994. Under the Savings Plan, an employee may make pre-tax contributions of up to eighteen percent of base salary. Participants are immediately vested in all contributions plus actual earnings thereon. The ESOP is designed to enable eligible employees to acquire a proprietary interest in the Company. The Company may, in its sole and absolute discretion, elect to contribute to the trust fund amounts to be used by the ESOP trustee to purchase shares of the $0.25 par value common stock of the Company and/or the Company may contribute stock directly to the trust fund. To fund the ESOP trust (ESOT), the Company borrowed $16,000,000 repayable over ten years in annual installments of $1,600,000 beginning December 1989. Proceeds of this borrowing were loaned to the ESOT on the same terms and are used by the ESOT to purchase shares of AMERCO common stock. Interest payments under this agreement were $309,000, $313,000, and $253,000 for 1996, 1995 and 1994, respectively. As of March 31, 1996, $4,100,000 is outstanding under this agreement. To fund additional purchases of the Company stock, in May 1990 the ESOT borrowed $1,172,000 from the Company repayable over ten years under a stock pledge agreement. The interest rate is based upon the average interest rate paid by the Company. Interest payments under this agreement were $59,000, $72,000, and $90,000 for 1996, 1995 and 1994, respectively. As of March 31, 1996, $586,000 is outstanding under this agreement. During fiscal year 1991, the Company executed an additional stock pledge agreement with the ESOT to make loans available in an aggregate principal amount equal to $10,000,000 over a five year commitment period. In April 1994 the ESOT modified the 1991 agreement to increase the commitment from $10,000,000 to $20,000,000 and extend the commitment period an additional five years. Borrowings under the agreement are repaid based upon a twenty year amortization period. Interest is based upon the average rate paid by AMERCO under all promissory notes, commercial paper and other evidences of indebtedness issued by AMERCO and outstanding as of the date the rate is to be calculated. Under this agreement, $18,643,000 is outstanding at March 31, 1996. Interest payments under this agreement were $1,131,000, $745,000, and $474,000 for 1996, 1995 and 1994, respectively. 84 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 10. EMPLOYEE BENEFIT PLANS, continued Shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the plan year. Contributions to the ESOT charged to expense were $2,904,000, $2,571,000, and $2,269,000 for the years ended 1996, 1995 and 1994, respectively. Effective April 1, 1994, the Company adopted Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans" for shares purchased subsequent to December 31, 1992. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the statement of financial position. As shares purchased after December 31, 1992 are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings-per- share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. Shares purchased prior to December 31, 1992 are not accounted for under the above guidance. Dividends are recorded as a reduction of retained earnings, shares are considered outstanding for earnings-per- share calculations, and compensation expense is based upon debt service. The ESOP shares as of March 31 were as follows: Shares issued Shares issued prior to subsequent to December, 1992 December, 1992 ------------------------------------------ 1996 1995 1996 1995 ------------------------------------------ (in thousands) (in thousands) Allocated shares 1,367 1,233 43 13 Shares committed to be released - - 11 8 Unreleased shares 980 1,211 783 594 ------------------------------------------ Total ESOP shares 2,347 2,444 837 615 ========================================== Fair value of unreleased shares $ 9,499 11,408 18,988 12,697 ========================================== For purposes of this schedule, fair value of unreleased shares issued prior to December 31, 1992 is defined as the historical cost of such shares. Fair value of unreleased shares issued subsequent to December 31, 1992 is defined as the March 31 trading value of such shares for 1996 and 1995. Management considers the actual fair value of the shares to be in excess of their trading value. See also Note 17. Oxford insures various group life and group disability insurance plans covering employees of the consolidated group. Premiums earned were $2,138,000, $1,896,000, and $1,325,000 during the years ended December 31, 1995, 1994 and 1993, respectively and were eliminated in consolidation. 85 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The Company provides medical and life insurance benefits to retired employees and eligible dependents over age 65 if the employee meets specified age and service requirements. The Company uses the accrual method of accounting for postretirement benefits. Prior to 1994, the Company recognized these costs, which were not material, as claims were incurred. Upon adoption of SFAS 106, the Company elected to immediately recognize the cumulative effect of the change in accounting for postretirement benefits of $5.0 million ($3.1 million net of income tax benefit) which represents the accumulated postretirement benefit obligation (APBO) existing at April 1, 1993. In addition, the impact of the change in ongoing operations is an increase in expense of approximately $632,000, $592,000 and $1,087,000 in 1996, 1995 and 1994, respectively. The Company continues to fund medical and life insurance benefit costs as claims are incurred. The components of net periodic postretirement benefit cost for 1996, 1995 and 1994 are as follows: 1996 1995 1994 ---------------------------- (in thousands) Service cost for benefits earned during the period $ 346 360 325 Interest cost on APBO 422 382 405 Other components (81) - - ---------------------------- Net periodic postretirement benefit cost $ 687 742 730 ============================ The 1996 and 1995 postretirement benefit liability included the following components: 1996 1995 ----------------- (in thousands) Actuarial present value of postretirement benefit obligation: Retirees $ (2,010) (1,638) Eligible active plan participants (344) (341) Other active plan participants (3,597) (3,105) ----------------- Accumulated postretirement benefit obligation (5,951) (5,084) Unrecognized net gain (1,366) (1,601) ----------------- $ (7,317) (6,685) ================= The discount rate assumptions in computing the information above were as follows: 1996 1995 1994 ----------------------------- Accumulated postretirement benefit obligation 7.00% 8.50% 7.75% The year-to-year fluctuations in the discount rate assumptions primarily reflect changes in U.S. interest rates. The discount rate represents the expected yield on a portfolio of high-grade (AA-AAA rated or equivalent) fixed-income investments with cash flow streams sufficient to satisfy benefit obligations under the plans when due. 86 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.50% in 1996, declining annually to an ultimate rate of 4.20% in 2010. The assumed health care cost trend rate reflects a $20,000 maximum lifetime benefit included in the Company's plan. If the health care cost trend rate assumptions were increased by 1.0%, the APBO as of March 31, 1996 would be increased by approximately $979,000. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 1996 would be an increase of approximately $157,000. Postemployment benefits provided by the Company are not material. 12. REINSURANCE The Company assumes and cedes reinsurance on both a coinsurance and risk premium basis. The Company obtains reinsurance for that portion of risks exceeding retention limits. The maximum amount of life insurance retained on any one life is $100,000. The Company also reinsures a wide range of property-casualty risks with third parties and insures general and auto liability, multiple peril and worker's compensation coverage for the consolidated group, independent fleet owners and customers as a direct writer and as a reinsurer through third party companies. To the extent that a reinsurer is unable to meet its obligation under the related reinsurance agreements, the Company would remain liable for the unpaid losses and loss expenses. Pursuant to certain of these agreements, the Company holds letters of credit in the amount of $9,800,000 from reinsurers. The Company has issued letters of credit totaling approximately $2,100,000 in favor of certain ceding companies. RWIC is a reinsurer of municipal bond insurance through an agreement with MBIA, Inc. Premiums generated through this agreement are recognized on a pro rata basis over the contract coverage period. Unearned premiums on this coverage approximated $4,800,000 and $4,400,000 as of December 31, 1995 and 1994, respectively. RWIC's share of case loss reserves related to this coverage is approximately $42,000 at December 31, 1995. RWIC's aggregate exposure for Class 1 municipal bond insurance was $797,600,000 as of December 31, 1995. A summary of reinsurance transactions by business segment follows: Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1995 - --------------- Life insurance in force $ 35,257 481 2,586,485 2,621,261 99% ========================================== Premiums earned: Life $ 2,078 17 8,414 10,475 80% Accident and health 4,877 183 2,574 7,268 35% Annuity - - 8,453 8,453 100% Property casualty 91,373 33,031 69,711 128,053 54% ------------------------------------------ Total $ 98,328 33,231 89,152 154,249 ========================================== 87 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 12. REINSURANCE, continued Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1994 - --------------- Life insurance in force $ 32,046 500 2,729,372 2,760,918 99% ========================================== Premiums earned: Life $ 1,601 16 8,149 9,734 84% Accident and health 3,980 198 1,513 5,295 29% Annuity 61 - 7,696 7,757 99% Property casualty 86,869 40,871 66,864 112,862 59% ------------------------------------------ Total $ 92,511 41,085 84,222 135,648 ========================================== Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1993 - --------------- Life insurance in force $ 19,860 524 2,979,714 2,999,050 99% ========================================== Premiums earned: Life $ 53 16 8,876 8,913 99% Accident and health 1,120 209 1,455 2,366 61% Annuity - - 5,419 5,419 100% Property casualty 81,676 45,122 70,092 106,646 66% ------------------------------------------ Total $ 82,849 45,347 85,842 123,344 ========================================== 13. CONTINGENT LIABILITIES AND COMMITMENTS The Company occupies certain facilities and uses certain equipment under operating lease commitments with terms expiring through 2079. Lease expense was $69,097,000, $66,487,000 and $84,359,000 for the years ended 1996, 1995 and 1994, respectively. During the year ended March 31, 1996, U-Haul Leasing & Sales Co., a wholly-owned subsidiary of U-Haul, entered into twelve transactions, and has subsequently entered into three additional transactions, whereby the Company sold rental trucks and subsequently leased them back. AMERCO has guaranteed $38,650,000 of residual values at March 31, 1996 and an additional $3,600,000 of residual values subsequent to March 31, 1996 on these assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions similar to covenants disclosed in Note 5 of Notes to Consolidated Financial Statements for notes payable and loan agreements. Also, subsequent to year end, U- Haul entered into one lease transaction, whereby the Company sold and subsequently leased back computer equipment. 88 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 13. CONTINGENT LIABILITIES AND COMMITMENTS, continued Following are the lease commitments for leases having terms of more than one year (in thousands): Year end 1996 Additions --------------------------- Property, plant Rental subsequent to Year ended and other equipment Trucks year end Total ------------------------------------------------------------------------- 1997 $ 2,115 64,592 4,059 70,766 1998 1,571 64,592 5,004 71,167 1999 1,325 64,592 5,004 70,921 2000 495 64,592 5,005 70,092 2001 457 48,639 4,353 53,449 Thereafter 3,700 31,480 9,002 44,182 ---------------------------------------------------- $ 9,663 338,487 32,427 380,577 ==================================================== In the normal course of business, the Company is a defendant in a number of suits and claims. The Company is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of such suits, claims, or proceedings involving the Company, individually or in the aggregate, are expected to result in a material loss. Also see Notes 12 and 14 of Notes to Consolidated Financial Statements. 14. LEGAL PROCEEDINGS A judgment was entered on February 21, 1995, in an action in the Superior Court of the State of Arizona, Maricopa County, entitled Samuel W. Shoen, M.D., et al. v. Edward J. Shoen, et al., No. CV88-20139, - --------------------------------------------------------- instituted August 2, 1988 (the Shoen Litigation) against Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty, who are current members of the Board of Directors of the Company and against Paul F. Shoen, who is a former director. The Company was also a defendant in the action as originally filed, but was dismissed from the action on August 15, 1994. The plaintiffs alleged, among other things, that certain of the individual plaintiffs were wrongfully excluded from sitting on the Company's Board of Directors in 1988 through the sale of Company Common Stock to certain key employees. That sale allegedly prevented the plaintiffs from gaining a majority position in the Company's Common Stock and control of the Company's Board of Directors. The plaintiffs alleged various breaches of fiduciary duty and other unlawful conduct by the individual defendants and sought equitable relief, compensatory damages, punitive damages, and statutory post judgment interest. Based on the plaintiffs' theory of damages, the court ruled that the plaintiffs elected as their remedy in this lawsuit to transfer their shares of stock in AMERCO to the defendants upon the satisfaction of the judgment. The judgment was entered against the defendants in the amount of approximately $461.8 million plus interest and taxable costs. In addition, on February 21, 1995, judgment was entered against Edward J. Shoen in the amount of $7 million as punitive damages. On March 23, 1995, Edward J. Shoen filed a notice of appeal with respect to the award of punitive damages. Pursuant to separate indemnification agreements, the Company has agreed to indemnify the defendants to the fullest extent permitted by law or the Company's Articles of Incorporation or By-Laws, for all expenses and damages incurred by the defendants in this proceeding, subject to certain exceptions. In addition, the transfer of Common Stock from the plaintiffs to the defendants would implicate rights held by the Company. For example, pursuant to the Company's By-Laws, the Company has certain rights of first refusal with respect to the transfer of the plaintiffs' stock. Furthermore, the defendants' rights to acquire the plaintiffs' stock may present a corporate opportunity which the Company is entitled to exercise. 89 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. LEGAL PROCEEDINGS, continued On February 21, 1995, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty (the Director-Defendants) filed for protection under Chapter 11 of the federal bankruptcy laws, resulting in the issuance of an order automatically staying the execution of the judgment against those defendants. In late April 1995, the Director-Defendants, in cooperation with the Company, filed plans of reorganization in the United States Bankruptcy Court for the District of Arizona, all of which propose the same funding and treatment of the plaintiffs' claims resulting from the judgment in the Shoen Litigation. The plans of reorganization, as amended and restated on February 29, 1996 were confirmed by the bankruptcy court on March 15, 1996. The plans, as confirmed, shall collectively be referred to as the "Plan". On April 25, 1995, the Director-Defendants filed an action in the bankruptcy court seeking injunctive relief to prevent the Company from conducting its annual meetings of stockholders until the Plan is confirmed and/or to prevent the plaintiffs from voting the common stock that they are required to transfer pursuant to the Shoen Litigation. On June 8, 1995, the bankruptcy court issued a memorandum decision and an order enjoining the Company from holding its 1994 Annual Meeting of Stockholders (which was originally delayed as a result of litigation initiated by Paul F. Shoen) or any subsequent annual meeting of stockholders until the court enters an order confirming or denying confirmation of the Plan or until further order of the court. On June 21, 1996, the bankruptcy court issued an order enjoining the annual meetings until consummation of the Plan. The Company has not scheduled the 1994, 1995, or 1996 Annual Meetings of Stockholders. However, the Company anticipates that such meetings will occur as soon as practicable after the consummation of the Plan. In early October 1995, the Director-Defendants made written demand upon the Company to make them whole for losses resulting from the judgment in the Shoen Litigation. The Director-Defendants also asserted substantial claims against the Company related to or arising from the Shoen Litigation, including, but not limited to, claims for financial losses, emotional distress, loss of business and/or professional reputation, loss of credit standing and breach of contract. The Director-Defendants claim that their actions that form the basis for the judgment in the Shoen Litigation were actions within the scope of the Director-Defendants' duties and that such actions were undertaken in good faith and for the benefit of the Company. In addition, the Director-Defendants had retained unexpired appeal rights with respect to the Shoen Litigation. If the Director- Defendants exercised such appeal rights, the damage award may have increased and the Company may have been exposed to increased liability to the Director-Defendants under existing indemnity agreements. In recognition of the foregoing and of the substantial risks associated with an appeal of the Shoen Litigation, on October 17, 1995, the Company entered into an agreement (the Agreement) with the Director- Defendants resolving the foregoing issues. Under the Agreement, the Company agreed, among other things, to fund the Plan and to release the Director-Defendants from all claims the Company may have against them arising from the Shoen Litigation. In addition, the Director- Defendants agreed, (i) to release, subject to certain exceptions, the Company from any claim they may have against it pursuant to any indemnification agreements, (ii) to assign all rights they have under the Shoen Litigation to the Company, (iii) to waive all appeal rights related to the Shoen Litigation (not including Edward J. Shoen's appeal of the punitive damage award), and (iv) not to oppose the Company should it elect to exercise its right of first refusal on any Common Stock to be transferred by the plaintiffs upon satisfaction of the judgment in the Shoen Litigation. 90 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. LEGAL PROCEEDINGS, continued On September 19, 1995, the Director-Defendants entered into a Stock Purchase Agreement with one of the plaintiffs in the Shoen Litigation, Maran, Inc., a Nevada corporation (Maran). All of Maran's voting stock was held by Mary Anna Shoen Eaton (Shoen Eaton), who was also a plaintiff in the Shoen Litigation. Under the Stock Purchase Agreement, the Director-Defendants agreed to purchase 3,343,076 shares of Common Stock held by Maran in exchange for approximately $22.7 million. The Stock Purchase Agreement was approved by the bankruptcy court on October 10, 1995. On October 18, 1995, the Company exercised its right of first refusal and repurchased the Common Stock that was the subject of the Stock Purchase Agreement for the price set forth therein. In addition, on September 19, 1995, the Director-Defendants, Shoen Eaton, Maran, and the Company entered into a Settlement Agreement, providing for the payment to Shoen Eaton of approximately $41.4 million in exchange for a full release of all claims against the Company and the Director-Defendants, including all claims asserted by her in the Shoen Litigation. The Settlement Agreement was approved by the bankruptcy court on October 10, 1995, and the payment was made on October 18, 1995. As a result of the foregoing, and after giving effect to the discount achieved through settlement, approximately $84.6 million of the judgment in the Shoen Litigation was satisfied. Pursuant to the judgment in the Shoen Litigation, on January 30, 1996, the Company acquired 833,420 shares of Common Stock held by L.S.S., Inc. (L.S.S.) in exchange for approximately $5.7 million and paid damages to L.S. Shoen of approximately $15.4 million. The Company also funded a total of approximately $2.1 million of statutory post- judgment interest on the above amounts. In addition, on February 7, 1996, the Company acquired 1,651,644 shares of Common Stock held by Thermar, Inc. (Thermar) by paying Thermar approximately $41.8 million. The Company also tendered to Thermar approximately $4.1 million of statutory post-judgment interest on such amount. As a result of the foregoing transactions, the balance of the judgment has been reduced to approximately $315.2 million, plus interest claimed by the plaintiffs. With respect to the remaining plaintiffs in the Shoen Litigation, the Plan provides for the payment by the Company of approximately $84.5 million in exchange for 12,426,836 shares of Common Stock held by four of the plaintiffs and for the payment by the Company of approximately $230.7 million to certain of the plaintiffs as damages. As of the date hereof, an issue remains whether or not the plaintiffs are entitled to statutory post-judgment interest at the rate of 10% per year. As of June 24, 1996, total accrued interest on the outstanding balance of the judgment is approximately $42.2 million and is accruing at the rate of approximately $86,000 per day. Briefing regarding post-petition date interest and the computation thereof was completed June 21, 1996. A July 19, 1996 hearing date has been set by the bankruptcy court. Those reserved issues do not affect the finality of the bankruptcy court's order confirming the Plan (Confirmation Order) in each Director-Defendant's Chapter 11 case. If the dispute regarding post-petition date interest is decided adversely to the Director-Defendants and the Company, they intend to appeal any such decision. Pending the final resolution of the post-petition date interest dispute (including all appeals by either side), the Company intends to deposit either cash or, in appropriate circumstances, an irrevocable letter of credit into an escrow account to secure payment of the post-petition date interest if the dispute is ultimately decided adversely to the Director-Defendants and the Company. The amount of the escrow deposit would be in such case equal to the accrued interest to the date funds are deposited into escrow. As provided in the Plan, the escrow deposit, plus interest thereon, will remain until all aspects of the post-petition date interest dispute have been finally decided, including dischargeability litigation which the plaintiffs filed against the Director-Defendants in the bankruptcy court as an alternative means of trying to collect post-petition date interest. The dischargeability litigation has not been set for trial and is likely to await the outcome of the other aspects of the post-petition date interest dispute. 91 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. LEGAL PROCEEDINGS, continued On March 15, 1996, the bankruptcy court issued a Confirmation Order in each Director-Defendant's Chapter 11 case. This order provided that the effective date for the Plan (i.e., the date on which the Company will pay the plaintiffs an aggregate of approximately $315.2 million and the plaintiffs will surrender the Common Stock) will be no later than October 1, 1996 (absent compelling circumstances justifying an extension of that date). As of the date hereof, the Company has not yet determined all of the sources of cash which will be used to fund the Plan. The Company has identified approximately $150 million of surplus or non-essential assets, including, but not limited to, surplus real estate and mortgage notes, which will be sold to raise a portion of the cash needed to fund the Plan. In order to comply with certain covenants in the Company's current credit agreements following the repurchase of the remaining plaintiffs' stock, it may be necessary to increase stockholders' equity by issuing capital stock. Such capital stock may consist of dividend paying preferred stock, Series B Common Stock, Common Stock, or a combination of the foregoing. Because the Company has not determined all of the sources of cash to fund the Plan, the Company is unable to determine with certainty the impact the Plan will have on the Company's prospective financial condition, results of operations, cash flows, or capital expenditure plans. However, as a result of funding the Plan, the Company may incur additional costs in the future in the form of dividends on any dividend paying stock issued to fund the Plan and/or interest on borrowed funds. Furthermore, following consummation of the Plan, and without giving effect to any capital stock which may be issued as part of the Plan funding, the Company's outstanding Common Stock would be reduced by 12,426,836 shares, in addition to the 3,343,076 shares repurchased from Maran on October 18, 1995, the 833,420 shares repurchased from L.S.S. on January 30, 1996, and the 1,651,644 shares repurchased from Thermar on February 7, 1996. Other uncertainties remain about the Plan, including the tax treatment of the payments made and to be made by the Company pursuant to the Plan. Specifically, the Company plans to deduct for income tax purposes approximately $324.3 million of the payments made or to be made by the Company to the plaintiffs, which will reduce the Company's income tax liability. While the Company believes that such income tax deductions are appropriate, there can be no assurance that any such deductions ultimately will be allowed in full. Accordingly, for tax and other reasons, the Plan could result in material changes in the Company's financial condition, results of operations, and earnings per common share. Furthermore, in the event the fair value of the consideration paid by the Company to the plaintiffs is in excess of the fair value of the stock repurchased by the Company, the Company will be required to record an expense equal to that difference. Based upon the uncertainties surrounding the funding of the Plan, the amount of such expense, if any, is not estimable as of the date hereof. No such expense was recorded for book purposes related to the Maran/Shoen Eaton, L.S.S. and Thermar transactions. The Company has not yet determined the accounting treatment for any transaction other than the Maran/Shoen Eaton, L.S.S. and Thermar transactions. Furthermore, no provision has been made in the Company's financial statements for any payments to be made to the plaintiffs. For the reasons set forth above, the Plan could have the effect of reducing the Company's net income. 92 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 15. PREFERRED STOCK PURCHASE RIGHTS In July 1988, the Company's Board of Directors adopted a stockholder-rights plan, and such rights were distributed as a dividend at the rate of one right for each outstanding share of the Company's common stock to the holders of record of common shares on July 29, 1988. As a result of the 400-for-1 common stock split that occurred on October 1, 1990, each outstanding share of common stock currently has one four-hundredth of a right associated with it. When exercisable, each right will entitle its holder to purchase from the Company one one-hundredth of a share of the new Series C Preferred Stock of the Company at a price of $15,000. AMERCO has reserved 5,000 shares of authorized but unissued preferred stock for the Series C Preferred Stock authorized in this stockholder-rights plan. The rights will become exercisable if a person or group of affiliated or associated persons acquire or obtain the right to acquire beneficial ownership of 50% or more of the common stock without approval of a majority of the Board of Directors of the Company. The majority approval must be made by members of the Board who were members as of July 25, 1988 (Disinterested Directors) or subsequent members elected to the Board if such persons are recommended or approved by a majority of the Disinterested Directors. The rights will expire on July 29, 1998 unless earlier redeemed by the Company pursuant to authorization by a majority of the Disinterested Directors. In the event the Company is acquired in a merger or other business combination transaction after the rights become exercisable, provision shall be made so that each holder of a right shall have the right to receive, upon exercise thereof and payment of the exercise price, that number of common shares of such corporation which at the time of such transaction would have a market or book value of two times the exercise price of the right. If the Company is the surviving company, each holder would have the right to receive, upon payment of the exercise price, common shares with a market or book value of two times the exercise price. 16. STOCK OPTION PLAN In October 1992, the stockholders approved a ten year incentive plan entitled the AMERCO Stock Option and Incentive Plan (the Plan) for officers and key employees of the Company. Under the Plan, Incentive Stock Options (ISOs), Non-qualified Stock Options, Stock Appreciation Rights (SAR), Restricted Stock Dividend Equivalents and Performance Shares may be awarded. The aggregate numbers of shares of stock subject to award under the Plan may not exceed 3,000,000. The stock subject to the Plan is AMERCO Common Stock unless prior to the date the first award is made under the Plan, a Committee of at least two Board members determines, in its discretion, to utilize another class of the Company's stock. The Plan provides for the granting of ISOs as defined under the Internal Revenue Code and Non-qualified Stock Options under such terms and conditions as the Committee determines in its discretion. The ISOs may be granted at prices not less than one-hundred percent of the fair market value at the date of grant with a term not exceeding ten years. The Plan provides for the granting of SARs subject to certain conditions and limitations to holders of options under the Plan. SARs permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. Under the Restricted Stock feature of the Plan, a specified number of common shares may be granted subject to certain restrictions. Restriction violations during a specified period result in forfeiture of the stock. The Committee may, in its discretion, impose any restrictions on a Restricted Stock award. The Plan authorizes the Committee to grant Dividend Equivalents in connection with options. Dividend Equivalents are rights to receive additional shares of Company stock at the time of exercise of the option to which such Dividend Equivalents apply. 93 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 16. STOCK OPTION PLAN, continued Under the Plan, Performance Share units may be granted. Each unit is deemed to be the equivalent of one share of Company stock and such units are credited to a Performance Share account. The value of the units at the time of award or payment is the fair market value of an equivalent number of shares of stock. At the end of the award period, payment may be made subject to certain predetermined criteria and restrictions. To date, no stock options or awards have been granted. 17. RELATED PARTY TRANSACTIONS AMERCO and Consolidated Subsidiaries have related party transactions with certain major stockholders, directors and officers of the consolidated group as disclosed in Notes 2, 6, 8, 14, 19 and 20 of Notes to Consolidated Financial Statements. During the years ended 1996, 1995 and 1994, a subsidiary of AMERCO purchased $3,122,000, $3,417,000 and $2,607,000, respectively, of printing from a company wherein an officer is a major stockholder, director and officer of AMERCO. During the year ended 1996, a subsidiary of AMERCO purchased $1,558,000 of computer components from a company wherein a major stockholder was the family trust of a major stockholder, director and officer of AMERCO. There were no purchases from the Company during the years ended 1995 and 1994. Pursuant to a Share Repurchase and Registration Rights Agreement, dated May 1, 1992, among Sophia M. Shoen, Sophmar, Inc., and the Company, Sophia M. Shoen had the right to require the Company to repurchase, with certain limitations, up to $3,000,000 of Common Stock owned by her. The Sophia Shoen Registration Rights Agreement provides that the Company's obligations to repurchase any shares from Sophia M. Shoen may be satisfied if such shares are purchased by the ESOP Trust. Pursuant to the Sophia Shoen Registration Rights Agreement, on June 30, 1994, Sophia M. Shoen sold 88,235 shares of Common Stock to the ESOP Trust at the then appraised value of $17.00 per share, for an aggregate sales price of approximately $1,500,000. In addition, Sophia M. Shoen, subject to certain limitations and restrictions, may also elect under the Sophia Shoen Registration Rights Agreement to cause the Company to effect a registration under the Securities Act of 1933, as amended, and applicable state securities laws of shares of Common Stock held by her. Sophia M. Shoen sold 575,000 shares of Common Stock to the public in late 1994 pursuant to her registration rights. Sophia M. Shoen is a major stockholder and is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. Pursuant to a Management Consulting Agreement, dated as of May 1, 1992, Sophia M. Shoen agreed to provide environmental and other consulting services to the Company. In consideration for these services, the Company agreed to pay Sophia M. Shoen a yearly fee of $100,000. The Management Consulting Agreement terminated May 1, 1995. In April 1994, William E. Carty sold 46.5% of 90.88 acres of land to the Company for cash in the amount of $4,000,000. An independent opinion of value was used to determine the Company's offer to purchase and the purchase was completed below the amount so determined. Additionally, in fiscal 1995, the Company sold approximately 158 acres of land to William E. Carty for cash in the amount of $1,324,000. The sales price was greater than an independent opinion of value obtained by the Company prior to the sale. William E. Carty is a director of the Company. 94 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 17. RELATED PARTY TRANSACTIONS, continued Pursuant to a Share Repurchase and Registration Rights Agreement, dated as of March 1, 1992, among Paul F. Shoen, Pafran, Inc., and the Company, Paul F. Shoen had the right to require the Company to repurchase, with certain limitations, up to $3,000,000 of Common Stock owned by him. The Paul Shoen Registration Rights Agreement provides that the Company's obligation to repurchase any shares from Paul F. Shoen shall be satisfied if such shares are purchased by the ESOP Trust. Pursuant to the Paul Shoen Registration Rights Agreement, (i) on June 30, 1994, Paul F. Shoen sold 58,825 shares of Common Stock to the ESOP Trust at the then appraised value of $17.00 per share for an aggregate sales price of approximately $1,000,000 and (ii) on January 17, 1995, Paul F. Shoen sold 50,632 shares of Common Stock to the ESOP Trust at the most recent closing price for the Common Stock trading on Nasdaq of $19.75 per share for an aggregate sales price of approximately $1,000,000. In addition, Paul F. Shoen, subject to certain limitations and restrictions, may also elect under the Paul Shoen Registration Rights Agreement to cause the Company to effect a registration under the Securities Act of 1933, as amended, and applicable state securities laws of shares of Common Stock held by him. Paul F. Shoen sold 500,000 shares of Common Stock to the public in March of 1995 pursuant to his registration rights. Paul F. Shoen is a major stockholder of the Company. On February 9, 1995, Paul F. Shoen executed a settlement agreement with the Company whereby Paul F. Shoen agreed to the dismissal of certain claims he had asserted in an arbitration proceeding and in an action in the United States District Court for the District of Nevada. In exchange for Paul F. Shoen's agreement to dismiss such claims, the Company agreed, among other things, to work in good faith toward appointing independent trustees for the ESOP and to place Paul F. Shoen on the management's slate of directors for the 1994 Annual Meeting of Stockholders. In addition, the settlement agreement provides for the Company to pay Paul F. Shoen $925,000 and for the Company to receive a full release of all claims by Paul F. Shoen through the settlement date, including but not limited to, claims for reimbursement of attorneys fees related to all matters to which Paul F. Shoen is or was a party. The terms of the settlement will not result in a material adverse effect of the Company's financial condition or results of operations. Pursuant to a Management Consulting Agreement, dated as of March 5, 1992, Paul F. Shoen agreed to provide management consulting services to the Company on matters relating to the Company's business and the organization and management of the Company. In consideration for these services, the Company has agreed to pay Paul F. Shoen a yearly fee of $200,000. A total of $100,000 was paid for the year ended March 31, 1995. The Management Consulting Agreement terminated on March 1, 1995. On December 18, 1995, the Company reimbursed Paul F. Shoen $1,500,000 for a payment made to the plaintiffs in partial satisfaction of the judgment in the Shoen Litigation. Paul F. Shoen is a major stockholder and the brother of Edward J., Mark V. and James P. Shoen, who are major stockholders and directors of the Company. Management believes that these transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 95 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 18. SUPPLEMENTAL CASH FLOW INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Year ended --------------------------------------- 1996 1995 1994 --------------------------------------- (in thousands) Receivables $ (45,734) (57,645) (19,945) ======================================= Inventories $ 4,446 (1,325) 2,425 ======================================= Accounts payable and accrued liabilities $ 24,137 3,549 11,538 ======================================= Income taxes paid in cash amounted to $540,000, $9,465,000, and $3,275,000 for 1996, 1995 and 1994, respectively. Interest paid in cash amounted to $71,561,000, $67,191,000, and $71,448,000 for 1996, 1995 and 1994, respectively. 19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC. AND ITS SUBSIDIARIES A summary consolidated balance sheet for Ponderosa Holdings, Inc. and its subsidiaries is presented below: December 31, --------------------- 1995 1994 --------------------- (in thousands) Investments - fixed maturities $ 879,702 705,428 Other investments 106,966 116,151 Receivables 155,384 136,527 Deferred policy acquisition costs 49,995 49,244 Due from affiliate 15,215 15,165 Deferred federal income taxes 2,713 12,090 Other assets 9,194 25,007 --------------------- Total assets $ 1,219,169 1,059,612 ===================== Policy liabilities and accruals $ 419,187 411,249 Unearned premiums 64,379 63,938 Premium deposits 410,787 304,979 Other policyholders' funds and liabilities 30,448 25,739 --------------------- Total liabilities 924,801 805,905 Stockholder's equity 294,368 253,707 --------------------- Total liabilities and stockholder's equity $ 1,219,169 1,059,612 ===================== 96 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC. AND ITS SUBSIDIARIES, continued A summarized consolidated income statement for Ponderosa Holdings, Inc. and subsidiaries is presented below: Year ended December 31, ----------------------------------- 1995 1994 1993 ----------------------------------- (in thousands) Premiums $ 167,825 156,963 142,347 Net investment income 46,424 43,096 40,019 Other income 8,453 5,958 7,447 ----------------------------------- Total revenue 222,702 206,017 189,813 Benefits and losses 151,232 133,407 120,825 Amortization of deferred policy acquisition costs 17,131 10,896 9,343 Other expenses 20,303 28,816 29,834 ----------------------------------- Income from operations 34,036 32,898 29,811 Federal income tax expense (10,955) (9,460) (8,723) ----------------------------------- Earnings from operations before change in accounting principle 23,081 23,438 21,088 Cumulative effect of a change in accounting principle - - (93) ----------------------------------- Net income $ 23,081 23,438 20,995 =================================== Applicable laws and regulations of the State of Arizona require maintenance of minimum capital determined in accordance with statutory accounting practices in the amount of $400,000 for Oxford and $1,000,000 for RWIC. In addition, the amount of dividends which can be paid to 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 is $21,728,000 at December 31, 1995. The consolidated audited statutory net income for the years ended December 31, 1995, 1994 and 1993 was $21,112,000, $20,858,000, and $20,644,000, respectively; audited statutory capital and surplus was $225,780,000 and $205,699,000 at December 31, 1995 and 1994, respectively. 97 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO's three industry segments are Rental operations, Life insurance and Property/Casualty insurance. Rental 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. Life insurance is composed of the operations of Oxford Life Insurance Company which operates in various life, accident and health and annuity lines. Property/Casualty insurance is composed of the operations of Republic Western Insurance Company which operates in various property and casualty lines. Information concerning operations by industry segment follows: Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------ (in thousands) 1996 - ---- Revenues: Outside $1,085,711 49,103 159,609 - 1,294,423 Intersegment (656) 1,281 12,763 (13,388) - ---------------------------------------------------------- Total revenue $1,085,055 50,384 172,372 (13,388) 1,294,423 ========================================================== Pretax operating profit $ 129,092 12,600 21,436 656 163,784 ============================================ Interest expense 67,558 --------- Pretax earnings from operations $ 96,226 ========= Identifiable assets $1,921,105 599,713 619,454 (312,294) 2,827,978 ========================================================== Depreciation/ amortization $ 83,734 7,517 11,176 - 102,427 ========================================================== Capital expenditures $ 291,057 - - - 291,057 ========================================================== 1995 - ---- Revenues: Outside $1,052,243 39,347 144,642 - 1,236,232 Intersegment (42) 1,444 20,657 (22,059) - ---------------------------------------------------------- Total revenue $1,052,201 40,791 165,299 (22,059) 1,236,232 ========================================================== Pretax operating profit $ 128,278 9,824 23,074 42 161,218 ============================================ Interest expense 67,762 --------- Pretax earnings from operations $ 93,456 ========= Identifiable assets $1,827,995 479,778 579,821 (281,605) 2,605,989 ========================================================== Depreciation/ amortization $ 150,187 4,790 8,913 - 163,890 ========================================================== Capital expenditures $ 434,992 - - - 434,992 ========================================================== 98 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------ (in thousands) 1994 - ---- Revenues: Outside $ 960,878 31,357 137,659 - 1,129,894 Intersegment (357) 2,834 18,862 (21,339) - ---------------------------------------------------------- Total revenue $ 960,521 34,191 156,521 (21,339) 1,129,894 ========================================================== Pretax operating profit $ 106,248 9,106 20,705 (698) 135,361 ============================================ Interest expense 68,859 --------- Pretax earnings from operations $ 66,502 ========= Identifiable assets $1,593,044 461,464 550,795 (260,861) 2,344,442 ========================================================== Depreciation/ amortization $ 137,220 4,277 7,243 - 148,740 ========================================================== Capital expenditures $ 530,520 - - - 530,520 ========================================================== Geographic Area Data - United States Canada Consolidated --------------------------------------- (in thousands) 1996 - ---- Revenues $ 1,265,820 28,603 1,294,423 Pretax earnings from operations $ 92,699 3,527 96,226 Identifiable assets $ 2,781,717 46,261 2,827,978 1995 - ---- Revenues $ 1,207,878 28,354 1,236,232 Pretax earnings from operations $ 90,378 3,078 93,456 Identifiable assets $ 2,552,564 53,425 2,605,989 1994 - ---- Revenues $ 1,102,062 27,832 1,129,894 Pretax earnings from operations $ 65,919 583 66,502 Identifiable assets $ 2,298,948 45,494 2,344,442 99 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. SUBSEQUENT EVENTS On May 7, 1996, the Company declared a cash dividend of $3,241,000 ($.53125 per preferred share) to preferred stockholders of record as of May 17, 1996. See Notes 2, 5, 13 and 14 of Notes to Consolidated Financial Statements for other subsequent event disclosures. 100 SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information The following Summary of Earnings of Independent Trailer Fleets is presented for purposes of analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements by Price Waterhouse LLP, independent accountants, whose report thereon appears elsewhere herein.
Years Ended March 31, -------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------------------------------------------------------------------- (in thousands except earnings per $100 of average investment) Earnings data (Note A) : Fleet Owner income: Credited to Fleet Owner gross rental income $ 4,181 5,288 6,556 7,827 9,814 Credited to Distribution, Accident and Canadian Duty Fund (Note D) 69 66 71 114 118 --------- ----- ----- ----- ----- Total Fleet Owner income 4,250 5,354 6,627 7,941 9,932 --------- ----- ----- ----- ----- Fleet Owner operation expenses: Charged to Fleet Owner (Note C) 2,182 2,127 2,404 3,100 4,389 Charged to Distribution, Accident and Canadian Duty Funds (Note D) 254 234 237 290 274 --------- ----- ----- ----- ----- Total Fleet Owner operation expenses 2,436 2,361 2,641 3,390 4,663 --------- ----- ----- ----- ----- Fleet Owner earnings before Distribution, Accident and Canadian Duty Funds credit, depreciation and income taxes 1,814 2,993 3,986 4,551 5,269 Distribution, Accident and Canadian Duty Funds credit (Note D) 185 168 165 176 156 --------- ----- ----- ----- ----- Net Fleet Owner earnings before depreciation and income taxes $ 1,999 3,161 4,151 4,727 5,425 ========= ===== ===== ===== ===== Investment data (Note A) : Amount at end of year $ 3,138 4,382 5,257 6,332 7,749 ========= ===== ===== ===== ===== Average amount during year $ 3,701 4,820 5,668 6,976 8,911 ========= ===== ===== ===== ===== Net Fleet Owner earnings before depreciation and income taxes per $100 of average investment (Note B) $ 54.04 65.59 73.23 67.76 60.88 ========= ===== ===== ===== ===== The accompanying notes are an integral part of this Summary of Earnings of Independent Trailer Fleets. 101 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information (A) The accompanying Summary of Earnings of Independent Trailer Fleets includes the operations of trailers under the brand name of "U-Haul" owned by Independent Fleet Owners. Earnings data represent the aggregate results of operations before depreciation and taxes. Investment data represent the cost of trailers and investments before accumulated depreciation. Fleet Owner income is based on Independent Rental Dealer reports of rentals transacted through the day preceding the last Monday of each month and received by U-Haul International, Inc. by the end of the month and Company- Operated U-Haul Center reports of rentals transacted through the last day of each month. Payments to Fleet Owners for trailers lost or retired from rental service as a result of damage by accident have not been reflected in this summary because such payments do not relate to earnings before depreciation and income taxes but, rather, investment (depreciation). The investment data is based upon the cost of trailers to the Fleet Owners as reflected by sales records of U-Haul's manufacturing facilities. (B) The summary of earnings data stated in terms of amount per $100 of average investment represents the aggregate results of operations (earnings data) divided by the average amount of investment during the periods. The average amount of investment is based upon a simple average of the month-end investment during each period. Average earnings data is not necessarily representative of an individual Fleet Owner's earnings. (C) A summary of operations expenses charged directly to Independent Fleet Owners follows: Year ended March 31, --------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------- (in thousands) Licenses $ 436 503 520 593 686 Public liability insurance 264 320 392 510 1,047 Repairs and maintenance 1,482 1,304 1,492 1,997 2,656 --------- ----- ----- ----- ----- $ 2,182 2,127 2,404 3,100 4,389 ========= ===== ===== ===== ===== (D) The Fleet Owners, Independent Rental Dealers, U-Haul International, Inc. and Subsidiary U-Haul Rental Companies forego normal commissions on a portion of gross rental fees designated for transfer to the Distribution Fee Fund, the Accident Fund, and the Canadian Duty Fund. Designated expenses, otherwise chargeable to Fleet Owners, are paid from these Funds to the extent of the financial resources of the Funds. The amounts designated "Distribution, Accident and Canadian Duty Funds credit" in the accompanying summary of earnings represent Operator Contribution expenses borne by the Funds, which exceed Independent Fleetowner commissions foregone. 102 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued Additional Information (E) Commissions foregone for transfer to the Distribution, Accident and Canadian Duty Funds (net of fees in excess of expenses incurred) follows: Subsidiary Fleet Owners ----------------------------------- U-Haul Subsidiary Companies Companies Independent Total -------------------------------------------------- (in thousands) Year ended: March 31, 1996 1,287 624 69 1,980 March 31, 1995 986 465 66 1,517 March 31, 1994 873 399 71 1,343 March 31, 1993 879 358 114 1,351 March 31, 1992 875 390 118 1,383 (F) A summary of Independent Fleet Owner expenses incurred by the Funds follows: Year ended March 31, ----------------------------------------------- 1996 1995 1994 1993 1992 ----------------------------------------------- (in thousands) Accident repairs $ 1,675 1,295 1,085 1,199 1,142 Distribution of trailers, paid from redistribution and Canadian duty fees 0 0 0 0 37 ------- ----- ----- ----- ----- Total Fleet Owner expenditures 1,675 1,295 1,085 1,199 1,179 Less portion allocated to fleets owned by subsidiary companies 1,421 1,061 848 909 905 ------- ----- ----- ----- ----- Total Independent Fleet Owner expenses paid by funds 254 234 237 290 274 Add portion allocated to fleets owned by subsidiary companies 1,421 1,061 848 909 905 Return of investment (accident reimbursement) 305 222 258 152 204 ------- ----- ----- ----- ----- Total expenses incurred by Funds $ 1,980 1,517 1,343 1,351 1,383 ======= ===== ===== ===== =====
103 Schedule I Condensed Financial Information of Registrant AMERCO Balance Sheets March 31, 1996 1995 ---------------------- (in thousands) Assets - ------ Cash $ 5,487 5,967 Investment in subsidiaries 613,607 527,050 Due from unconsolidated subsidiaries 1,073,819 1,077,014 Other assets 8,420 6,042 ---------------------- $ 1,701,333 1,616,073 ====================== Liabilities and Stockholders' Equity - ------------------------------------ Liabilities: Notes and loans $ 929,236 811,562 Other liabilities 103,906 103,029 ---------------------- Stockholders' equity: Preferred stock - - Common stock 10,000 10,000 Additional paid-in capital 165,756 165,675 Foreign currency translation (11,877) (12,435) Net unrealized gain (loss) on investments 11,097 (6,483) Retained earnings: Beginning of year 561,589 514,521 Net earnings 60,394 60,032 Dividends paid (12,964) (12,964) ---------------------- 609,019 561,589 Less: Cost of common shares in treasury 111,118 10,461 Unearned employee stock ownership plan shares 4,686 6,403 ---------------------- Total stockholders' equity 668,191 701,482 ---------------------- $ 1,701,333 1,616,073 ====================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 104 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Earnings Years Ended March 31, 1996 1995 1994 ------------------------------------ (in thousands except per share data) Revenues - -------- Net interest income from subsidiaries $ 63,133 66,050 68,327 Other revenue 751 465 753 ------------------------------------ Total revenues 63,884 66,515 69,080 ------------------------------------ Expenses - -------- Interest expense 63,133 66,050 68,327 Other expenses 14,107 11,515 9,565 ------------------------------------ Total expenses 77,240 77,565 77,892 ------------------------------------ Operating loss (13,356) (11,050) (8,812) Equity in earnings of unconsolidated subsidiaries 107,540 102,583 71,659 Income tax expense (33,790) (31,501) (19,293) Extraordinary loss on early extinguishment of debt, net - - (3,370) ------------------------------------ Net earnings $ 60,394 60,032 40,184 ==================================== Earnings per common share $ 1.33 1.23 .89 ==================================== Weighted average common shares outstanding 35,736,335 38,190,552 38,664,063 ==================================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 105 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Cash Flows Years Ended March 31, 1996 1995 1994 ---------------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 60,394 60,032 40,184 Amortization, net 34 545 850 Equity in earnings of subsidiaries 69,075 67,139 49,288 Increase (decrease) in amounts due from unconsolidated subsidiaries 3,195 (91,475) (197,093) Net change in operating assets and liabilities (156,406) (100,642) (53,341) Other, net 18,485 (8,194) (3,945) ---------------------------------- Net cash used by operating activities (5,223) (72,595) (164,057) ---------------------------------- Cash flows from financing activities: Net change in short term borrowings 84,500 178,750 21,750 Proceeds from notes 140,000 - 186,000 Proceeds from Leveraged Employee Stock Ownership Plan 1,717 1,717 1,717 Principal payments on notes (106,826) (89,706) (179,905) Debt Issuance Costs (1,027) (319) (531) Issuance of preferred stock - - 146,320 Dividends paid (12,964) (12,964) (7,900) Treasury Stock purchase (100,657) - - Extraordinary loss on early extinguishment of debt - - (3,370) ---------------------------------- Net cash provided by financing activities 4,743 77,478 164,081 ---------------------------------- Increase (decrease) in cash (480) 4,883 24 Cash and cash equivalents at beginning of year 5,967 1,084 1,060 ---------------------------------- Cash and cash equivalents at end of year $ 5,487 5,967 1,084 ================================== Income taxes paid in cash amounted to $285,000, $8,794,000, and $3,025,000 for 1996, 1995 and 1994, respectively. Interest paid in cash amounted to $67,150,000, $65,840,000 and $81,115,000 for 1996, 1995 and 1994, respectively. See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 106 Schedule I, continued Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 1996, 1995 and 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMERCO, a Nevada corporation, was incorporated in April, 1969, and is the holding company for U-Haul International, Inc., Ponderosa Holdings, Inc. and Amerco Real Estate Company. The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this Form 10-K. The Company is included in a consolidated Federal income tax return with all of its U.S. subsidiaries. Accordingly, the provision for income taxes has been calculated for Federal income taxes of the Registrant and subsidiaries included in the consolidated return of the Registrant. State taxes for all subsidiaries are allocated to the respective subsidiaries. The financial statements include only the accounts of the Registrant (a Nevada corporation), which include certain of the corporate operations of AMERCO. The debt and related interest expense of the Registrant have been allocated to the consolidated subsidiaries. The intercompany interest income and expenses are eliminated in the consolidated financial statements. 2. GUARANTEES AMERCO has guaranteed performance of fleet owner contract obligations of U-Haul International, Inc., a wholly-owned subsidiary, and residual values on certain long-term leases. See Notes 8 and 13 of Notes to Consolidated Financial Statements. 107 Schedule I, continued Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 1996, 1995 and 1994 3. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: Year end -------------------- 1996 1995 -------------------- (in thousands) Medium-term notes payable 8.55% to 11.50% interest rates, due through 2000 $ 95,050 169,270 Note payable to insurance companies 5.89% to 10.27% interest rates, due through 2006 339,000 270,000 Notes payable to banks 4.69% to 7.54% interest rates, due through 2001 84,100 45,700 Other notes payable 9.50% interest rate, due through 2005 86 92 Unsecured notes payable to banks under revolving lines of credit 5.61% to 6.18% interest rates 338,000 293,000 Other short-term promissory notes 73,000 33,500 -------------------- $ 929,236 811,562 ==================== For additional information, see Note 5 of Notes to Consolidated Financial Statements. 108 Schedule V AMERCO AND CONSOLIDATED SUBSIDIARIES Supplemental Information (For Property-Casualty Insurance Underwriters) Years ended December 31, 1995, 1994 and 1993
Reserves Amorti- for Unpaid zation Paid Claims Claims and of Claims Deferred and Claim Adjustment Deferred and Policy Claim Net Net Expenses Incurred Policy Claim Net Affiliation Acqui- Adjust- Discount Earned Invest- Related to Acqui- Adjust- Premiums With sition ment if any, Unearned Premiums ment Current Prior sition ment Written Year Registrant Costs Expenses Deducted Premiums Income Year Year Costs Expenses ---- ---------- ----- -------- -------- -------- -------- ------ ---- ---- ----- -------- ------- (in thousands) 96 Consolidated property - casualty entity $ 9,858 341,981 N/A 64,379 128,083 29,906 114,110 8,292 8,973 109,372 125,789 95 Consolidated property - casualty entity 8,973 329,741 N/A 63,938 112,862 29,026 102,782 6,576 6,644 92,651 119,952 94 Consolidated property - casualty entity 6,644 314,482 N/A 58,842 105,801 27,446 91,044 12,688 5,377 104,123 113,672 (1) The earned premiums are reported net of intersegment transactions. Earned premiums eliminated in consolidation amount to $12,669,000, $20,575,000 and $18,798,000 for the years ended 1996, 1995 and 1994, respectively. (2) The premiums written are reported net of intersegment transactions. Premiums written eliminated in consolidation amount to $14,206,000, $19,407,000 and $18,335,000 for the years ended 1996, 1995 and 1994, respectively.
111 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERCO By: /S/ EDWARD J. SHOEN --------------------- Edward J. Shoen Chairman of the Board Dated: June 25, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ EDWARD J. SHOEN Chairman of the Board June 25, 1996 - --------------------- (Principal Executive Edward J. Shoen Officer) /S/ GARY B. HORTON Principal Financial June 25, 1996 - --------------------- and Accounting Officer Gary B. Horton /S/ MARK V. SHOEN Director June 25, 1996 - --------------------- Mark V. Shoen /S/ JAMES P. SHOEN Director June 25, 1996 - ---------------------- James P. Shoen /S/ RICHARD J. HERRERA Director June 25, 1996 - ---------------------- Richard J. Herrera /S/ CHARLES J. BAYER Director June 25, 1996 - --------------------- Charles J. Bayer EX-12 2 RATIO OF FIXED CHARGED AMERCO and Consolidated Subsidiaries Exhibit 12. Statement Re: Computation of Ratios Year end ------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------- Pretax earnings from operations 96.2 93.5 66.5 49.2 25.7 Plus: Interest expense 67.6 67.8 68.9 68.0 76.2 Preferred stock dividends 13.0 13.0 4.8 - - Amortization of debt expense and discounts .7 .8 1.1 1.6 1.5 A portion of rental expense (1/3) 23.0 22.2 28.1 39.7 41.3 ------------------------------------- Subtotal (A) 200.5 197.3 169.4 158.5 144.7 ------------------------------------- Divided by: Fixed charges: Interest expense 67.6 67.8 68.9 68.0 76.2 Preferred stock dividends 13.0 13.0 4.8 - - A portion of rental expense (1/3) 23.0 22.2 28.1 39.7 41.3 Interest capitalized during the period 1.8 1.7 .6 .2 .2 Amortization of debt expense and discounts .7 .8 1.1 1.6 1.5 ------------------------------------- Subtotal (B) 106.1 105.5 103.5 109.5 119.2 ------------------------------------- Ratio of earnings to fixed charges (A)/(B) 1.89 1.87 1.64 1.45 1.21 ===================================== The Company believes that one-third of the Company's annual rental expense is a reasonable approximation of the interest factor of such rentals. EX-21 3 SUBSIDIARY LIST Exhibit 21. AMERCO AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDING MARCH 31, 1996 STATE OF LEGAL NAME INCORPORATION - --------------------------------------------------- ------------- AMERCO (Nevada) NV Is the Parent Company of: Amerco Real Estate Company NV Parent Company of: Amerco Real Estate Co of Texas, Inc. TX Amerco Real Estate Company of Alabama AL Nationwide Commercial Company AZ Parent Company of: Yonkers Property Corporation NY Gibraltar Storage Corporation AL One PAC Company NV Two PAC Company NV Three PAC Company NV Four PAC Company NV Five PAC Company NV Six PAC Company NV Seven PAC Company NV Eight PAC Company NV Nine PAC Company NV Ten PAC Company NV Eleven PAC Company NV Twelve PAC Company NV Japal, Inc. NV M.V.S., Inc. NV Pafran, Inc. NV Sophmar, Inc. NV EJOS, Inc. AZ Ponderosa Holding, Inc. NV Parent Company of: Oxford Life Insurance Company AZ Republic Western Insurance Company AZ Parent Co. of: Republic Claims Service Company AZ Republic Western Syndicate, Inc. NY RWIC Investment, Inc. AZ Exhibit 21, continued. AMERCO AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDING MARCH 31, 1996 STATE OF LEGAL NAME INCORPORATION - --------------------------------------------------- ------------- AMERCO (Nevada), continued NV Is the Parent Company of: U-Haul International, Inc. NV Parent Company of: U-Haul Business Consultants, Inc. AZ U-Haul Leasing & Sales Company NV U-Haul Self Storage NV A & M Associates, Inc. AZ U-Haul Company of Washington WA U-Haul Company of Inland Northwest WA U-Haul Company of Oregon OR U-Haul Company of Hawaii, Inc. HI U-Haul Company of California CA U-Haul Company of Idaho, Inc. ID U-Haul Company of Utah, Inc. UT U-Haul Company of Colorado CO U-Haul Company of Arizona AZ U-Haul Company of New Mexico, Inc. NM U-Haul Co. of North Dakota ND U-Haul Co. of Vermont, Inc. VT U-Haul Co. of South Dakota, Inc. SD U-Haul Company of Minnesota MN U-Haul Company of Nebraska NE U-Haul Co. of Maine, Inc. ME U-Haul Company of Kansas, Inc. KS U-Haul Co. of Missouri MO U-Haul Company of Oklahoma, Inc. OK U-Haul Co. of Illinois, Inc. IL U-Haul Company of Texas TX U-Haul Company of Arkansas AR U-Haul Co. of Louisiana LA U-Haul Company of Mississippi MS U-Haul Company of Wisconsin, Inc. WI U-Haul Co. of Michigan MI U-Haul Co. of Indiana, Inc IN U-Haul Co. of Ohio OH U-Haul Co. of Tennessee TN U-Haul Co. of Kentucky KY U-Haul Co. of Alabama AL U-Haul Co. of Georgia GA U-Haul Company of North Carolina NC U-Haul Company of South Carolina, Inc. SC U-Haul Co. of Florida FL U-Haul Co. of New Hampshire NH U-Haul Co. of Wyoming Inc. WY U-Haul Co. of Iowa, Inc. IA U-Haul Company of Connecticut CT U-Haul Co. of District of Columbia, Inc. DC U-Haul Company of Rhode Island RI U-Haul Co of New York, Inc. NY U-Haul Co. of Pennsylvania PA U-Haul Co. of New Jersey, Inc. NJ U-Haul Co. of Maryland, Inc. MD U-Haul Company of West Virginia WV U-Haul Co. of Virginia VA U-Haul Company of Alaska AK U-Haul Co. of Massachusetts, Inc. MA Exhibit 21, continued. AMERCO AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT FISCAL YEAR ENDING MARCH 31, 1996 STATE OF LEGAL NAME INCORPORATION - --------------------------------------------------- ------------- AMERCO (Nevada), continued NV Is the Parent Company of: U-Haul International, Inc., continued NV Parent Company of: U-Haul Co. of Nevada, Inc. NV U-Haul Company of Montana, Inc. MT U-Haul Co. (Canada), Ltd. CANADA EX-27 4 3/96 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS. 1,000 12-MOS MAR-31-1996 MAR-31-1996 31,168 0 340,564 0 45,891 0 2,419,446 1,102,731 2,827,978 0 998,220 0 0 10,000 639,548 2,827,978 173,806 1,294,423 108,662 1,017,485 0 4,492 67,558 96,226 35,832 60,394 0 0 0 60,394 1.33 1.33 THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNTS NET OF THEIR ALLOWANCES. AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
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