10-K 1 0001.txt AMERCO 10-K 03/31/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K - Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 ----------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. ----------- ----------------------------------- ------------------ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Suite 100 Reno, Nevada 89502-3239 Telephone (775) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Registrant Title of Class on Which Registered ---------- -------------- ---------------------- AMERCO Series A 8 1/2% New York Stock Exchange Preferred Stock U-Haul International, Inc. None Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class ---------- -------------- AMERCO Common U-Haul International, Inc. None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 22,379,787 shares of AMERCO common stock, $0.25 par value, were outstanding at June 29, 2000. The aggregate market value of AMERCO common stock held by non-affiliates (i.e., stock held by persons other than officers, directors and 5% shareholders of AMERCO) was $152,957,730. The aggregate market value was computed using the closing price for the common stock trading on NASDAQ on June 26, 2000. 5,385 shares of U-Haul International, Inc. common stock, $0.01 par value, were outstanding at June 29, 2000. None of these shares were held by non-affiliates. U-Haul International, Inc. meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. Portions of AMERCO's Proxy Statement relating to its Annual Meeting of Stockholders to be held on September 8, 2000, are incorporated by reference in Part III hereof. 2 TABLE OF CONTENTS PAGE NO. PART I ITEM 1. BUSINESS...................................... 3 A. AMERCO................................... 3 B. HISTORY.................................. 3 C. MOVING AND STORAGE OPERATIONS............ 4 D. REAL ESTATE OPERATIONS................... 5 E. INSURANCE OPERATIONS..................... 6 ITEM 2. PROPERTIES.................................... 9 ITEM 3. LEGAL PROCEEDINGS............................. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............... 10 ITEM 6. SELECTED FINANCIAL DATA....................... 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................... 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ................................... 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS............................... 24 ITEM 11. EXECUTIVE COMPENSATION........................ 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............. 25 3 PART I ITEM 1. BUSINESS A. AMERCO AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (Republic) and Oxford Life Insurance Company (Oxford). Throughout this Form 10-K, unless the context otherwise requires, the term "AMERCO" includes all of its subsidiaries. AMERCO's executive offices are located at 1325 Airmotive Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number is (775) 688-6300. As used in this Form 10-K, all references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. Republic and Oxford are consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1999, 1998 and 1997 correspond to AMERCO's fiscal years 2000, 1999 and 1998, respectively. AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (Republic) and Life Insurance (Oxford). See Note 21 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the industry segments. Moving and Storage Operations Moving and self-storage operations consist of the rental of trucks and trailers, sale of moving aids such as boxes and the rental of self- storage spaces to the do-it-yourself mover. Operations are conducted using the registered tradename U-Haul throughout the United States and Canada. Real Estate Operations Real Estate owns approximately 90% of U-Haul's real estate assets, including U-Haul Center and Storage locations. The remainder of the real estate assets are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all the dispositions (sale or lease) of unused real estate. Property and Casualty Insurance Republic originates and reinsures property and casualty-type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. Life Insurance Oxford originates and reinsures annuities, life, credit life and disability, health and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for AMERCO. On November 21, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore). Encore's primary subsidiary is North American Insurance Company (NAI). NAI's premium volume is primarily from the sale of credit life and disability products, and Medicare supplement insurance. NAI owns all of the issued and outstanding common shares of North American Fire & Casualty Insurance Company (NAFCIC), a property and casualty company. In December 1998, NAFCIC was sold to Republic. On November 24, 1997, Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company (Safe Mate). As of November 1, 1998, Safe Mate merged into Oxford. Safe Mate's business was the sale of credit life and disability products. B. HISTORY U-Haul was founded in 1945 under the name "U-Haul Trailer Rental Company". From 1945 to 1974, U-Haul rented trailers and, starting in 1959, trucks on a one-way and In-Town basis through independent dealers. Since 1974, U-Haul has developed a network of owned rental centers (U-Haul Centers) through which U-Haul rents its trucks and trailers and provides related products and services (e.g., the sale and installation of hitches, as well as the sale of boxes and moving supplies). At March 31, 2000, U-Haul's distribution network included 1,200 U-Haul Centers and 14,500 independent dealers. 4 C. MOVING AND STORAGE OPERATIONS Business Strategies The U-Haul business strategy remains focused on do-it-yourself moving and self-storage customers. U-Haul believes that customer access, in terms of truck or trailer availability and proximity of rental locations, is critical to its success. Under the U-Haul name, our strategy is to offer, in an integrated manner over an extensive and geographically diverse network of 15,700 Company-owned Centers and independent dealers, a wide range of products and services to do-it- yourself moving and self-storage customers. Moving Operations U-Haul has a variety of product offerings. Rental trucks are designed with do-it-yourself customers in mind. U-Haul trailers are suited to the low profile of many newly manufactured automobiles. As of March 31, 2000, the U-Haul rental equipment fleet consisted of 97,000 trucks, 80,300 trailers and 19,200 tow dollies. Additionally, U-Haul provides support rental items such as furniture pads and bumper hitches. Approximately 90% of U-Haul's rental revenue is from do-it-yourself movers. Moving rentals include: (i) In-Town rentals, where the equipment is returned to the originating U-Haul location and (ii) one-way rentals, where the equipment is returned to a U-Haul location in another city. U-Haul's 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. U-Haul also sells a wide selection of moving supplies that include boxes, tape and packaging materials. U-Haul Centers also sell and install hitches and towing systems, and sell propane. U-Haul offers protection packages such as: (i) Safemove - which provides moving customers with a damage waiver, cargo protection and medical and life coverage and (ii) Safestor - which provides self-storage rental customers with various types of protection for their goods in storage. Independent dealers receive U-Haul equipment on a consignment basis and are paid a commission on gross revenues generated from their rentals. U-Haul maintains contracts with its independent dealers that may typically be terminated upon 30 days written notice by either party. U-Haul designs and manufactures its truck van boxes, trailers and various other support rental equipment items. Truck chassis are manufactured by both foreign and domestic truck manufacturers. These chassis receive certain post-delivery modifications and are joined with van boxes at strategically located Company-owned manufacturing and assembly facilities in the United States. U-Haul services and maintains its trucks and trailers through an extensive preventive-maintenance program, generally performed at Company- owned facilities located at or near U-Haul Centers. Major repairs are performed either by the chassis manufacturers' dealers or by Company- owned repair shops, and U-Haul takes advantage of manufacturers' warranties. Competition The moving truck and trailer rental market is highly competitive and dominated by national operators in both the In-Town and one-way markets. Recently two major competitors combined. Budget Rent-A-Car acquired Ryder TRS (Ryder Truck Rentals). Management believes that this merger will not have a material adverse effect on AMERCO's financial position or operating results. Management believes that there are two distinct users of rental trucks: commercial users and do-it-yourself users. U-Haul focuses on the do-it-yourself mover. U-Haul believes that the principal competitive factors are convenience of rental locations, availability of quality rental equipment and price. 5 Self-Storage Business U-Haul entered the self-storage business in 1974 and since then has increased the rentable square footage of its storage locations through the acquisition of existing facilities and new construction. Ten percent of U-Haul's rental revenue is generated from storage. In addition, U-Haul has entered into management agreements to manage self-storage properties owned by others. U-Haul has also entered into a strategic and financial partnership with Private Mini Storage Realty, L.P., a Texas-based operator of self-storage properties. Through over 900 owned or managed storage locations in the United States and Canada, U-Haul offers for rent more than 29.1 million square feet of self-storage space. U-Haul's self-storage facility locations range in sizes up to 152,000 square feet of storage space, with individual storage units in sizes from 15 square feet to 400 square feet. The primary market for storage rooms is the storage of household goods. With the addition of over 20,000 storage rooms during fiscal year 2000, the average occupancy rate of facilities operating over one year was 84.1%, with modest seasonal variations. During fiscal year 2000, delinquent rentals as a percentage of total storage rentals were approximately 6.8%. U-Haul considers this rate to be satisfactory. Competition The primary competition for a U-Haul self-storage location is other storage facilities within a trade area offering a comparable level of convenience to the customer. Employees As of March 31, 2000, U-Haul's non-seasonal work force consisted of 15,800 full and part-time employees. D. REAL ESTATE OPERATIONS Real Estate Operations Real Estate has responsibility for actively marketing properties available for sale or lease. Real Estate is also responsible for managing any environmental risks associated with AMERCO's real estate. Environmental Matters Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate's business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on the properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks. Under this program, over 3,000 tanks have been removed at a cost of $40.0 million. A subsidiary of U-Haul, INW Company (INW), owns one property located within two different state hazardous substance sites in the State of Washington. The sites are referred to as the "Yakima Valley Spray Site" and the "Yakima Railroad Area." INW has been named as a "potentially liable party" (PLP) under state law with respect to this property as it relates to both sites. Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO's financial position or operating results. 6 E. INSURANCE OPERATIONS Business Strategies Republic's principal business strategy is to provide specialty insurance for personal, commercial and reinsurance markets. Republic focuses on selected regional and under-served customers through managing general agents, independent agents and brokers. Oxford's business strategy is long-term capital growth through direct writing of annuity, credit life and disability, universal life and Medicare supplement insurance. Currently, Oxford is pursuing this growth strategy of increased direct writing via acquisitions of small insurance companies, expanded distribution channels and product enhancement and diversity. The acquisitions of North American Insurance Company and Safe Mate Life Insurance Company in 1997 represent a significant movement toward this long-term goal. Oxford has significantly expanded its distribution channels and administrative capabilities through these acquisitions. Investments Republic and Oxford investments must comply with the insurance laws of the state of domicile. These laws prescribe the type, quality and concentration of investments that may be made. Moreover, in order to be considered an acceptable reinsurer by cedents and intermediaries, a reinsurer must offer financial security. The quality and liquidity of invested assets are important considerations in determining such security. The investment philosophies of Republic and Oxford emphasize protection of principal through the purchase of investment grade fixed- income securities. Approximately 88.0% of Republic's and 88.2% of Oxford's fixed-income securities consist of investment grade securities (NAIC-2 or greater). The maturity distributions are designed to provide sufficient liquidity to meet future cash needs. Reinsurance Republic and Oxford 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 to large risks. However, the original insurer retains primary liability to the policyholder should the assuming insurer not be able to meet its obligations under the reinsurance agreements. Regulation Republic and Oxford are subject to regulation throughout the United States. The regulation extends to such matters as licensing companies and agents, restricting the types, quality or quantity of investments, regulating capital and surplus and actuarial reserve maintenance, setting solvency standards, filing of annual and other reports on financial position, and regulating trade practices. State laws also regulate transactions and dividends between an insurance company and its parent or affiliates, and generally require prior approval or notification for any change in control of the insurance subsidiary. Republic's unpaid loss and loss expenses are certified annually by an independent actuarial consulting firm as required by state regulation. In the past few years, the insurance and reinsurance regulatory framework has been subjected to increased scrutiny by the National Association of Insurance Commissioners (NAIC), federal and state legislatures and insurance regulators. These regulators are considering increased regulations, with an emphasis on insurance company investment and solvency issues. It is not possible to predict the future impact of changing state and federal regulations on the operations of Republic and Oxford. Republic and Oxford are in compliance with NAIC minimum risk-based capitalization requirements for insurance companies as of December 31, 1999. Competition The highly competitive insurance industry includes a large number of property and casualty insurance companies and life insurance companies. In addition, the marketplace now includes financial service firms offering both insurance and financial products. Many competitors have been in business for a longer period of time or possess substantially greater financial resources. Competition in the insurance business is based upon price, product design and services rendered to producers and policyholders. 7 Employees Republic's non-seasonal work force consists of 386 full and part- time employees. Oxford's non-seasonal work force consists of 160 full and part-time employees. Life Insurance Oxford offers annuities, life, credit life and disability, and Medicare supplement insurance products, both as a direct writer and as an assuming reinsurer. In addition, Oxford administers self-insured group health and dental plans for AMERCO. Reinsurance arrangements are entered into with unaffiliated reinsurers. Oxford's subsidiary, North American Insurance Company underwrites credit life and disability and Medicare supplement insurance. Property and Casualty Republic's business activities consist of three basic areas: U-Haul, direct and assumed reinsurance underwriting. U-Haul underwritings include coverage for U-Haul customers, independent dealers and employees of AMERCO. For the year ended December 31, 1999, approximately 18.3% of Republic's written premiums resulted from U-Haul underwriting activities. Republic's direct underwriting is done through company-employed underwriters and selected general agents. The products provided include liability coverage for rental vehicle lessees, storage rental properties, coverage for commercial multiple peril, nonstandard auto, mobile homes and excess workers' compensation. Republic's assumed reinsurance underwriting is done via broker markets. In an effort to decrease risk, Republic has entered into various catastrophe cover policies to limit its exposure. The liability for reported and unreported losses is based on both Republic's historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. The liability for unpaid claims and unpaid claims expenses is based on estimates of the amount necessary to settle all claims as of the statement date. Both reported and unreported losses are included in the liability. Republic updates the liability estimate as additional facts regarding claim costs become available. These estimates are subject to uncertainty and variation due to numerous factors. In estimating reserves, no attempt is made to isolate inflation from the combined effect of other factors including inflation. Unpaid losses and unpaid loss expenses are not discounted. Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows: 1999 1998 1997 --------------------------- (in thousands) Balance at January 1 $ 344,748 384,816 332,674 Less reinsurance recoverable 68,135 75,286 60,319 --------------------------- Net balance at January 1 276,613 309,530 272,355 Incurred related to: Current year 135,382 116,069 132,291 Prior years 8,468 (8,827) 23,192 --------------------------- Total incurred 143,850 107,242 155,483 Paid related to: Current year 55,136 36,407 28,972 Prior years 94,606 103,752 89,336 --------------------------- Total paid 149,742 140,159 118,308 Net balance at December 31 270,721 276,613 309,530 Plus reinsurance recoverable 64,137 68,135 75,286 --------------------------- Balance at December 31 $ 334,858 344,748 384,816 =========================== 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 $27.9 million) increased by $8.4 million in 1999. The table on page 8 illustrates the change in unpaid loss and loss adjustment expenses. First line - reserves as originally reported at the end of the stated year. Second section, reading down, - cumulative amounts paid as of the end of successive years with respect to that reserve. Third section, reading down, - revised estimates of the original recorded reserve as of the end of successive years. Last section - compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be summed. 8
Unpaid Loss and Loss Adjustment Expenses December 31 -------------------------------------------------------------------------------------------------------------------------- 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 -------------------------------------------------------------------------------------------------------------------------- (in thousands) Unpaid Loss and Loss Adjustment Expenses: $207,939 226,324 236,019 238,762 314,482 329,741 341,981 332,674 384,816 344,748 334,858 Paid (Cumulative) as of: One year later 50,992 55,128 65,532 83,923 70,382 86,796 89,041 89,336 103,752 94,606 Two years later 87,850 97,014 105,432 123,310 115,467 139,247 150,001 161,613 178,455 Three years later 116,043 120,994 126,390 153,030 146,640 173,787 195,855 208,168 Four years later 132,703 133,338 143,433 173,841 166,068 198,434 226,815 Five years later 142,159 144,764 153,730 181,677 181,174 219,425 Six years later 151,227 152,424 160,875 191,938 194,652 Seven years later 158,043 157,979 168,975 200,281 Eight years later 162,038 163,860 175,364 Nine years later 167,122 169,681 Ten years later 171,744 Reserve Reestimated as of: One year later 206,701 229,447 231,779 251,450 321,058 338,033 353,508 354,776 357,733 339,602 Two years later 206,219 221,450 224,783 254,532 323,368 340,732 369,852 342,164 364,894 Three years later 199,925 211,998 223,403 253,844 309,936 349,459 328,445 346,578 Four years later 198,986 207,642 214,854 231,536 317,687 302,808 331,897 Five years later 197,890 200,629 198,320 239,888 267,005 300,180 Six years later 194,601 189,601 210,872 263,843 262,517 Seven years later 189,175 200,556 231,407 259,798 Eight years later 199,075 217,005 227,603 Nine years later 212,331 213,981 Ten years later 209,693 Cumulative Redundancy (Deficiency) $ (1,754) 12,343 8,416 (21,036) 51,965 29,561 10,084 (13,904) 19,922 5,146 Retro Premium Recoverable $ 10,277 7,241 2,329 (1,206) 6,044 4,430 10,803 7,956 4,918 6,797 Reestimated Reserve: Amount (Cumulative) $ 8,523 19,584 10,745 (22,242) 58,009 33,991 20,887 (5,948) 24,840 11,943
9 ITEM 2. PROPERTIES AMERCO subsidiaries own property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and that provide office space for the Company. Such facilities exist throughout the United States and Canada. The majority of land and buildings used by U-Haul is owned in fee and is substantially unencumbered. U-Haul also manages storage facilities owned by others. In addition, U-Haul owns certain real estate not currently used in its operations. U-Haul operates 1,200 U-Haul Centers (including Company-owned storage locations), manages 206 storage centers and operates 12 manufacturing and assembly facilities. U-Haul also operates 100 repair facilities located at or near a U-Haul Center. ITEM 3. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO 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 the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. See "Item 1. Business - Environmental Matters". Reference is made to Note 15 in Notes to Consolidated Financial Statements for a discussion of stockholder litigation and California overtime litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of June 29, 2000, there were approximately 3,400 holders of record of AMERCO's common stock. AMERCO's common stock has been traded on NASDAQ National Market (NASDAQ) since November 1994 under the symbol "UHAL". The following table sets forth the high and low closing prices of the common stock of AMERCO trading on NASDAQ for the periods indicated. For the Years Ended March 31, -------------------------------------------- 2000 1999 -------------------------------------------- High Low High Low -------------------------------------------- First quarter 25 1/2 20 3/8 33 9/16 28 5/8 Second quarter 28 9/16 22 1/4 29 1/2 21 1/8 Third quarter 29 3/4 23 3/8 29 20 1/8 Fourth quarter 26 63/64 16 1/2 29 20 11/16 AMERCO has not declared any cash dividends to common stockholders for the two most recent fiscal years. AMERCO does not have a formal dividend policy. AMERCO's Board of Directors periodically considers the advisability of declaring and paying dividends in light of existing circumstances. AMERCO does not intend to pay dividends in the foreseeable future. See Note 20 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain statutory restrictions on the ability of the insurance subsidiaries to pay dividends to AMERCO. See Note 16 of Notes to Consolidated Financial Statements in Item 8 for a discussion of AMERCO's non-cash dividends. See Note 6 of Notes to Consolidated Financial Statements in Item 8 for a discussion of changes to common shares outstanding. The common stock of U-Haul is wholly-owned by AMERCO. As a result, no active trading market exists for the purchase and sale of such common stock. No cash dividends were declared to AMERCO by U-Haul during the two most recent fiscal years. 11
ITEM 6. SELECTED FINANCIAL DATA AMERCO AND CONSOLIDATED SUBSIDIARIES For the Years Ended March 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------- (in thousands, except share, per share data and ratios) Summary of Operations: Rental revenue and net sales $ 1,339,348 1,255,493 1,194,948 1,146,751 1,107,782 Premiums, net investment and interest income 344,022 299,286 230,308 238,628 217,309 --------- --------- --------- --------- --------- 1,683,370 1,554,779 1,425,256 1,385,379 1,325,091 --------- --------- --------- --------- --------- Operating expenses and cost of sales (5) 1,030,821 983,422 920,284 882,472 853,427 Benefits, losses and amortization of deferred acquisition costs 244,579 208,281 189,770 190,623 154,795 Lease expense 136,044 118,742 89,879 85,973 69,097 Depreciation, net (3) 87,647 73,066 69,655 66,742 83,989 --------- --------- --------- --------- --------- 1,499,091 1,383,511 1,269,588 1,225,810 1,161,308 --------- --------- --------- --------- --------- Earnings 184,279 171,268 155,668 159,569 163,783 Interest expense 81,532 73,658 79,369 76,041 67,557 --------- --------- --------- --------- --------- Pretax earnings 102,747 97,610 76,299 83,528 96,226 Income tax expense (36,922) (35,101) (27,643) (29,344) (35,832) --------- --------- --------- --------- --------- Earnings from operations before extraordinary loss on early extinguishment of debt 65,825 62,509 48,656 54,184 60,394 Extraordinary loss on early extinguishment of debt, net (8) (9) (10) (11) (334) - (13,672) (2,319) - --------- --------- --------- --------- --------- Net earnings $ 65,491 62,509 34,984 51,865 60,394 ========= ========= ========= ========= ========= Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt per common share (2) (4) $ 2.39 2.07 1.28 1.44 1.33 Net earnings (2) (4) (8) (9) (10) (11) 2.37 2.07 .66 1.35 1.33 Weighted average common shares outstanding (4) 21,934,390 21,937,686 21,896,101 25,479,651 35,736,335 Cash dividends declared: Preferred stock $ 13,641 17,414 20,766 16,875 12,964 Common stock - - - - - Ratio of earnings to fixed charges (1) 1.71 1.73 1.56 1.64 1.90
12
ITEM 6. SELECTED FINANCIAL DATA, continued AMERCO AND CONSOLIDATED SUBSIDIARIES For the Years Ended March 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------- (in thousands, except share, per share data and ratios) Balance Sheet Data: Property, plant and equipment, net $ 1,382,662 1,294,824 1,275,756 1,247,066 1,316,715 Total assets 3,125,225 3,087,503 2,913,277 2,718,994 2,823,407 Notes and loans payable 1,137,840 1,114,748 1,025,323 983,550 998,220 Stockholders' equity (4) (11) 585,294 616,025 595,059 602,320 649,548 Other information: EBITDAR (6) 455,804 404,112 359,369 339,906 335,307 Operating profit margin (7) 13.6% 13.6% 13.0% 13.6% 14.1% (1) For purposes of computing the ratio of earnings to fixed charges, "earnings" consists of pretax earnings from operations plus total fixed charges excluding interest capitalized during the period and "fixed charges" consists of interest expense, preferred stock dividends, capitalized interest, amortization of debt expense and discounts and one-third of the Company's annual rental expense (which AMERCO believes is a reasonable approximation of the interest factor of such rentals). (2) Earnings and net earnings per common share were computed after giving effect to the dividends on the Company's Series B floating rate stock for the years ended March 31, 2000, 1999, 1998 and 1997. (3) Reflects the change in estimated residual value during the years ended March 31, 1998 and 1996. (4) Reflects the acquisition of treasury shares acquired pursuant to the Shoen Litigation as discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Stockholder Litigation". (5) Reflects the adoption of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" during the year ended March 31, 1998. (6) EBITDAR is defined as earnings before interest expense, taxes, depreciation, amortization and lease expense (100%). EBITDAR is presented because the Company believes it is a widely accepted financial indicator of an entity's ability to incur and service debt. (7) Operating profit margin - Earnings from operations plus 1/3 lease expense divided by total revenues. (8) Reflects the early extinguishment of debt with notional amounts totaling $76.0 million and $255.0 million during fiscal year 1998. (9) Reflects the early extinguishment of debt and long-term notes with notional amounts totaling $76.3 million and $86.2 million, respectively, during fiscal year 1997. (10) Reflects the early extinguishment of Medium-Term Notes and Bond Backed Asset Trust certificates with notional amounts totaling $50.0 million and $100.0 million, respectively, during fiscal year 2000. (11) Reflects the redemption of $25 million, $50 million and $25 million of Series B Preferred Stock in fiscal years 2000, 1999 and 1998, respectively.
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe-harbor provisions. Such statements may include, but not be limited to, projections of revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The following disclosures, as well as other statements in this report and in the Notes to AMERCO's Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences, or that could affect AMERCO's stock price. General Information on fiscal year and industry segments is incorporated by reference to "Item 8. Financial Statements and Supplementary Data - Notes 1, 20 and 21 of Notes to Consolidated Financial Statements". The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographic area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities was $237.7 million, $159.5 million and $180.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follows: Moving and Storage Operations Cash provided by operating activities was $147.5 million, $128.5 million and $109.8 million in fiscal years 2000, 1999 and 1998, respectively. The increase from fiscal year 1999 to fiscal year 2000 is partially due to an increase in net income. The increase from fiscal year 1998 to fiscal year 1999 is also partially due to increased net income. Real Estate Operations Cash provided by operating activities was $24.8 million, $38.0 million and $92.5 million in fiscal years 2000, 1999 and 1998, respectively. The decrease in fiscal year 2000, is due to a decrease in the intercompany payable. In fiscal year 1999, proceeds received from the sale of real estate was used to pay down the intercompany payable. Property and Casualty Cash provided (used) by operating activities was $(11.1) million, $(21.7) million and $23.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1999 to 1998 change resulted mainly from the increased funds withheld liability, decreased paid losses recoverable and a smaller decrease in loss and loss adjustment expense reserves. This was offset by increased premiums and agent's balances and the intercompany receivable due from affiliates. The 1998 to 1997 change resulted mainly from an increase in paid losses recoverable and the change in loss and loss expense reserves partially offset by increased net income and decreased accounts receivable. Republic's cash and cash equivalents and short-term investment portfolio were $6.0 million, $6.1 million and $16.3 million at December 31, 1999, 1998 and 1997, respectively. This balance reflects funds in transition from maturity proceeds to long-term investments. This level of liquid assets, combined with budgeted cash flow, is adequate to meet periodic needs. Capital and operating budgets allow Republic to schedule cash needs in accordance with investment and underwriting proceeds. 14 Life Insurance Cash provided by operating activities was $22.2 million, $34.6 million and $8.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in cash flows from operating activities in 1999 relates to paid loss experience. The increase in cash flows from operating activities in 1998 relates to the increased premium production in the credit insurance and Medicare supplement areas. 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. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short- term portfolio. Short-term investments aggregated $30.7 million, $63.4 million and $13.4 million at December 31, 1999, 1998 and 1997, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Consolidated Group To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At March 31, 2000, net property, plant and equipment represented approximately 66.6% of total assets from non-insurance operations and approximately 44.2% of consolidated assets. In fiscal year 2000, gross capital expenditures for property, plant and equipment were $417.6 million, as compared to $298.5 million and $392.3 million in fiscal years 1999 and 1998, respectively. These expenditures primarily reflect the replacement of certain rental trucks and trailers. The capital needs required to fund these acquisitions were funded with internally generated funds from operations and lease financings. During each of the fiscal years ending March 31, 2001, 2002 and 2003, U-Haul estimates gross capital expenditures will average approximately $325 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with a potential range of $30-$115 million in annual long-term debt maturities, are expected to create annual average funding needs of approximately $355-$440 million. Management estimates that U-Haul will fund 100% of these requirements with leases and internally generated funds, including proceeds from the disposition of older trucks and other asset sales. Moving and Storage Operations U-Haul's stockholder's equity was $435.4 million, $384.7 million and $342.9 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 was due to earnings. The increase in fiscal year 1999 was due to earnings and to the sale of property to a related party recorded in the Consolidated Statements of Changes in Stockholders' Equity. The increase in fiscal year 1998 was due to increased earnings. Real Estate Operations Real Estate stockholder's equity was $95.6 million, $79.5 million and $45.5 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 was due to earnings. The increase in fiscal year 1999 was due to earnings and to the sale of property to a related party recorded in the Consolidated Statements of Changes in Stockholders' Equity. The increase in fiscal year 1998 was due to increased earnings. 15 Property and Casualty Republic maintains a diversified securities investment portfolio, primarily in bonds at varying maturity levels with 88.0% of the fixed- income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong, with current invested assets equal to 92.9% of total liabilities. The liability for reported and unreported losses are based upon both Republic's historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted. Republic's stockholder's equity was $208.5 million, $211.4 million and $195.4 million at December 31, 1999, 1998 and 1997, respectively. Republic considers current stockholder's equity to be adequate to support future growth and absorb unforeseen risk events. Republic does not use debt or equity issues to increase capital and therefore has no exposure to capital market conditions. Life Insurance Oxford's stockholder's equity was $88.1 million, $93.6 million and $85.8 million in 1999, 1998 and 1997, respectively. Oxford did not pay dividends to its parent during 1999, 1998 or 1997. Applicable laws and regulations of the State of Arizona require Republic and Oxford to maintain minimum capital determined in accordance with statutory accounting practices. Such amount is $1.0 million and $0.4 million, for Republic and Oxford, respectively. 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. Statutory surplus which can be distributed as dividends without regulatory approval at December 31, 1999 is $16.1 million and $1.4 million for Republic and Oxford, respectively at December 31, 1999. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. Oxford issued a surplus note to AMERCO on December 31, 1998 for $10.0 million. Approval by the Arizona Department of Insurance is required prior to payment of principal and interest. Credit Agreements AMERCO'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. To finance its fleet of trucks and trailers, U-Haul routinely enters into sale and leaseback transactions. As of March 31, 2000, AMERCO had $1,137.8 million in total notes and loans outstanding and unutilized committed lines of credit of approximately $241.0 million. Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, issuing mandatory repayment preferred stock, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At March 31, 2000, AMERCO was in compliance with these covenants. Reference is made to Note 5 of Notes to Consolidated Financial Statements. Results of Operations - Consolidated Rental Revenue Rental revenue, net of commission expense was $1,150.5 million, $1,074.2 million and $1,018.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Rental revenue was $1,148.2 million, $1,072.1 million and $1,016.2 million in fiscal years 2000, 1999 and 1998, respectively. The increase from fiscal year 1999 to fiscal year 2000 was primarily due to the growth in truck rental revenues which benefited from transactional growth and reflects a higher average revenue per transaction. The increase from fiscal year 1998 to fiscal year 1999 also reflects a growth in truck rental revenues benefiting from transactional growth reflecting increased utilization. 16 Real Estate Operations Rental revenue, before intercompany eliminations, were $73.4 million, $74.0 million and $69.9 million in fiscal years 2000, 1999 and 1998, respectively. Intercompany rental revenue was $71.0 million, $71.9 million and $67.4 million in fiscal years 2000, 1999 and 1998, respectively. The decrease from fiscal year 1999 to fiscal year 2000 was $0.6 million. Rental revenue was consistent between fiscal year 1999 and fiscal year 2000. The increase from 1998 to 1999 reflects the addition of new system operating companies. Net Sales Net sales revenues were $188.8 million, $181.3 million and $176.2 million in fiscal years 2000, 1999 and 1998, respectively. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in the increase for each year. Premiums Premium revenues, after intercompany eliminations, were $262.1 million, $226.8 million and $164.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Property and Casualty Premium revenues, before intercompany eliminations, were $173.8 million, $145.3 million and $155.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1999 premium increase resulted from assumed treaty reinsurance which increased to $80.7 million, $51.2 million and $49.1 million in the years ended December 31, 1999, 1998 and 1997, respectively. Republic underwrites professional reinsurance via broker markets and premiums in this area increased due to the agricultural reinsurance business. Direct multiple peril and general agency premium increased to $25.0 million and $17.8 million in 1999 compared to $21.0 million and $6.5 million in 1998, and $16.5 million and $5.8 million in 1997, respectively. This increase was reduced by rental industry earnings, which decreased to $50.3 million in 1999 from $66.6 million in 1998 and $84.5 million in 1997, respectively. This decrease results from the restructuring of the U-Haul Business Auto General Liability policy. The deductible was changed at April 1, 1999 from a flat deductible to a 95% deductible. This reduced premium by $19.6 million in 1999 as compared to 1998. This resulted in a savings of $0.6 million in premium taxes for policy year 1999. Life Insurance Premium revenues, before intercompany eliminations, were $96.4 million, $94.5 million and $29.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, Oxford realized premium increases from 1998 and 1997 in the areas of Medicare supplement, credit life and disability, and single premium whole life insurance products. Oxford increased Medicare supplement premium through the reinsurance of a block of policies and by adding direct premium from the acquisition of NAI in 1997, increasing premiums by $6.7 million from 1998 and $35.4 million from 1997. Oxford's single premium whole life product accounts for an additional $2.9 million of premiums in 1999 over 1998 and $5.5 million over 1997. In the area of credit insurance, Oxford increased direct writings as well as reduced the amount ceded to outside reinsurers. These factors contributed to a $3.5 million increase in premium from 1998 and $28.4 million from 1997. As expected, premium decreases resulted from the termination of non-essential NAI lines, fewer annuitizations and from the sale of NAFCIC. These changes accounted for an $11.2 million decrease in premiums in 1999 from 1998 and $2.6 million decrease from 1997. Net Investment and Interest Income Net investment and interest income was $82.0 million, $72.4 million and $65.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Interest income was $19.5 million, $12.9 million and $13.1 million in fiscal years 2000, 1999 and 1998, respectively. The increase during fiscal year 2000 in interest reflects higher average note receivable balances. Real Estate Operations Net investment and interest income was $7.0 million, $4.5 million and $0.6 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 is due to interest income received on notes receivable. The increase in fiscal year 1999 was due to the realized gain on the sale of property acquired through foreclosure. 17 Property and Casualty Net investment income was $33.0 million, $35.9 million and $31.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in 1999 from 1998 is attributable to a decrease in invested assets and a lower yield on reinvested funds. The increase in 1998 over 1997 resulted from enhanced yield provided by an increased investment in preferred stock. Life Insurance Net investment income was $21.3 million, $19.1 million and $17.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase is due to improved interest rate spreads on the retirement savings products. This improvement was realized as a result of better returns on the investment portfolio. Operating Expenses Operating expenses were $918.8 million, $876.6 million and $818.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Operating expenses, before intercompany eliminations, were $931.1 million, $893.0 million and $857.9 million in fiscal years 2000, 1999 and 1998, respectively. The increased expense is due to increased personnel cost and other administrative costs. Increased liability insurance, due to transactional growth, continued for fiscal year 2000 from fiscal years 1999 and 1998. Real Estate Operations Operating expenses, before intercompany eliminations, were $4.0 million, $6.2 million and $7.7 million in fiscal years 2000, 1999 and 1998, respectively. Real Estate benefited from a reduction in intercompany management fees charged by an affiliated segment company during fiscal year 2000 compared to the prior two years. Property and Casualty Operating expenses, before intercompany eliminations, were $35.0 million, $35.6 million and $12.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1998 to 1999 decrease resulted from a $2.9 million write off of a commission in 1997 on an excess of loss reinsurance contract. Lease expenses increased to $1.9 million for 1999 as compared to $1.3 million and $0.3 million for 1998 and 1997 respectively. All other underwriting expenses consisted of $13.9 million, $15.5 million and $8.2 million for 1999, 1998 and 1997, respectively. Life Insurance Operating expenses, before intercompany eliminations, were $22.8 million, $19.5 million and $6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Commissions increased $1.8 million in 1999 in proportion to the increase in new premium. Operating expenses, still within budgeted expectations, have increased in 1999 due to the expansion of business volume. The increase from 1997 to 1998 is due to the commissions and operating expenses related to the acquisition of NAI and SML. Cost of Sales Cost of sales was $112.0 million, $106.8 million and $101.7 million in fiscal years 2000, 1999 and 1998, respectively. Increased material costs and a higher sales volume related to moving support items contributed to the fiscal year 2000 increase over fiscal years 1999 and 1998. Benefits and Losses Benefits and losses were $209.6 million, $176.6 million and $175.6 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Property and Casualty Benefits and losses incurred were $150.5 million, $118.9 million and $165.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase from 1998 to 1999 resulted from the increase in assumed treaty reinsurance claims. The decrease from 1997 to 1998 is due mainly to the reduction in insurance transactions with U-Haul. This corresponds to the decrease in the liabilities for unpaid claims and estimated future losses for current and prior policies for those transactions. 18 Life Insurance Benefits incurred were $59.1 million, $57.7 million and $24.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. This increase is primarily due to Medicare supplement, which accounts for $4.4 million of benefit increase from 1998 and $27.0 million from 1997. However, in relation to premium, the percentage of Medicare supplement benefits dropped by two percentage points in 1999 from 1998. Increases in policyholder reserves for the new whole life product increased benefits $2.1 million from 1998 and $3.8 million from 1997. Credit insurance benefits increased from 1998 by $0.8 million and from 1997 by $6.2 million due to increased volume written and retained; loss ratios for this line have decreased from 1998 and 1997. Annuity benefits combined with the elimination of non-focused NAI health lines and NAFCIC reduced benefits from 1998 by $6.0 million and 1997 by $2.4 million. Amortization of Deferred Acquisition Costs Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $35.0 million, $31.7 million and $14.2 million in fiscal years 2000, 1999 and 1998, respectively. DAC consists of commissions and other policy acquisition costs, which vary with and are primarily related to the production of new business. The prior year end commissions and other related expenses are recognized ratably over the remainder of the policy year. The VOBA asset relates to the future profits of the credit insurance policies in force when Oxford acquired NAI. Details by material segment follow: Property and Casualty The amortization of DAC for December 31, 1999, 1998 and 1997 was $13.4 million, $7.4 million and $8.6 million, respectively. The increase from 1998 to 1999 is due mainly to NAFCIC related DAC expense following Republic's purchase of NAFCIC from Oxford in December 1998, which increased to $3.8 million from $0.2 million in 1998. Also contributing was a $1.9 million increase in the nonaffiliated agents' expense. Field underwriting expenses increased due to an increase in 1998 written and unearned premiums. Excess worker's compensation program increased due to 1998 commission expenses relating to a settlement agreement with the previous general agent. The decrease from 1997 to 1998 is due to the assumed reinsurance DAC expense and relates to the decrease in unearned premiums. Life Insurance Amortization of DAC and VOBA was $21.6 million, $24.3 million and $5.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. Oxford defers commissions and other policy acquisition costs on single premium business. These costs are amortized as the premium is earned over the term of the policy. Oxford continues to increase its single premium credit business in force, thus increasing both the deferred costs on the balance sheet and the subsequent amortization. After Oxford purchased NAI in 1997, Oxford began amortizing the VOBA asset recognized at purchase. In 1999, Oxford did not have DAC amortization charges related to NAFCIC that were present in 1998; 1998 amortization was $3.0 million. The increase from 1997 was due primarily to the credit insurance assumed after the purchase of NAI. Lease Expense Lease expense was $135.7 million, $118.7 million and $89.9 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Lease expense was $132.0 million, $118.4 million and $89.9 million in fiscal years 2000, 1999 and 1998, respectively. The continued increase reflects additional leasing activity. Real Estate Operations Lease expense for real estate operations was $3.0 million, $0.1 million and $0.1 million for fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 over the prior years reflects payments under an operating lease facility with a number of financial institutions whereby the Company is both lessee and construction agent developing storage properties. 19 Depreciation Expense, net Depreciation expense, net was $88.3 million, $73.1 million and $69.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Depreciation expense, net before intercompany elimination was $79.0 million, $61.0 million and $64.6 million in fiscal years 2000, 1999 and 1998, respectively. The increase in fiscal year 2000 reflects an increase in depreciation expense on the rental truck fleet. The decrease in fiscal year 1999 reflects an increase in the gains from the disposition of property, plant and equipment. During fiscal year 1999, based on an in-depth market analysis, the estimated salvage value and useful lives of certain rental equipment was increased. The effect of the change decreased depreciation expense by $11.1 million in fiscal year 1998. The adjustment reflects management's best estimate, based on information currently available, of the estimated salvage value and useful lives of this rental equipment. Real Estate Operations Depreciation expense, net before intercompany elimination was $9.3 million, $12.0 million and $6.4 million in fiscal years 2000, 1999 and 1998, respectively. The decrease in fiscal year 2000 reflects an increase in gains from the disposition of property, plant and equipment and a decrease in depreciation on buildings and non-rental equipment. The increase in fiscal year 1999 reflects a decrease in the gains from the disposition of property, plant and equipment as well as the increased depreciation expense relating to the addition of new facilities for operating system companies. Earnings from Operations Earnings from operations were $183.9 million, $171.3 million and $155.7 million in fiscal years 2000, 1999 and 1998, respectively. Details by material segment follow: Moving and Storage Operations Earnings from operations were $102.4 million, $87.0 million and $78.7 million in fiscal years 2000, 1999 and 1998, respectively. Increased rental transactions, partially offset by corresponding expenses, contributed to the earnings gain for the past two fiscal years. Real Estate Operations Earnings from operations before intercompany elimination were $64.0 million, $60.3 million and $58.1 million in fiscal years 2000, 1999 and 1998, respectively. A decrease in intercompany management fees charged contributed to the earnings increase for fiscal year 2000 compared to the prior two fiscal years. Property and Casualty Earnings from operations were $7.9 million, $19.1 million and $0.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. The 1998 to 1999 decrease resulted mainly from Republic's writing off the 1995 American Bonding receivable, lower than forecasted premium volume in 1999 and higher than expected losses on the agricultural business. The 1997 to 1998 increase is due to decreased underwriting expenses and increased realized gains. Life Insurance Earnings from operations were $14.2 million, $12.2 million and $10.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. The increase over prior years reflects improved investment returns, improving loss ratios in the Medicare supplement business and better than expected loss experience for the credit business. Interest Expense Interest expense was $81.5 million, $73.7 million and $79.4 million in fiscal years 2000, 1999 and 1998, respectively. The increase can be attributed to an increase in the average cost of debt in fiscal year 2000 over the past two fiscal years. The average debt level outstanding increased in fiscal year 2000 compared to fiscal year 1999, and decreased in fiscal year 1999 compared to fiscal year 1998. 20 Extraordinary Loss on the Extinguishment of Debt During fiscal year 2000, AMERCO extinguished $100.0 million of 6.65% Bond Backed Asset Trust certificates (BATs) originally due in fiscal year 2030 and $50.0 million of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $0.3 million, net of tax of $0.2 million ($0.02 per share). During fiscal year 1998, AMERCO extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2002. This resulted in an extraordinary loss of $4.0 million, net of tax of $2.4 million ($0.18 per share). AMERCO also extinguished $255.0 million of 6.43% to 8.13% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2010. This resulted in an extraordinary loss of $9.7 million, net of tax of $5.6 million ($0.44 per share). Earnings of the Consolidated Group As a result of the foregoing, pretax earnings totaled $102.7 million, $97.6 million and $76.3 million in fiscal years 2000, 1999 and 1998, respectively. After providing for income taxes, earnings from operations were $65.8 million, $62.5 million and $48.7 million in fiscal years 2000, 1999 and 1998, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net earnings were $65.5 million, $62.5 million and $35.0 million in fiscal years 2000, 1999 and 1998, respectively. Quarterly Results The table on page 21 presents unaudited quarterly results for the eight quarters in the period beginning April 1, 1998 and ending March 31, 2000. AMERCO 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. U-Haul moving and storage operations are seasonal and proportionally more of AMERCO's revenues and net earnings from its U-Haul moving and storage operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period. 21 Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1999 1999 1999 2000 ---------------------------------------------- (in thousands, except share and per share data) Total revenues $ 439,640 462,696 382,496 398,538 Earnings from operations before extraordinary loss on early extinguishment of debt (2) $ 42,307 42,127 (9,325) (9,284) Net earnings (loss) $ 42,307 42,127 (9,325) (9,618) Weighted average common shares outstanding Basic 21,953,199 21,964,452 21,975,889 21,844,020 Diluted 22,953,199 22,131,119 - - Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (1) (2) (3) $ 1.77 1.77 (0.57) (0.58) Earnings (loss) per common share Basic $ 1.77 1.77 (0.57) (0.60) Diluted $ 1.70 1.76 - - Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1998 1998 1998 1999 ---------------------------------------------- (in thousands, except share and per share data) Total revenues $ 393,744 444,233 373,119 343,683 Net earnings (loss) $ 31,230 42,171 2,478 (13,370) Weighted average common shares outstanding 21,924,749 21,935,854 21,942,190 21,947,951 Net earnings (loss) per common share (both basic and diluted) (1) (3) $ 1.21 1.71 (0.07) (0.78) _______________ (1) Net earnings (loss) per common share amounts were computed after giving effect to the dividends on AMERCO's Preferred Stock. (2) During fiscal year 2000, AMERCO extinguished $100.0 million of 6.65% BATs originally due in fiscal year 2030 and $50.0 million of 7.05% to 7.10% Medium-Term Notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $0.3 million, net of tax of $0.2 million ($0.02 per share). (3) Reflects the redemption of $25 million and $50 million shares of Series B preferred stock in fiscal years 2000 and 1999, respectively. 22 Year 2000 Disclosure In preparation for any potential Year 2000 processing problems, AMERCO worked since 1997 to identify any changes necessary to its existing computerized business systems to make these systems compliant for Year 2000 processing. AMERCO has spent approximately $2.8 million to date in its Year 2000 compliance efforts. Since January 1, 2000, AMERCO has been assessing its information technology systems and has found no major Year 2000 processing problems. Stockholder Litigation AMERCO has deducted for income tax purposes approximately $372.0 million of the payments made to former shareholders in a stockholder lawsuit. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. Reference is made to Note 15 in Notes to Consolidated Financial Statements for a discussion of the stockholder litigation. Other New pronouncements issued by the Financial Accounting Standards Board adopted during the year are not material to the consolidated financial statements of AMERCO. Further, pronouncements with future effective dates are either not applicable or not material to the consolidated financial statements of AMERCO. 23 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk In the normal course of business, AMERCO is exposed to fluctuations in interest rates. AMERCO manages such exposure by the use of a variety of derivative financial instruments when deemed prudent. AMERCO does not enter into leveraged financial transactions or use derivative financial instruments for trading purposes. The exposure to market risk for changes in interest rates relates primarily to debt obligations. AMERCO's objective is to mitigate the impact of changes in interest rates on its variable rate debt. AMERCO uses interest rate swap agreements to provide for matching the gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of hedged asset or liability attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. See Note 5 of Notes to Consolidated Financial Statements. A fluctuation of the interest rate by 100 basis points would change AMERCO's interest expense by $1.1 million. Foreign Currency Exchange Rate Risk AMERCO's earnings are affected by fluctuations in the value of foreign currency exchange rates. Approximately 2.0% of AMERCO's revenue is generated in Canada. The result of a uniform 10% change in the value of the U.S. dollar relative to the Canadian dollar would not be material. AMERCO does not typically hedge any foreign currency risk since the exposure is not considered material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants and Consolidated Financial Statements of AMERCO, including the notes to such statements and the related schedules, are set forth on pages 28 through 77 and are thereby incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Registrants have had no disagreements with their independent accountants in regard to accounting and financial disclosure matters and have not changed their independent accountants during the two most recent fiscal years. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information regarding (i) directors and executive officers of AMERCO is set forth under the captions "Election of Directors", "Executive Officers of AMERCO", and "Shoen Litigation" and (ii) compliance with Section 16(a) is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in AMERCO's Proxy Statement relating to the 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement") portions of which are incorporated by reference into this Form 10-K Report, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended. With the exception of the foregoing information and other information specifically incorporated by reference into this report, the 2000 Proxy Statement is not being filed as a part hereof. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is set forth under the caption "Executive Compensation" in the 2000 Proxy Statement, which information is incorporated herein by reference; provided, however, that the "Board Report on Executive Compensation" and the "Performance Graph" contained in the 2000 Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2000 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions of management is set forth under the captions "Certain Relationships and Related Transactions" and "Shoen Litigation" in the 2000 Proxy Statement, which information is incorporated herein by reference. 25 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 28 Consolidated Balance Sheets - March 31, 2000 and 1999 29 Consolidated Statements of Earnings - Years ended March 31, 2000, 1999 and 1998 31 Consolidated Statements of Changes in Stockholders' Equity - Years ended March 31, 2000, 1999 and 1998 33 Consolidated Statements of Comprehensive Income - Years ended March 31, 2000, 1999 and 1998 35 Consolidated Statements of Cash Flows - Years ended March 31, 2000, 1999 and 1998 36 Notes to Consolidated Financial Statements 38 2. Additional Information Summary of Earnings of Independent Trailer Fleets 70 Notes to Summary of Earnings of Independent Trailer Fleets 71 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 73 Supplemental Information (For Property-Casualty Insurance Underwriters) -- Schedule V 77 All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. (b) A report on Form 8-K dated February 4, 2000 was filed in connection with the Company's issuance of $200,000,000 of 8.80% Senior Notes due 2005. 26 (c) Exhibits Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3) 4.1 Debt Securities Indenture dated May 1, 1996 (1) 4.2 First Supplemental Indenture, dated as of May 6, 1996 (4) 4.3 Rights Agreement, dated as of August 7, 1998 (13) 4.5 Second Supplemental Indenture, dated as of October 22, 1997 (11) 4.6 Calculation Agency Agreement (11) 4.7 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust Certificates ("BATs") due October 15, 1999 (11) 4.8 Indenture dated September 10, 1996 (9) 4.9 First Supplemental Indenture dated September 10, 1996 (9) 4.10 Senior Indenture dated April 1, 1999 (14) 4.11 First Supplemental Indenture dated April 5, 1999 (14) 4.12 Second Supplemental Indenture dated February 4, 2000 (15) 10.1* AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.1A* First Amendment to the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.2 U-Haul Dealership Contract (5) 10.3 Share Repurchase and Registration Rights Agreement with Paul F. Shoen (5) 10.4 AMERCO Stock Option and Incentive Plan (5) 10.5 ESOP Loan Credit Agreement (6) 10.6 ESOP Loan Agreement (6) 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (6) 10.8 Amended Indemnification Agreement (6) 10.9 Indemnification Trust Agreement (6) 10.10 Promissory Note between SAC Holding Corporation and a subsidiary of AMERCO (12) 10.11 Promissory Notes between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.12 Management Agreement between Three SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.13 Management Agreement between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.14 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.15 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO (8) 10.16 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.21 Management Agreement between Five SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.22 Management Agreement between Eight SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.23 Management Agreement between Nine SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.24 Management Agreement between Ten SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.25 Management Agreement between Six-A SAC Self-Storage Corporation and a subsidiary of AMERCO 10.26 Management Agreement between Six-B SAC Self-Storage Corporation and a subsidiary of AMERCO * Indicates compensatory plan arrangement 27 (c) Exhibits, continued 10.27 Management Agreement between Six-C SAC Self-Storage Corporation and a subsidiary of AMERCO 10.28 Management Agreement between Eleven SAC Self-Storage Corporation and a subsidiary of AMERCO 12 Statements Re: Computation of Ratios 21 Subsidiaries of AMERCO 23 Consent of Independent Accountants 27 Financial Data Schedule ________________ (1) Incorporated by reference to AMERCO's Registration Statement on Form S-3, Registration no. 333-1195. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (3) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255. (4) Incorporated by reference to AMERCO's Current Report on Form 8-K, dated May 6, 1996, file no. 1-11255. (5) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 1-11255. (6) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 1-11255. (7) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 1-11255. (8) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 1-11255. (9) Incorporated by reference to AMERCO's Current Report on Form 8-K dated September 6, 1996, file no. 1-11255. (10) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, file no. 1-11255. (11) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. (12) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1997, file no. 1-11255. (13) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, file no. 1-11255. (14) Incorporated by reference to AMERCO's Current Report on Form 8-K dated April 5, 1999, file no. 1-11255. (15) Incorporated by reference to AMERCO's Current Report on Form 8-K dated February 4, 2000, file no. 1-11255. (16) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1999, file no. 1-11255. 28 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) on page 25 present fairly, in all material respects, the financial position of AMERCO and its subsidiaries at March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(3) on page 25 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, 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 implemented Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" in fiscal 1999. Our audits were conducted 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 70 through 72 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. PricewaterhouseCoopers LLP Phoenix, Arizona June 26, 2000 29 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets March 31, Assets 2000 1999 ------------------------- (in thousands) Cash and cash equivalents $ 48,435 44,505 Trade receivables, net 197,992 173,050 Notes and mortgage receivables, net 204,394 217,910 Inventories, net 84,614 80,159 Prepaid expenses 17,822 16,363 Investments, fixed maturities 884,824 900,995 Investments, other 166,167 181,892 Deferred policy acquisition costs 88,402 81,689 Other assets 49,913 96,116 ------------------------- Property, plant and equipment, at cost: Land 197,956 196,960 Buildings and improvements 853,403 806,421 Furniture and equipment 263,694 234,894 Rental trailers and other rental equipment 210,472 186,660 Rental trucks 1,035,585 992,418 ------------------------- 2,561,110 2,417,353 Less accumulated depreciation 1,178,448 1,122,529 ------------------------- Total property, plant and equipment 1,382,662 1,294,824 ------------------------- Total Assets $ 3,125,225 3,087,503 ========================= The accompanying notes are an integral part of these consolidated financial statements. 30 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets, continued March 31, Liabilities and Stockholders' Equity 2000 1999 ------------------------- (in thousands, except share and per share data) Liabilities: Accounts payable and accrued expenses $ 152,654 169,185 Notes and loans payable 1,137,840 1,114,748 Policy benefits and losses, claims and loss expenses payable 548,043 546,599 Liabilities from premium deposits 461,673 457,759 Cash overdraft 30,460 28,169 Other policyholders' funds and liabilities 70,207 48,889 Deferred income 29,641 41,549 Deferred income taxes 109,413 64,580 ------------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares authorized; 6,100,000 shares issued and outstanding as of March 31, 2000 and 1999 - - Series B preferred stock, with no par value, 100,000 shares authorized; none and 25,000 shares issued and outstanding as of March 31, 2000 and 1999, respectively - - Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized; 5,762,495 shares issued as of March 31, 2000 and 1999 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized; 36,487,505 issued as of March 31, 2000 and 1999 9,122 9,122 Additional paid-in capital 275,242 299,905 Accumulated other comprehensive income (42,317) (17,740) Retained earnings 755,172 703,322 ------------------------- 998,660 996,050 Less: Cost of common shares in treasury, net (19,840,613 and 19,635,913 shares as of March 31, 2000 and 1999, respectively) 397,000 363,533 Unearned employee stock ownership plan shares 16,366 16,492 ------------------------- Total stockholders' equity 585,294 616,025 Contingent liabilities and commitments ------------------------- Total Liabilities and Stockholders' Equity $ 3,125,225 3,087,503 ========================= The accompanying notes are an integral part of these consolidated financial statements. 31 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Years ended March 31, 2000 1999 1998 ------------------------------------ (in thousands, except share and per share data) Revenues Rental revenue $ 1,150,532 1,074,220 1,018,699 Net sales 188,816 181,273 176,249 Premiums 262,057 226,847 164,613 Net investment and interest income 81,965 72,439 65,695 ------------------------------------ Total revenues 1,683,370 1,554,779 1,425,256 Costs and expenses Operating expenses 918,846 876,633 818,585 Cost of sales 111,975 106,789 101,699 Benefits and losses 209,592 176,560 175,576 Amortization of deferred acquisition costs 34,987 31,721 14,194 Lease expense 136,044 118,742 89,879 Depreciation, net 87,647 73,066 69,655 ------------------------------------ Total costs and expenses 1,499,091 1,383,511 1,269,588 Earnings from operations 184,279 171,268 155,668 Interest expense 81,532 73,658 79,369 ------------------------------------ Pretax earnings 102,747 97,610 76,299 Income tax expense (36,922) (35,101) (27,643) ------------------------------------ Earnings from operations before extraordinary loss on early extinguishment of debt 65,825 62,509 48,656 Extraordinary loss on early extinguishment of debt, net (334) - (13,672) ------------------------------------ Net earnings $ 65,491 62,509 34,984 ==================================== The accompanying notes are an integral part of these consolidated financial statements. 32 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings, continued Years ended March 31, 2000 1999 1998 ------------------------------------- (in thousands, except share and per share data) Basic earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.39 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.37 2.07 0.66 ==================================== Diluted earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.38 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.36 2.07 0.66 ==================================== Weighted average common shares outstanding: Basic 21,934,390 21,937,686 21,896,101 ==================================== Diluted 22,226,057 23,940,623 21,896,101 ==================================== The accompanying notes are an integral part of these consolidated financial statements. 33 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended March 31, 2000 1999 1998 --------------------------------- (in thousands, except share and per share data) Series A common stock of $0.25 par value: 10,000,000 shares authorized; 5,762,495 shares issued in 2000, 1999 and 1998 Beginning and end of year $ 1,441 1,441 1,441 --------------------------------- Common stock of $0.25 par value: 150,000,000 shares authorized; 36,487,505 shares issued in 2000, 1999 and 1998 Beginning and end of year 9,122 9,122 9,122 --------------------------------- Additional paid-in capital: Beginning of year 299,905 313,444 337,933 Repurchase of preferred stock (25,000) (50,000) (25,000) Gain on sale of property to related party, net - 35,996 - Issuance of common shares under leveraged employee stock ownership plan 337 465 511 --------------------------------- End of year 275,242 299,905 313,444 --------------------------------- Accumulated other comprehensive income: Beginning of year (17,740) (9,384) (9,722) Foreign currency translation (2,899) (6,736) (4,542) Fair market value of cash flow hedge 2,192 (3,631) - Unrealized gain (loss) on investments (23,870) 2,011 4,880 --------------------------------- End of year (42,317) (17,740) (9,384) --------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 34 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity, continued Years ended March 31, 2000 1999 1998 --------------------------------- (in thousands, except share and per share data) Retained earnings: Beginning of year 703,322 658,227 644,009 Net earnings 65,491 62,509 34,984 Preferred stock dividends paid: Series A ($2.13 per share for 2000, 1999 and 1998) (12,964) (12,964) (12,964) Series B ($27.14, $97.44 and $81.04 per share for 2000, 1999 and 1998, respectively) (677) (4,450) (7,802) --------------------------------- End of year 755,172 703,322 658,227 --------------------------------- Less Treasury stock: Beginning of year 363,533 359,723 359,723 Net increase 33,467 3,810 - --------------------------------- End of year 397,000 363,533 359,723 --------------------------------- Less Unearned employee stock ownership plan shares: Beginning of year 16,492 18,068 20,740 Purchase of shares 1,002 401 5 Repayments from loan (1,128) (1,977) (2,677) --------------------------------- End of year 16,366 16,492 18,068 --------------------------------- Total stockholders' equity $ 585,294 616,025 595,059 ================================= The accompanying notes are an integral part of these consolidated financial statements. 35 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended March 31, 2000 1999 1998 -------------------------- (in thousands) Comprehensive income: Net earnings $ 65,491 62,509 34,984 Other comprehensive income Foreign currency translation (2,899) (6,736) (4,542) Fair market value of cash flow hedges 2,192 (3,631) - Unrealized gain (loss) on investments (23,870) 2,011 4,880 -------------------------- Total comprehensive income $ 40,914 54,153 35,322 ========================== The accompanying notes are an integral part of these consolidated financial statements. 36 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years ended March 31, 2000 1999 1998 --------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 65,491 62,509 34,984 Depreciation and amortization 135,481 114,102 113,822 Provision for losses on accounts receivable 4,601 4,648 4,108 Net gain on sale of real and personal property (8,705) (524) (1,776) Gain on sale of investments (873) (3,372) (944) Changes in policy liabilities and accruals 15,326 (23,448) 37,021 Additions to deferred policy acquisition costs (31,804) (40,859) (10,010) Net change in other operating assets and liabilities 58,140 46,493 3,410 --------------------------- Net cash provided by operating activities 237,657 159,549 180,615 Cash flows from investing activities: Purchases of investments: Property, plant and equipment (417,647) (298,495) (392,298) Fixed maturities (158,304) (213,107) (123,832) Common stock - (2,553) (8,573) Preferred stock (369) (21,700) (4,054) Other asset investment - - (24,500) Real estate (70) (334) - Mortgage loans (27,367) (93,243) (42,125) Proceeds from sales of investments: Property, plant and equipment 242,699 205,211 291,321 Fixed maturities 133,915 223,114 131,334 Common stock - 2,571 - Preferred stock 968 3,538 1,015 Real estate 1,672 5,622 1,331 Mortgage loans 11,555 21,826 25,576 Changes in other investments 31,269 (37,232) (16,699) --------------------------- Net cash used by investing activities (181,679) (204,782) (161,504) The accompanying notes are an integral part of these consolidated financial statements. 37 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended March 31, 2000 1999 1998 ---------------------------- (in thousands) Cash flows from financing activities: Net change in short-term borrowings (146,836) 135,836 122,500 Proceeds from notes 350,000 - 300,000 Debt issuance costs (8,285) (415) (2,956) Leveraged Employee Stock Ownership Plan: Purchase of shares (1,002) (401) (5) Repayments from loan 1,128 1,977 2,677 Principal payments on notes (180,072) (46,411) (380,727) Repurchase of preferred stock (25,000) (50,000) (25,000) Extraordinary loss on early extinguishment of debt, net (334) - (13,672) Net change in cash overdraft 2,291 6,755 (2,192) Preferred stock dividends paid (13,641) (17,414) (20,766) Treasury stock acquisitions, net (33,467) (3,810) - Investment contract deposits 63,978 93,688 51,943 Investment contract withdrawals (60,808) (61,673) (61,059) ---------------------------- Net cash provided (used) by financing activities (52,048) 58,132 (29,257) ---------------------------- Increase (decrease) in cash and cash equivalents 3,930 12,899 (10,146) Cash and cash equivalents at beginning of year 44,505 31,606 41,752 ---------------------------- Cash and cash equivalents at end of year $ 48,435 44,505 31,606 ============================ The accompanying notes are an integral part of these consolidated financial statements. 38 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (Republic) and Oxford Life Insurance Company (Oxford). All references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its wholly-owned subsidiaries. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. Republic and Oxford have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1999, 1998 and 1997 correspond to AMERCO's fiscal years 2000, 1999 and 1998, respectively. The operating results and financial position of AMERCO's consolidated insurance operations are determined as of December 31 of each year. There were no effects related to intervening events between January 1 and March 31 of 2000, 1999 or 1998 that would materially affect the consolidated financial position or results of operations for the financial statements presented herein. See Note 20 of Notes to Consolidated Financial Statements for additional information regarding the insurance subsidiaries. DESCRIPTION OF BUSINESS Moving and self-storage operations consist of the rental of trucks and trailers, sale of moving supplies such as boxes and the rental of self- storage spaces to the do-it-yourself mover. Operations are under the registered tradename U-Haul throughout the United States and Canada. Real Estate owns approximately 90% of AMERCO's real estate assets, including U-Haul's Center and Storage locations. The remainder of the properties are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all of the dispositions (sale and lease) of unused real estate. Republic originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. Oxford originates and reinsures annuities, credit life and disability, critical illness insurance, single premium whole life, group life and disability coverage, and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for AMERCO. FOREIGN CURRENCY The consolidated financial statements include the accounts of U-Haul Co. (Canada) Ltd., a subsidiary of U-Haul. The assets and liabilities, denominated in foreign currency, are translated into U.S. dollars at the exchange rate as of the balance sheet date. Revenue and expense amounts are translated at average monthly exchange rates. The related translation gains or losses are included in the Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Comprehensive Income. 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 in the financial statements and accompanying notes. Actual results could differ from those estimates. 39 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued CASH AND CASH EQUIVALENTS AMERCO considers liquid investments with an original maturity of three months or less to be cash equivalents (zero and $1,000,000 as of March 31, 2000 and 1999, respectively). RECEIVABLES Accounts receivable include trade accounts from customers and dealers. Republic and Oxford receivables include premiums and agents' balances due, net of commissions payable and amounts due from ceding reinsurers. 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. Notes and mortgage receivables include accrued interest and are reduced by discounts and amounts considered by management to be uncollectible. INVENTORIES Inventories are valued at the lower of cost or market. Cost is primarily determined using the LIFO (last-in, first-out) method. INVESTMENTS Fixed maturities consist of bonds and redeemable preferred stocks. Fair values for investments are based on quoted market prices, dealer quotes or discounted cash flows. Fixed maturities are classified as follows: Held-to-maturity - recorded at cost adjusted for the amortization of premiums or accretion of discounts. Available-for-sale - recorded at fair value with unrealized gains or losses reported on a net basis in the Consolidated Statements of Changes in Stockholders' Equity. Gains and losses on the sale of these securities are reported as a component of revenues using the specific identification method. Trading portfolio - AMERCO does not currently maintain a trading portfolio. Mortgage loans & notes on real estate held by AMERCO's subsidiaries - at unpaid balances, net of allowance for possible losses and any unamortized premium or discount. Real estate - at cost less accumulated depreciation. Policy loans - at their unpaid balance. Investment income is recognized as follows: Interest on bonds and mortgage loans & notes - recognized when earned. Dividends on common and redeemable preferred stocks - recognized on ex-dividend dates. Realized gains and losses on the sale of investments - recognized at the trade date and included in revenues using the specific identification method. 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. DEFERRED POLICY ACQUISITION COSTS Commissions and other costs which vary with and are primarily related to the production of new business, have been deferred. Oxford - costs are amortized in relation to revenue such that profits are realized as a level percentage of revenue. Republic - costs are amortized over the related contract period which generally do not exceed one year. 40 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued 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. Building and non-rental equipment have estimated lives ranging from three to fifty-five years, while rental equipment have estimated lives ranging from one to twenty years. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are netted against depreciation expense when realized. Interest costs incurred as part of the initial construction of assets are capitalized. Interest expense of $7,978,000, $909,000 and $2,210,000 was capitalized during fiscal years 2000, 1999 and 1998, respectively. During fiscal year 1998, based on an in-depth market analysis, U-Haul increased the estimated salvage value and useful lives of certain rental equipment. The effect of the change increased net earnings for fiscal year 1998 by $9,268,000 ($0.42 per share). The adjustment reflects management's best estimate, based on information available, of the estimated salvage value and useful lives of this rental equipment. AMERCO reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable through expected undiscounted future operating cash flows. At March 31, 2000, the carrying value of AMERCO's real estate that is no longer necessary for use in its current operations, and available for sale/lease, was approximately $27,732,000. Such properties available for sale are carried at cost, less accumulated depreciation, which is less than fair market value. ENVIRONMENTAL COSTS Liabilities for future remediation costs are recorded when environmental assessments and remedial efforts, if applicable, are probable and the costs can be reasonably estimated. The liability is based on AMERCO's best estimate of undiscounted future costs. 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. FINANCIAL INSTRUMENTS AMERCO enters into interest rate swap agreements to reduce its floating interest rate exposure and does not use the agreements for trading purposes. Although AMERCO 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. On October 1, 1999, AMERCO implemented Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". AMERCO designates its interest rate swaps as cash flow hedge instruments, which are measured at fair market value and recorded as assets or liabilities in the statement of financial position. Amounts to be paid or received under the agreements are accrued. Gains or losses on the interest rate swaps are matched with the timing of gain or loss recognition of the changes in the fair value of the hedged asset or liability attibutable to the hedged risk. Following implementation of this statement, AMERCO recorded an after tax adjustment as of March 31, 1999, of $3,631,000 to accumulated other comprehensive income recognizing the fair value of derivatives designated as cash flow hedges. In addition, Republic transferred $56,485,000 (carrying value) to available-for-sale from held-to-maturity at time of implementation. The market value of these securities was $60,314,000 at the date of transfer with a transition adjustment of $3,829,000. For the years ended March 31, 2000 and 1999, AMERCO recognized $27,000 as interest income and $89,000 as interest expense, respectively, representing the ineffectiveness of the cash flow hedging activity. 41 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued AMERCO has mortgage receivables which potentially expose AMERCO to credit risk. The portfolio of notes is principally collateralized by mini- warehouse storage facilities and other residential and commercial properties. AMERCO has not experienced losses related to the notes from individual notes or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Fair value summary of note and mortgage receivables: March 31, 2000 March 31, 1999 ---------------------- ---------------------- Carrying Estimated Carrying Estimated value fair value value fair value ---------------------- ---------------------- (in thousands) (in thousands) $ 185,775 187,491 $ 214,521 216,389 ====================== ====================== Other financial instruments that are subject to fair value disclosure requirements are carried in the financial statements at amounts that approximate fair value, unless elsewhere disclosed. See below, as well as Notes 4 and 5 of Notes to Consolidated Financial Statements. AMERCO's financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables and notes receivable. AMERCO 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. As discussed in Note 2 of Notes to Consolidated Financial Statements, at March 31, 2000 and 1999, notes receivable are primarily due from one related party. POLICY BENEFITS AND LOSSES, CLAIMS AND LOSS EXPENSES PAYABLE Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using mortality and withdrawal assumptions which are based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 1999, interest assumptions used to compute policy benefits payable range from 2.5% to 11.25%. The liability for annuity policies, which are accounted for as investment contract deposits, consists of policy account balances that accrue to the benefit of the policyholders, excluding surrender charges. Fair value of investment contract deposits were $461,673,000 and $457,759,000 at December 31, 1999 and 1998, respectively. Liabilities for health and disability 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. Republic's liability for reported and unreported losses are based on Republic's historical and industry averages. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made. RENTAL REVENUE U-Haul recognizes its share of rental revenue less commission on the accrual basis pursuant to contractual arrangements between AMERCO and its fleet owners, rental dealers and customers. See Note 10 of Notes to Consolidated Financial Statements for further discussion. 42 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued PREMIUM REVENUE Credit life and disability, Medicare supplement and property-casualty gross premiums are earned on a pro rata basis over the term of the related contracts. The portion of premiums not earned at the end of the period is recorded as unearned premiums. Traditional life and annuity premiums are recognized as revenue when due from policyholders. Revenue for annuity policies which are accounted for as investment contracts are included in net investment income as investment margins until the policyholder annuitizes, at which time the policyholder's fund balance is recognized as premium. REINSURANCE Reinsurance premiums, commissions and expense reimbursements, related to ceded business, are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Assets and liabilities relating to ceded contracts are reported gross of the effects of reinsurance. See also "Policy Benefits And Losses, Claims And Loss Expenses Payable" above. INCOME TAXES AMERCO files a consolidated federal income tax return with its subsidiaries. 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. ADVERTISING COSTS AMERCO expenses advertising costs as incurred. Advertising expense of $38,642,000, $33,567,000 and $29,652,000 was charged to operations for fiscal years 2000, 1999 and 1998, respectively. NEW ACCOUNTING STANDARDS New pronouncements issued by the Financial Accounting Standards Board adopted during the year are not material to the consolidated financial statements of AMERCO. Further, pronouncements with future effective dates are either not applicable or not material to the consolidated financial statements of AMERCO. EARNINGS PER SHARE Basic earnings per common share are computed based on the weighted average number of shares outstanding for the year and quarterly periods, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of AMERCO. Net income is reduced for preferred dividends for the purpose of the calculation. The calculation of diluted earnings per share in fiscal years 2000 and 1999 included assumed conversions of the Series B preferred stock into common stock. In fiscal year 2000, the assumed conversions have a dilutive effect; in fiscal year 1999 the assumed conversions had no effect on the calculated earnings per share amount. In fiscal year 1998, the assumed conversion of the Series B preferred stock was not included in the calculation of diluted earnings per share because it was antidilutive. Accordingly, basic and diluted earnings per share are equal for fiscal years 1999 and 1998. See Notes 6 and 8 of Notes to Consolidated Financial Statements for further discussion. COMPREHENSIVE INCOME Comprehensive income consists of net income, foreign currency translation adjustment, unrealized gains and losses on investments and fair market value of cash flow hedges. FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the financial statements for the fiscal years ended 1999 and 1998 to conform with the current year's presentation. 43 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 2. RECEIVABLES, NET A summary of trade receivables follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Trade accounts receivable $ 17,296 12,008 Premiums and agents' balances in course of collection 73,536 34,896 Reinsurance recoverable 80,180 100,662 Accrued investment income 14,304 14,032 Independent dealer receivable 2,551 4,076 Other receivables 12,085 9,382 ------------------- 199,952 175,056 Less allowance for doubtful accounts 1,960 2,006 ------------------- $ 197,992 173,050 =================== A summary of notes and mortgage receivables follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Notes receivable, including accrued interest from SAC Holding Corporation and its subsidiaries $ 158,648 186,332 Notes and mortgage receivables, net of discount 45,816 31,648 -------------------- 204,464 217,980 Less allowance for doubtful accounts 70 70 -------------------- $ 204,394 217,910 ==================== During fiscal year 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO. AMERCO's subsidiaries received interest income of $20,111,000, $8,022,000 and $6,847,000 from SAC Holdings during fiscal years 2000, 1999 and 1998, respectively. Principal payments of $105,689,000, zero and $1,047,000 were received during fiscal years 2000, 1999 and 1998, respectively. The note receivable balance outstanding was, in the aggregate, $153,067,000 and $179,819,000 at March 31, 2000 and 1999, respectively, bearing interest rates ranging from 8.37% to 13.0%. The principal balance is due in full at maturity and interest is payable quarterly. Notes receivable from SAC Holdings include $547,000 at March 31, 2000 which is secured by land and buildings at various locations. The terms of the notes receivable are consistent with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. During fiscal years 2000, 1999 and 1998, a subsidiary of AMERCO funded through notes receivable the purchase of properties and construction costs for SAC Holdings of $44,934,000, $26,116,000 and $24,574,000, respectively. In December 1998, U-Haul and Real Estate completed the sale of twenty- six storage properties to Six SAC Self-Storage Corporation, a subsidiary of SAC Holdings, for $99,685,000. Real Estate received cash and notes from the sale. The gain is reflected in the Consolidated Statements of Changes in Stockholders' Equity. U-Haul currently manages the properties owned by SAC Holdings under a management agreement, whereby U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $4,482,000, $2,483,000 and $1,860,000 were received during fiscal years 2000, 1999 and 1998, respectively. The 6% fee is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 44 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 3. INVENTORIES, NET A summary of inventory components follows: March 31, -------------------- 2000 1999 -------------------- (in thousands) Truck and trailer parts and accessories $ 61,292 54,407 Hitches and towing components 14,112 15,738 Moving supplies and promotional items 9,210 10,014 -------------------- $ 84,614 80,159 ==================== Inventories are stated net of reserve for obsolescence of $3,321,000 at March 31, 2000 and 1999, respectively. Certain general and administrative expenses are allocated to ending inventories. Such costs remaining in inventory are estimated at $12,084,000 and $12,082,000 at March 31, 2000 and 1999, respectively. For fiscal years 2000, 1999 and 1998, aggregate general and administrative costs were $461,762,000, $566,592,000 and $526,431,000, respectively. LIFO inventories, which represent approximately 98% of total inventories at March 31, 2000 and 1999, would have been $4,957,000 and $4,835,000 greater at March 31, 2000 and 1999, respectively, if the consolidated group had used the FIFO (first-in, first-out) method. 45 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS A comparison of amortized cost to estimated market value for fixed maturities is as follows: December 31, 1999 ----------------- 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 $ 19,586 18,860 87 (437) 18,510 U.S. government agency mortgage- backed securities $ 18,538 18,448 51 (398) 18,101 Corporate securities $ 80,295 81,847 566 (2,050) 80,363 Mortgage-backed securities $ 35,960 35,284 298 (525) 35,057 Redeemable preferred stocks 4,561 115,253 41 (19,344) 95,950 ---------------------------------------- 269,692 1,043 (22,754) 247,981 ---------------------------------------- December 31, 1999 ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 40,860 41,643 912 (1,206) 41,349 U.S. government agency mortgage- backed securities $ 36,998 36,709 221 (534) 36,396 Obligations of states and political subdivisions $ 19,320 19,585 323 (154) 19,754 Corporate securities $ 468,131 469,093 2,717 (17,791) 454,019 Mortgage-backed securities $ 36,834 36,574 259 (409) 36,424 Redeemable preferred stocks 1,311 32,675 49 (5,534) 27,190 ---------------------------------------- 636,279 4,481 (25,628) 615,132 ---------------------------------------- Total $ 905,971 5,524 (48,382) 863,113 ======================================== 46 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued December 31, 1998 ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 23,248 22,518 449 (131) 22,836 U.S. government agency mortgage- backed securities $ 29,722 29,647 405 (166) 29,886 Obligations of states and political subdivisions $ 1,500 1,520 163 - 1,683 Corporate securities $ 99,068 100,254 3,100 (259) 103,095 Mortgage-backed securities $ 52,082 51,314 1,150 (52) 52,412 Redeemable preferred stocks 4,634 117,703 1,927 (1,589) 118,041 ---------------------------------------- 322,956 7,194 (2,197) 327,953 ---------------------------------------- December 31, 1998 ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 32,660 33,507 2,572 - 36,079 U.S. government agency mortgage- backed securities $ 41,128 40,757 1,263 (1) 42,019 Obligations of states and political subdivisions $ 16,710 16,874 816 (17) 17,673 Corporate securities $ 396,024 398,828 15,402 (2,851) 411,379 Mortgage-backed securities $ 35,419 35,235 1,177 (12) 36,400 Redeemable preferred stocks 1,321 33,266 1,327 (104) 34,489 ---------------------------------------- 558,467 22,557 (2,985) 578,039 ---------------------------------------- Total $ 881,423 29,751 (5,182) 905,992 ======================================== Fixed maturities estimated market values are based on publicly quoted market prices at the close of trading on December 31, 1999 or December 31, 1998, as appropriate. 47 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued The amortized cost and estimated market value of debt securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Consolidated December 31, 1999 December 31, 1998 ------------ ----------------------- ---------------------- Held-to-Maturity Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less $ 18,813 18,899 12,455 12,479 Due after one year through five years 51,806 50,461 72,459 75,316 Due after five years through ten years 9,617 9,276 17,527 17,739 After ten years 206 242 2,850 3,007 -------------------- -------------------- 80,442 78,878 105,291 108,541 Mortgage-backed securities 73,997 73,153 99,962 101,371 Redeemable preferred stock 115,253 95,950 117,703 118,041 -------------------- -------------------- 269,692 247,981 322,956 327,953 -------------------- -------------------- Consolidated December 31, 1999 December 31, 1998 ------------ ----------------------- ---------------------- Available-for-Sale Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less 40,778 40,642 17,562 17,704 Due after one year through five years 215,505 212,482 176,265 181,853 Due after five years through ten years 188,023 180,520 170,249 175,717 After ten years 86,015 81,477 85,133 89,856 -------------------- -------------------- 530,321 515,121 449,209 465,130 Mortgage-backed securities 73,283 72,821 75,992 78,420 Redeemable preferred stock 32,675 27,190 33,266 34,489 -------------------- -------------------- 636,279 615,132 558,467 578,039 -------------------- -------------------- Total $ 905,971 863,113 881,423 905,992 ==================== ==================== Proceeds from sales of investments in debt securities for the years ended December 31, 1999, 1998 and 1997 were $29,889,000, $53,948,000 and $69,252,000, respectively. Gross gains of $912,000, $1,472,000 and $1,132,000 and gross losses of $315,000, $164,000 and $515,000 were realized on those sales for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998 fixed maturities include bonds with an amortized cost of $15,696,000 and $15,434,000, respectively, on deposit with insurance regulatory authorities to meet statutory requirements. 48 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 4. INVESTMENTS, continued Investments, other consists of the following: March 31, ---------------------- 2000 1999 ---------------------- (in thousands) Short-term investments $ 32,490 67,021 Mortgage loans 73,716 56,898 Equity investment 24,500 24,500 Real estate, foreclosed properties 554 19,069 U.S. government securities mutual fund 5,638 5,805 Policy loans 6,594 7,217 Other 22,675 1,382 ---------------------- $ 166,167 181,892 ====================== A summary of net investment and interest income follows: Year ended December 31, ---------------------------- 1999 1998 1997 ---------------------------- (in thousands) Fixed maturities $ 66,747 67,812 64,114 Real estate 58 15 223 Policy loans 285 354 605 Mortgage loans 5,447 6,279 7,187 Short-term, amounts held by ceding reinsurers, net and other investments 7,140 5,965 2,797 ---------------------------- Investment income 79,677 80,425 74,926 Less investment expenses 23,965 23,733 24,584 ---------------------------- Net investment income 55,712 56,692 50,342 Interest income 26,253 15,747 15,353 ---------------------------- Net investment and interest income $ 81,965 72,439 65,695 ============================ Short-term investments consist primarily of fixed maturities of three months to one year from acquisition date. Mortgage loans, representing first lien mortgages held by the insurance subsidiaries, are carried at unpaid balances, less allowance for possible losses and any unamortized premium or discount. Equity investments and real estate obtained through foreclosures and held for sale are carried at the lower of cost or fair value. U.S. government securities mutual fund is carried at cost which approximates market value. Policy loans are carried at their unpaid balance. At December 31, 1999 and 1998, mortgage loans held as investments with a carrying value of $73,716,000 and $56,898,000, respectively, were outstanding. The estimated fair value of the mortgage loans at December 31, 1999 and 1998 aggregated $74,559,000 and $60,893,000, respectively. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Investments in mortgage loans, included as a component of investments, are reported net of allowance for possible losses of $225,000 and $81,000 in 1999 and 1998, respectively. In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self-storage corporation. Republic invested $13,500,000 and has a 22% limited partnership interest and Oxford invested $11,000,000 and has a 27% limited partnership interest. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self-storage corporation. AMERCO has a $10,000,000 note receivable from PMSI Investors L.L.C., a 30% limited partner in the corporation. During 1997, the corporation secured a line of credit in the amount of $225,000,000 with a financing institution. Under the terms of this credit facility, AMERCO entered into a support party agreement with the corporation whereby upon default or noncompliance with debt covenants by the corporation, AMERCO assumes responsibility fulfulling all obligations related to this credit facility. 49 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: March 31, -------------------- 2000 1999 -------------------- (in thousands) Short-term borrowings, 6.32% interest rate $ 16,500 25,337 Notes payable to banks under revolving lines of credit, unsecured, 6.19% to 6.44% interest rates 159,000 297,000 Medium-term notes payable, unsecured, 6.71% to 8.08% interest rates, due through 2027 237,000 317,000 Notes payable under Bond Backed Asset Trust, unsecured, 6.89% to 7.14% interest rates, due through 2033 200,000 300,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 - Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 - Other notes payable, secured and unsecured, 7.00% to 11.25% interest rate, due through 2005 340 411 -------------------- $ 1,137,840 1,114,748 ==================== Other notes payable are secured by land and buildings at various locations with a net carrying value of $6,504,302 and $7,056,509 at March 31, 2000 and 1999, respectively. AMERCO has a revolving credit loan (long-term) available from participating banks under an agreement which provides for a credit line of $400,000,000 through June 30, 2002. Depending on the form of borrowing elected, interest will be based on the London Interbank Offering Rate (LIBOR), prime rate, the federal funds effective rate, or rates determined by a competitive bid. LIBOR loans include a spread based upon the senior debt rates of AMERCO. Facility fees paid are based upon the amount of credit line. At March 31, 2000, AMERCO had borrowed $16,500,000, representing short- term borrowings, from its total uncommitted lines of credit of $59,915,000. As of March 31, 2000, loans outstanding under the revolving credit line totaled $159,000,000. Management intends to refinance the borrowings on a long-term basis by either replacing them with long-term obligations, renewing or extending them.
Revolving credit activity Short-term borrowing Year ended Year ended --------------------------- -------------------------- 2000 1999 1998 2000 1999 1998 --------------------------- -------------------------- (in thousands, except interest rates) Weighted average interest rate during the year 5.90% 5.73% 5.95% 6.13% 5.63% 6.05% Interest rate at year end 6.26% 5.33% 5.90% 6.32% 6.19% 6.31% Maximum amount outstanding during the year $ 365,000 297,000 285,000 52,000 39,000 57,000 Average amount outstanding during the year $ 235,500 220,083 203,250 13,542 21,208 25,208 Facility fees $ 508 507 564 N/A N/A 58
50 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. NOTES AND LOANS PAYABLE, continued AMERCO has entered into interest rate swap agreements (SWAPS) to potentially mitigate the impact of changes in interest rates on its floating rate debt. These agreements effectively change AMERCO's interest rate exposure on $65,000,000 of floating rate notes to a weighted average fixed rate of 8.20%. The SWAPS mature at the time the related notes mature. Incremental interest expense associated with SWAP activity was $1,935,000, $2,593,000 and $2,687,000 during 2000, 1999 and 1998, respectively. At March 31, 2000, interest rate swap agreements with an aggregate notional amount of $65,000,000 were outstanding. Management estimates that at March 31, 2000 and 1999, AMERCO would be required to pay $1,888,000 and $5,674,000, respectively, to terminate the agreements. Such amounts were determined from current treasury rates combined with SWAP spreads on agreements outstanding. During April 1999, AMERCO issued $150,000,000 of 7.20% Senior Notes due 2002. During February 2000, AMERCO issued $200,000,000 of 8.80% Senior Notes due 2005. During fiscal year 2000, AMERCO extinguished $100,000,000 of BATs with interest of 6.65% originally due in fiscal year 2030, and $50,000,000 of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $334,000, net of tax of $213,000 ($0.02 per share). During fiscal year 1998, AMERCO extinguished $76,000,000 of 10.27% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2002. This resulted in an extraordinary loss of $4,044,000, net of tax of $2,371,000 ($0.18 per share). In October 1997, AMERCO issued $300,000,000 of BATs. The net proceeds were used to initially prepay floating rate indebtedness of AMERCO under revolving credit agreements. Subsequent to the funding of the BATs, AMERCO extinguished $255,071,000 of 6.43% to 8.13% interest-bearing notes originally due in fiscal year 1999 through fiscal year 2010. This resulted in an extraordinary loss of $9,628,000, net of tax of $5,645,000 ($0.44 per share). Certain of AMERCO'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, 2000, AMERCO was in compliance with these covenants. The annual maturities of long-term debt for the next five years adjusted for subsequent activity (if the revolving credit lines are outstanding to maturity), are presented in the table below: Year Ended ------------------------------------------------ 2001 2002 2003 2004 2005 ------------------------------------------------ (in thousands) Mortgages $ 34 37 29 32 23 Medium-Term and Other Notes 11 77,512 150,014 175,015 205,001 Revolving Credit - - 159,000 - - ------------------------------------------------ $ 45 77,549 309,043 175,047 205,024 ================================================ Interest paid in cash amounted to $77,529,000, $74,026,000 and $76,035,000 for fiscal years 2000, 1999 and 1998, respectively. 51 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 6. STOCKHOLDERS' EQUITY AMERCO has authorized capital stock consisting of 150,000,000 shares of common stock, 150,000,000 shares of Serial common stock and 50,000,000 shares of Serial preferred stock. The Board of Directors (the Board) may authorize the Serial common stock to be issued in such series and on such terms as the Board shall determine. Serial preferred stock issuance may be with or without par value. AMERCO has issued 6,100,000 shares of 8.5% cumulative, no par, non- voting Series A preferred stock (Series A). The Series A is not convertible into, or exchangeable for, shares of any other class or classes of stock of AMERCO. Dividends are payable quarterly in arrears and have priority as to dividends over AMERCO's common stock. The Series A is not redeemable prior to December 1, 2000. On or after December 1, 2000, AMERCO, at its option, may redeem all or part of the Series A, for cash at $25.00 per share plus accrued and unpaid dividends to the redemption date. On August 30, 1996, AMERCO issued 100,000 shares of its Series B preferred stock with no par value for gross proceeds of $100,000,000. As of March 31, 2000, AMERCO has redeemed all 100,000 shares. During the year ended March 31, 1997, pursuant to a judgment in litigation with former shareholders, AMERCO repurchased 12,426,836 shares of common stock in exchange for $84,502,000, funded damages of $228,373,000 and paid statutory post-judgment interest of $689,000. The treasury share transaction was recorded net of tax of $80,997,000 for fiscal year 1997. AMERCO also placed funds of $48,234,000 into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs to post-petition interest. The escrow account was transferred to the plaintiffs on February 2, 2000, after it was determined that the plaintiffs were entitled to such interest. The transfer was recorded net of tax of $18,570,000. The plaintiffs included the father, brothers and sisters of Mark V. and Paul F. Shoen who are major stockholders of AMERCO, and Edward J. and James P. Shoen who are major stockholders and directors of AMERCO. On December 31, 1998, in connection with the resolution of one of the remaining items associated with the treasury stock acquisitions, AMERCO remitted $6,000,000 plus interest to the plaintiffs in the Shoen litigation. The payment is reflected, net of taxes, in the Consolidated Statements of Changes in Stockholders' Equity. 52 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. ACCUMULATED OTHER COMPREHENSIVE INCOME A summary of accumulated comprehensive income components follows: Unrealized Fair market Accumulated Foreign gain/(loss) value of other currency on cash flow comprehensive translation investments hedge income -------------------------------------------------- (in thousands) Balance at March 31, 1999 $ (25,411) 11,302 (3,631) (17,740) Foreign currency translation (2,899) - - (2,899) Fair market value of cash flow hedge, net of taxes of $1,568 - - 2,192 2,192 Unrealized loss on investments, net of taxes of $11,442 - (23,870) - (23,870) -------------------------------------------- Balance at March 31, 2000 $ (28,310) (12,568) (1,439) (42,317) ============================================ Balance at March 31, 1998 $ (18,675) 9,291 - (9,384) Foreign currency translation (6,736) - - (6,736) Fair market value of cash flow hedge, net of taxes of $1,955 - - (3,631) (3,631) Unrealized gain on investments, net of taxes of $1,159 - 2,011 - 2,011 -------------------------------------------- Balance at March 31, 1999 $ (25,411) 11,302 (3,631) (17,740) ============================================ 8. EARNINGS PER SHARE The following table reflects the calculation of earnings per share: Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------- (in thousands, except share and per share data) Year ended March 31, 2000 Earnings from operations before extraordinary loss on early extinguishment of debt $ 65,825 Less: preferred stock dividends (13,499) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 52,326 21,934,390 $ 2.39 Extraordinary loss on early extinguishment of debt, net (334) (0.02) ------ ---- Net earnings 51,992 2.37 Effects of dilutive securities preferred stock conversion 537 291,667 ------ ---------- Diluted earnings per share Net earnings $ 52,529 22,226,057 $ 2.36 ====== ========== ==== 53 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 8. EARNINGS PER SHARE, continued Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------- (in thousands, except share and per share data) Year ended March 31, 1999 Earnings from operations before extraordinary loss on early extinguishment of debt $ 62,509 Less: preferred stock dividends (17,077) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 45,432 21,937,686 $ 2.07 Extraordinary loss on early extinguishment of debt, net - - ------ ---- Net earnings 45,432 2.07 Effects of dilutive securities Preferred stock conversion 4,006 2,002,937 ------ ---------- Diluted earnings per share Net earnings $ 49,438 23,940,623 $ 2.07 ====== ========== ==== Year ended March 31, 1998 Earnings from operations before extraordinary loss on early extinguishment of debt $ 48,656 Less: preferred stock dividends (20,664) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 27,992 21,896,101 $ 1.28 Extraordinary loss on early extinguishment of debt, net (13,672) (0.62) ------ ---- Net earnings 14,320 0.66 Effects of dilutive securities Preferred stock conversion - - ------ ---------- Diluted earnings per share Net earnings $ 14,320 21,896,101 $ 0.66 ====== ========== ==== 54 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 9. INCOME TAXES The components of the consolidated expense for income taxes applicable to operations are as follows: Year ended ------------------------------- 2000 1999 1998 ------------------------------- (in thousands) Current: Federal $ 1,192 2,490 2,098 State 1,068 406 406 Deferred: Federal 32,369 29,963 23,772 State 2,293 2,242 1,367 ------------------------------ $ 36,922 35,101 27,643 ============================== Income taxes paid in cash amounted to $1,522,000, $1,656,000 and $2,758,000 for fiscal years 2000, 1999 and 1998, respectively. 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 2000, 1999 and 1998) as follows: Year ended ------------------------------- 2000 1999 1998 ------------------------------- (in thousands) Computed "expected" tax expense $ 35,962 34,163 26,705 Increases (reductions) in taxes resulting from: Tax-exempt interest income (145) (474) (676) Dividends received deduction (1) (52) (153) Canadian subsidiary (income)loss (536) 444 (524) True-up of prior year - - 950 Federal tax benefit of state and local taxes (1,176) (927) (620) Other (543) (701) 188 ------------------------------ Actual federal tax expense 33,561 32,453 25,870 State and local income tax expense 3,361 2,648 1,773 ------------------------------ Actual tax expense of operations $ 36,922 35,101 27,643 ============================== 55 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 9. INCOME TAXES, continued Deferred tax assets and liabilities are comprised as follows: March 31, ----------------- 2000 1999 ----------------- (in thousands) Deferred tax assets ------------------- Benefit of tax net operating loss and credit carryforwards $ 84,855 98,543 Accrued expenses 6,399 24,110 Deferred revenue from sale/leaseback 7,463 7,945 Policy benefits and losses, claims and loss expenses payable, net 20,236 18,780 Other 1,838 709 ----------------- Total deferred tax assets 120,791 150,087 ----------------- Deferred tax liabilities ------------------------ Property, plant and equipment 224,260 196,478 Deferred policy acquisition costs 5,944 18,189 ----------------- Total deferred tax liabilities 230,204 214,667 ----------------- Net deferred tax liability $ 109,413 64,580 ================= In light of AMERCO's history of profitable operations, management has concluded that it is more likely than not that AMERCO will ultimately realize the full benefit of its deferred tax assets. Accordingly, AMERCO believes that a valuation allowance is not required at March 31, 2000 and 1999. See also Note 15 of Notes to Consolidated Financial Statements. 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, 1999, 1998 and 1997. The Internal Revenue Service has examined AMERCO's income tax returns for the years ended 1994 and 1995. All agreed issues have been provided for in the financial statements for the 1994 and 1995 audit period. On January 22, 1999, AMERCO was informed by the Internal Revenue Service that fiscal years 1996 and 1997 have been selected for audit. At March 31, 2000, AMERCO and Republic have non-life net operating loss carryforwards available to offset taxable income in future years of $183,130,000 for tax purposes. These carryforwards expire in 2011 through 2012. AMERCO has alternative minimum tax credit carryforwards of $16,440,000 which do not have an expiration date, but may only be utilized in years in which regular tax exceeds alternative minimum tax. The use of certain carryforwards may be limited or prohibited if a reorganization or other change in corporate ownership were to occur. During 1994, Oxford dividended its investment in Republic common stock to its parent at its book value. As a result of such dividend, a deferred intercompany gain arose due to the difference between the book value and fair value of such common stock. However, such gain can only be triggered if certain events occur. To date, no events have occurred which would trigger such gain recognition. No deferred taxes have been provided in the accompanying consolidated financial statements as management believes that no events have occurred to trigger such gain. 56 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 10. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS Independent rental equipment owners (fleet owners) own approximately 7% of all U-Haul rental trailers and 0.01% of certain other rental equipment. There are approximately 2,600 fleet owners, including certain officers, directors, employees and stockholders of AMERCO. All rental equipment is operated under contract with U-Haul whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. Based on the terms of various contracts, rental fees are distributed to U-Haul (for services as operators), to the fleet owners (including certain subsidiaries and related parties of U-Haul) and to Rental Dealers (including Company-operated U-Haul Centers). Republic insures and reinsures certain risks of U-Haul customers and independent fleet owners. Premiums earned on these policies were $22,700,000, $41,000,000 and $49,400,000 during the years ended December 31, 2000, 1999 and 1998, respectively. 11. EMPLOYEE BENEFIT PLANS AMERCO participates in the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (the Plan) which is designed to provide all eligible employees with savings for their retirement and to acquire a proprietary interest in AMERCO. 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 AMERCO may make contributions of AMERCO common stock or cash to acquire such stock on behalf of participants. Generally, employees of AMERCO are eligible to participate in the Plan upon completion of a one year service requirement. No contributions were made to the profit sharing plan in fiscal year 2000, 1999, or 1998. AMERCO has arranged financing to fund the ESOP trust (ESOT) and to enable the ESOT to purchase shares. Below is a summary of the financing arrangements: Amount outstanding Financing as of Interest Payments Date March 31, 2000 2000 1999 1998 ---------------------------------------------------------------------- (in thousands) December 1989 $ - - 34 126 May 1990 117 16 24 35 June 1991 16,249 1,192 1,364 1,466 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 $1,771,000, $2,804,000 and $3,588,000 for fiscal years 2000, 1999 and 1998, respectively. The shares held by ESOP as of March 31 were as follows: Shares issued Shares issued prior to subsequent to December 31, 1992 December 31, 1992 ------------------------------------------ 2000 1999 2000 1999 ------------------------------------------ (in thousands) Allocated shares 1,551 1,620 196 156 Shares committed to be released - - 11 11 Unreleased shares 338 379 679 668 Fair value of unreleased shares $ 4,157 4,485 12,470 14,370 ========================================== 57 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 11. EMPLOYEE BENEFIT PLANS, continued For purposes of the 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 2000 and 1999. Oxford insures various group life and group disability insurance plans covering employees of the consolidated group. Premiums earned were $1,276,000, $1,208,000 and $2,785,000 during the years ended December 31, 1999, 1998 and 1997, respectively, and were eliminated in consolidation. 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS AMERCO provides medical and life insurance benefits to retired employees and eligible dependents over age 65 if the employee meets specified age and service requirements. AMERCO uses the accrual method of accounting for postretirement benefits. AMERCO continues to fund medical and life insurance benefit costs as claims are incurred. The components of net periodic postretirement benefit cost for 2000, 1999 and 1998 are as follows: 2000 1999 1998 ---------------------------- (in thousands) Service cost for benefits earned during the period $ 330 296 260 Interest cost on accumulated postretirement benefit 338 327 301 Other components (239) (224) (239) --------------------------- Net periodic postretirement benefit cost $ 429 399 322 =========================== The 2000 and 1999 postretirement benefit liability included the following components: 2000 1999 ------------------ (in thousands) Beginning of year $ 4,886 4,739 Service cost 330 296 Interest cost 338 327 Benefit payments and expense (93) (88) Actuarial loss (1,846) (388) ----------------- Accumulated postretirement benefit obligation 3,615 4,886 Unrecognized net gain 5,232 3,624 ----------------- $ 8,847 8,510 ================= The discount rate assumptions in computing the information above were as follows: 2000 1999 1998 ----------------------------- Accumulated postretirement benefit obligation 7.75% 7.00% 7.00% The year-to-year fluctuations in the discount rate assumptions primarily reflect changes in U.S. interest rates. The discount rate represents the expected yield on a portfolio of high-grade (AA-AAA rated or equivalent) fixed-income investments with cash flow streams sufficient to satisfy benefit obligations under the plans when due. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 6.00% in 2000, declining annually to an ultimate rate of 4.20% in 2014. 58 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued If the health care cost trend rate assumptions were increased by 1.00%, the accumulated postretirement benefit obligation as of March 31, 2000 would be increased by approximately $166,000 and a decrease of 1.00% would reduce the accumulated postretirement benefit obligation by $181,000. Postemployment benefits provided by AMERCO are not material. 13. REINSURANCE In the normal course of business, Republic and Oxford assume and cede reinsurance on both a coinsurance and risk premium basis. Republic and Oxford obtain reinsurance for that portion of risks exceeding retention limits. The maximum amount of life insurance retained on any one life is $150,000. 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 December 31, 1999 ---------------------------- Life insurance in force $ 1,508,961 932,004 1,930,832 2,507,789 77% ============================================ Premiums earned: Life $ 26,745 2,527 6,480 30,698 21% Accident and health 43,833 15,121 29,377 58,089 51% Annuity 69 3 6,269 6,335 99% Property - casualty 111,488 27,004 89,319 173,803 51% -------------------------------------------- Total $ 182,135 44,655 131,445 268,925 ============================================ Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ------------------------------------------ ----------- (in thousands) Year ended December 31, 1998 ---------------------------- Life insurance in force $ 1,254,084 809,267 2,218,772 2,663,589 83% ============================================ Premiums earned: Life $ 20,554 6,403 11,480 25,631 45% Accident and health 32,668 10,875 29,973 51,766 58% Annuity 556 - 9,944 10,500 95% Property - casualty 110,080 32,047 60,917 138,950 44% -------------------------------------------- Total $ 163,858 49,325 112,314 226,847 ============================================ 59 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 13. REINSURANCE, continued Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ------------------------------------------ ----------- (in thousands) Year ended December 31, 1997 ---------------------------- Life insurance in force $ 1,601,840 224,893 2,219,393 3,596,340 62% ============================================ Premiums earned: Life $ 3,527 160 7,034 10,401 68% Accident and health 7,916 1,217 1,930 8,629 22% Annuity 106 - 8,868 8,974 99% Property - casualty 103,488 22,387 55,508 136,609 41% -------------------------------------------- Total $ 115,037 23,764 73,340 164,613 ============================================ In connection with Oxford's acquisitions during 1997 as disclosed in Note 20 of Notes to Consolidated Financial Statements, the level of life reinsurance transactions increased as of December 31, 1998. Republic is a reinsurer of municipal bond insurance through an agreement with MBIA, Inc. Premiums generated through this agreement are recognized on a pro rata basis over the contract coverage period. Unearned premiums on this coverage were $5,000,000 and $5,300,000 as of December 31, 1999 and 1998, respectively. Republic's share of case loss reserves related to this coverage was insignificant at December 31, 1999. Republic's aggregate exposure for Class 1 municipal bond insurance was $1,000,000,000 as of December 31, 1999. To the extent that a reinsurer is unable to meet its obligation under the related reinsurance agreements, Republic would remain liable for the unpaid losses and loss expenses. Pursuant to certain of these agreements, Republic holds letters of credit of $3,500,000 from reinsurers. Republic has issued letters of credit of approximately $2,700,000 in favor of certain ceding companies. Republic insures and reinsures general liability, auto liability and workers' compensation coverage for member companies of the consolidated group. Premiums earned by Republic on these policies were $6,878,000, $11,734,000 and $19,800,000 during the years ended December 31, 1999, 1998 and 1997, respectively, and were eliminated in consolidation. 14. CONTINGENT LIABILITIES AND COMMITMENTS AMERCO uses certain equipment and occupies certain facilities under operating lease commitments with terms expiring through 2079. Lease expense was $135,681,000, $118,742,000 and $89,879,000 for the years ended 2000, 1999 and 1998, respectively. During the year ended March 31, 2000, a subsidiary of U-Haul entered into twenty-two transactions and has subsequently entered into nine additional transactions, whereby AMERCO sold rental trucks, which were subsequently leased back. AMERCO has guaranteed $147,905,000 of residual values at March 31, 2000 and an additional $13,015,000 subsequent to March 31, 2000 for 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. 60 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. CONTINGENT LIABILITIES AND COMMITMENTS, continued Following are the lease commitments for leases having terms of more than one year: March 31, 2000 --------------------------- Net activity Property, plant Rental subsequent to Year ended and other equipment fleet year end Total ------------------------------------------------------------------- (in thousands) 2001 $ 5,186 133,496 10,795 149,477 2002 2,870 117,890 12,393 133,153 2003 2,068 104,257 12,393 118,718 2004 1,881 78,771 12,393 93,045 2005 1,652 65,042 12,393 79,087 Thereafter 11,398 81,916 26,382 119,696 ----------------------------------------------- $ 25,055 581,372 86,749 693,176 =============================================== The Company, at the expiration of the lease, has the option to renew the lease, purchase the units for fair market value, or sell the units to a third party on behalf of the lessor. On or before a specific date prior to the expiration date of the lease, the Company has the ability to exercise a TRAC option. Under this provision the Company has the right to purchase the units at a specified price. At March 31, 2000, a subsidiary of U-Haul exercised its option in accordance with the operating lease TRAC provision for equipment contained in five lease agreements totaling $6,942,000. Subsequent to March 31, 2000, the Company exercised a similar provision totaling $10,944,000 in connection with seven additional leases. In December 1996, AMERCO executed a $100,000,000 Operating Lease Facility with a number of financial institutions which was amended and restated in July 1999 to $170,000,000. In September 1999, AMERCO entered into an additional $125,000,000 Operating Lease Facility. Under these facilities, the lessor acquires land to be developed for storage locations by AMERCO, as Construction Agent, or acquires existing storage locations with advances of funds (the Advances) made by certain parties to the facilities. AMERCO will separately lease land and improvements, including completed locations capitalized by the lessor, under the facilities and the respective lease supplements. Funding under the facilities totaled $174,900,000 at March 31, 2000. The facilities contain certain restrictions similar to those contained in Note 5. Upon occurrence of any event of default, the lessor may rescind or terminate any or all leases and, among other things, require AMERCO to repurchase any or all of the properties. The facilities have a three year term, subject to AMERCO's option, with the consent of other parties, to renew for successive one year terms. Upon the expiration of the facilities, AMERCO may either purchase all of the properties based on a purchase price equal to all amounts outstanding under the Advances, including the interest and yield thereon, or remarket all of the properties to a third party purchaser who may become a subsequent lessor to AMERCO. In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO 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 AMERCO, individually or in the aggregate, are expected to result in a material loss. Also see Notes 13 and 15 of Notes to Consolidated Financial Statements. 61 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 15. LEGAL PROCEEDINGS On October 1, 1996, AMERCO made the final payment of approximately $448,100,000 to the plaintiffs (non-management shareholders and their affiliates) in the full settlement of a legal dispute related to control of AMERCO. As a result, the plaintiffs that owned AMERCO stock were required to transfer all of their shares of common stock to AMERCO. The total number of shares transferred was 18,254,976. On January 10, 2000 it was determined that the plaintiffs were entitled to post-petition interest at the rate of ten percent (10%) per year from February 21, 1995 until October 1, 1996. In 1996, AMERCO deposited approximately $48,200,000 into an escrow account to secure payment of the disputed interest, pending final resolution of this issue. The escrow account was reflected as a component of "Other assets" in AMERCO's consolidated financial statements. The amount deposited into the escrow account was transferred to the plaintiffs on February 2, 2000. The release of the escrow did not have the effect of increasing or decreasing AMERCO's net earnings, but reduced stockholders' equity. AMERCO has deducted for income tax purposes approximately $372,000,000 of payments previously made to the former shareholders. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. On June 24, 1997, five (5) current and/or former Moving Center General Managers (GMs) and one (1) Area Field Manager (AFM) filed suit in Marin County Superior Court, Case No. BC 203532, entitled Sarah Saunders, et al. ---------------------- vs. U-Haul Company of California, Inc., claiming that they were entitled to ---------------------------------- be compensated for all overtime hours worked in excess of forty (40) hours per week. In addition, these Plaintiffs sought class action status purporting to represent all persons employed in California as either a salaried GM or AFM since September 1993. On September 30, 1997, a virtually identical lawsuit was filed in Los Angeles County Superior Court, Case No. BC 178775, entitled Wyatt Crandall vs. U-Haul International, Inc. and U-Haul -------------- ------------------------------------- Co. of California. This action did not include AFMs, but did purport to be ----------------- brought on behalf of GMs and GM trainees. These cases were consolidated by the Court in Los Angeles on October 15, 1998. On June 10, 1999, Plaintiff's motion to certify the AFMs as a class was denied and the motion to certify the GMs as a class was granted. Notice of certification was mailed on or about August 24, 1999. The class opt-out period ended on October 11, 1999. Trial is set for November 2000. Management does not expect the Plaintiffs' damage claims to result in a material loss, however, there remains the possibility that an adverse outcome could result in a material effect on AMERCO's results of operations for the year in which the decision is rendered. 62 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 16. PREFERRED STOCK PURCHASE RIGHTS AMERCO's Board of Directors adopted a stockholder-rights plan in July 1998. The rights were declared as a dividend of one preferred share purchase right for each outstanding share of AMERCO's common stock. The dividend distribution was payable on August 17, 1998 to the stockholders of record on that date. When exercisable, each right will entitle its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participating Preferred Stock (Series C), no par value per share of AMERCO, at a price of $132.00 per one one-hundredth of a share of Series C, subject to adjustment. AMERCO has created a series of 3,000,000 shares of authorized but unissued preferred stock for the Series C 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 10% or more of the common stock without approval of a majority of the Board of Directors of AMERCO. The rights will expire on August 7, 2008 unless earlier redeemed or exchanged by AMERCO. In the event AMERCO is acquired in a merger or other business combination transaction after the rights become exercisable, each holder of a right would be entitled to receive that number of shares of the acquiring company's common stock equal to the result obtained by multiplying the then current Purchase Price by the number one one-hundredths of a share of Series C for which a right is then exercisable and dividing that product by 50% of the then current market price per share of the acquiring company. 63 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 17. STOCK OPTION PLAN AMERCO's stockholders approved a ten year incentive plan entitled the AMERCO Stock Option and Incentive Plan (the Plan) for officers and key employees in October 1992. No stock options or awards have been granted under this plan to date. 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 AMERCO stock. The features of the Plan are: Incentive Stock Options (ISO's) - 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 ISO's 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. Stock Appreciation Right (SAR's) - subject to certain conditions and limitations to holders of options under the Plan. SAR's 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. Restricted Stock Award - a specified number of common shares may be granted subject to certain restrictions. Restriction violations during a specified period result in forfeiture of the stock. The Committee may, at its discretion, impose any restrictions on a Restricted Stock award. Dividend Equivalents - in connection with options. Dividend Equivalents are rights to receive additional shares of stock at the time of exercise of the option to which such Dividend Equivalents apply. Performance Share - deemed to be the equivalent of one share of stock and credited to a Performance Share account to be maintained for each Holder. The value of the shares at 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. 18. RELATED PARTY TRANSACTIONS AMERCO has related party transactions with certain major stockholders, directors and officers of the consolidated group as disclosed in Notes 2, 6, 10 and 16 of Notes to Consolidated Financial Statements. During fiscal year 2000, AMERCO sold $3,910,000 of remanufactured engines and small automtive parts and purchased $38,373,000 of automtive parts and tools from a company wherein a major stockholder, director and officer of AMERCO has a beneficial minority ownership interest. During fiscal year 2000, AMERCO purchased $2,508,000 of rebuilt torque converters and other related transmission parts from a company wherein an owner is a family member of a major stockholder, director and officer of AMERCO. During the years ended 2000, 1999 and 1998, AMERCO purchased $3,371,000, $3,070,000 and $2,816,000, respectively, of printing from a company wherein an officer is a major stockholder, director and officer of AMERCO. Management believes that these transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 64 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 19. SUPPLEMENTAL CASH FLOW INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued expenses net of other operating and investing activities follows: Year ended --------------------------------------- 2000 1999 1998 --------------------------------------- (in thousands) Receivables $ (40,590) 676 (14,646) ======================================= Inventories $ (4,455) (11,272) (3,093) ======================================= Accounts payable and accrued expenses $ 20,146 12,668 11,123 ======================================= 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized consolidated balance sheet for Republic is presented below: December 31, ------------------- 1999 1998 ------------------- (in thousands) Investments, fixed maturities $ 399,445 421,346 Investments, other 24,591 23,812 Receivables 158,413 130,304 Deferred policy acquisition costs 15,130 12,299 Due from affiliate 28,054 18,259 Deferred federal income taxes 13,384 13,497 Other assets 25,770 19,460 ------------------- Total assets $ 664,787 638,977 =================== Policy liabilities and accruals $ 339,220 349,550 Unearned premiums 64,755 55,076 Other policyholders' funds and liabilities 52,307 22,905 ------------------- Total liabilities 456,282 427,531 Stockholder's equity 208,505 211,446 ------------------- Total liabilities and stockholder's equity $ 664,787 638,977 =================== A summarized consolidated income statement for Republic is presented below: Year ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- (in thousands) Premiums $ 173,803 145,301 155,906 Net investment income 33,004 35,755 31,938 ------------------------------- Total revenue 206,807 181,056 187,844 Benefits and losses 150,543 118,870 165,890 Amortization of deferred policy acquisition costs 13,358 7,443 8,622 Operating expenses 34,972 35,637 12,596 ------------------------------- Total expenses 198,873 161,950 187,108 Income from operations 7,934 19,106 736 Income tax benefit (expense) (2,611) (5,976) 556 ------------------------------- Net income $ 5,323 13,130 1,292 =============================== 65 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized consolidated balance sheet for Oxford is presented below: December 31, -------------------- 1999 1998 -------------------- (in thousands) Investments, fixed maturities $ 485,379 479,649 Investments, other 122,038 139,011 Receivables 19,021 28,138 Deferred policy acquisition costs 73,272 69,390 Other assets 32,270 31,097 ------------------- Total assets $ 731,980 747,285 =================== Policy liabilities and accruals $ 142,180 136,299 Premium deposits 461,673 457,759 Other policyholders' funds and liabilities 18,390 27,351 Due to affiliate 10,669 9,862 Deferred federal income taxes 10,975 22,389 ------------------- Total liabilities 643,887 653,660 Stockholder's equity 88,093 93,625 ------------------- Total liabilities and stockholder's equity $ 731,980 747,285 =================== A summarized consolidated income statement for Oxford is presented below: Year ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- (in thousands) Premiums $ 96,406 94,488 29,731 Net investment income 21,293 19,147 17,811 ------------------------------- Total revenue 117,699 113,635 47,542 Benefits and losses 59,049 57,690 24,377 Amortization of deferred policy acquisition costs 21,629 24,278 5,572 Operating expenses 22,831 19,509 6,953 ------------------------------- Total expenses 103,509 101,477 36,902 Income from operations 14,190 12,158 10,640 Income tax expense (4,117) (3,423) (3,220) ------------------------------- Net income $ 10,073 8,735 7,420 =============================== 66 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued Applicable laws and regulations of the State of Arizona require maintenance of minimum capital determined in accordance with statutory accounting practices in the amount of $450,000 for Oxford and $1,000,000 for Republic. In addition, the amount of dividends which can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends is $1,400,000 for Oxford and $16,100,000 for Republic at December 31, 1999. Audited statutory net income for Republic for the years ended December 31, 1999, 1998 and 1997 was $9,907,000, $12,382,000 and $2,124,000, respectively; audited statutory capital and surplus was $154,604,000 and $165,969,000 at December 31, 1999 and 1998, respectively. Audited statutory net income for Oxford for the years ended December 31, 1999, 1998 and 1997 was $1,599,000, $814,000 and $8,278,000, respectively; audited statutory capital and surplus was $57,689,000 and $64,084,000 at December 31, 1999 and 1998, respectively. On November 21, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore) for $11,569,000. Encore's primary subsidiary is North American Insurance Company (NAI). NAI's premium volume is primarily from the sale of credit life and disability products. NAI owns all of the issued and outstanding common shares of North American Fire & Casualty Insurance Company, a property and casualty insurance company. In December 1998, North American Fire & Casualty Insurance Company was sold to Republic. On November 24, 1997, Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company, for $2,243,000. As of November 1, 1998, Safe Mate merged into Oxford. Safe Mate's business was the sale of credit life and disability products. These purchases greatly increase Oxford's distribution channels and enhance administrative capabilities in these markets. 67 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (Republic) and Life Insurance (Oxford). See Note 1 of Notes to Consolidated Financial Statements for a description of the industry segments. Information concerning operations by industry segment follows:
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated -------------------------------------------------------------------- (in thousands) Fiscal year 2000 ---------------- Revenues: Outside $1,357,651 9,365 199,929 116,425 - 1,683,370 Intersegment - 71,021 6,878 1,274 (79,173) - --------- ------- ------- ------- -------- --------- Total revenue $1,357,651 80,386 206,807 117,699 (79,173) 1,683,370 Depreciation/ amortization $ 88,363 10,512 14,819 21,787 - 135,481 Interest expense $ 81,532 39,257 - - (39,257) 81,532 Pretax earnings $ 55,169 25,454 7,934 14,190 - 102,747 Income tax expense $ 21,264 8,930 2,611 4,117 - 36,922 Extraordinary loss on early extinguishment of debt, net $ (334) - - - - (334) Identifiable assets at March 31, 2000 $1,388,639 687,855 664,787 721,311 (337,367) 3,125,225 Fiscal year 1999 ---------------- Revenues: Outside $1,266,372 6,658 169,322 112,427 - 1,554,779 Intersegment - 71,888 11,734 1,208 (84,830) - --------- ------- ------- ------- -------- --------- Total revenue $1,266,372 78,546 181,056 113,635 (84,830) 1,554,779 Depreciation/ amortization $ 72,325 10,990 9,190 21,597 - 114,102 Interest expense $ 73,658 40,595 - - (40,595) 73,658 Pretax earnings $ 46,679 19,667 19,106 12,158 - 97,610 Income tax expense $ 18,819 6,883 5,976 3,423 - 35,101 Identifiable assets at March 31, 1999 $1,339,312 708,756 638,977 737,423 (336,965) 3,087,503
68 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated -------------------------------------------------------------------- (in thousands) Fiscal year 1998 ---------------- Revenues: Outside $1,205,985 4,908 167,398 46,318 - 1,424,609 Intersegment - 67,371 20,446 1,224 (89,041) - --------- ------- ------- ------- -------- --------- Total revenue $1,205,985 72,279 187,844 47,542 (89,041) 1,424,609 Depreciation/ amortization $ 89,940 7,824 10,807 5,251 - 113,822 Interest expense $ 37,146 42,223 - - - 79,369 Pretax earnings $ 49,036 15,887 736 10,640 - 76,299 Income tax expense (benefit) $ 19,166 5,813 (556) 3,220 - 27,643 Extraordinary loss on early extinguishment of debt, net $ (13,672) - - - - (13,672) Identifiable assets at March 31, 1998 $1,221,579 662,634 654,449 691,118 (316,503) 2,913,277
69 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Geographic Area Data - United States Canada Consolidated (All amounts are in U.S. $'s) --------------------------------------- (in thousands) Fiscal year 2000 ---------------- Total revenues $ 1,648,889 34,481 1,683,370 Depreciation/amortization $ 131,513 3,968 135,481 Interest expense $ 81,515 17 81,532 Pretax earnings $ 101,216 1,531 102,747 Income tax expense $ 36,992 - 36,992 Extraordinary loss $ (334) - (334) Identifiable assets at March 31, 2000 $ 3,075,095 50,130 3,125,225 Fiscal year 1999 ---------------- Total revenues $ 1,525,006 29,773 1,554,779 Depreciation/amortization $ 110,817 3,285 114,102 Interest expense $ 73,641 17 73,658 Pretax earnings (loss) $ 98,878 (1,268) 97,610 Income tax expense $ 35,101 - 35,101 Identifiable assets at March 31, 1999 $ 3,046,247 41,256 3,087,503 Fiscal year 1998 ---------------- Total revenues $ 1,394,189 31,067 1,425,256 Depreciation/amortization $ 111,072 2,750 113,822 Interest expense $ 79,340 29 79,369 Pretax earnings $ 74,801 1,498 76,299 Income tax expense $ 27,643 - 27,643 Extraordinary loss $ (13,672) - (13,672) Identifiable assets at March 31, 1998 $ 2,863,416 49,861 2,913,277 22. SUBSEQUENT EVENTS On May 2, 2000, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to the Series A preferred stockholders of record as of May 12, 2000. See Note 14 of Notes to Consolidated Financial Statements for other subsequent event disclosures. 70 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 PricewaterhouseCoopers LLP, independent accountants, whose report thereon appears elsewhere herein.
Years Ended March 31, --------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------- (in thousands, except earnings per $100 of average investment) Earnings data (Note A): Fleet Owner income: Credited to Fleet Owner gross rental income $ 1,977 2,191 2,317 3,214 4,181 Credited to Trailer Accident Fund (Notes D and E) 114 144 183 253 302 ----- ----- ----- ----- ----- Total Fleet Owner income 2,091 2,335 2,500 3,467 4,483 ----- ----- ----- ----- ----- Fleet Owner operation expenses: Charged to Fleet Owner (Note C) 999 873 1,144 1,639 2,182 Charged to Trailer Accident Fund (Notes D and F) 23 27 20 29 58 ----- ----- ----- ----- ----- Total Fleet Owner operation expenses 1,022 900 1,164 1,668 2,240 ----- ----- ----- ----- ----- Fleet Owner earnings before Trailer Accident Fund credit, depreciation and income taxes 978 1,318 1,173 1,575 1,999 Trailer Accident Fund credit (Note D) 91 117 163 224 244 ----- ----- ----- ----- ----- Net Fleet Owner earnings before depreciation and income taxes $ 1,069 1,435 1,336 1,799 2,243 ===== ===== ===== ===== ===== Investment data (Note A): Amount at end of year $ 2,654 3,272 3,875 5,402 6,871 ===== ===== ===== ===== ===== Average amount during year $ 2,963 3,574 4,639 6,137 7,732 ===== ===== ===== ===== ===== Net Fleet Owner earnings before depreciation and income taxes per $100 of average investment (Note B) $ 28.12 29.56 28.79 29.31 29.02 ===== ===== ===== ===== ===== The accompanying notes are an integral part of this Summary of Earnings of Independent Trailer Fleets.
71 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information (A) The accompanying Summary of Earnings of Independent Trailer Fleets includes the operations of trailers under the brand name of "U-Haul" owned by Independent Fleet Owners. Earnings data represent the aggregate results of operations before depreciation and taxes. Investment data represent the cost of trailers and investments before accumulated depreciation. Fleet Owner income is based on Independent Rental Dealer reports of rentals transacted through the day preceding the last Monday of each month and received by U-Haul International, Inc. by the end of the month and Company-Operated U-Haul Center reports of rentals transacted through the last day of each month. Payments to Fleet Owners for trailers lost or retired from rental service as a result of damage by accident have not been reflected in this summary because such payments do not relate to earnings before depreciation and income taxes but, rather, investment (depreciation). The investment data is based upon the cost of trailers to the Fleet Owners as reflected by sales records of the U-Haul manufacturing facilities. (B) The summary of earnings data stated in terms of amount per $100 of average investment represents the aggregate results of operations (earnings data) divided by the average amount of investment during the periods. The average amount of investment is based upon a simple average of the month-end investment during each period. Average earnings data is not necessarily representative of an individual Fleet Owner's earnings. (C) A summary of operations expenses charged directly to Independent Fleet Owners follows:
Year ended March 31, ---------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------- (in thousands) Licenses $ 150 159 285 434 436 Public liability insurance 126 134 156 198 264 Repairs and maintenance 723 580 703 1,007 1,482 --- --- ----- ----- ----- $ 999 873 1,144 1,639 2,182 === === ===== ===== ===== (D) The Fleet Owners and Subsidiary U-Haul Rental Companies forego normal commissions on a portion of gross rental fees designated for transfer to the Trailer Accident Fund. Trailer accident repair expenses, otherwise chargeable to Fleet Owners, are paid from these Funds to the extent of the financial resources of the Funds. The amounts designated "Trailer Accident Fund credit" in the accompanying summary of earnings represent Independent Fleetowner commissions foregone, which exceed expenses borne by the Funds.
72 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued Additional Information (E) Commissions foregone for transfer to the Trailer Accident Fund follows:
Fleet Owners Subsidiary ------------------------ U-Haul Subsidiary Companies Companies Independent Total -------------------------------------------------- (in thousands) Year ended: March 31, 2000 $ 6,061 3,150 114 9,325 March 31, 1999 6,081 3,131 144 9,356 March 31, 1998 6,299 3,208 183 9,690 March 31, 1997 6,262 3,119 253 9,634 March 31, 1996 5,682 2,757 302 8,741
(F) A summary of Independent Fleet Owner expenses borne by the Trailer Accident Fund follows:
Total Fleet Owners Trailer Subsidiary ------------------------ Trailer Accident U-Haul Subsidiary Sub Accident Repair Companies Companies Independent Total Retirements Expenses ------------------------------------------------------------------------------- (in thousands) Year ended: March 31, 2000 $ 1,233 641 23 1,897 354 2,251 March 31, 1999 1,148 591 27 1,766 342 2,108 March 31, 1998 682 347 20 1,049 408 1,457 March 31, 1997 722 360 29 1,111 246 1,357 March 31, 1996 1,089 528 58 1,675 305 1,980 (G) Certain reclassifications have been made to the Summary of Earnings of Independent Trailer Fleets for the fiscal years ended 1999, 1998, 1997 and 1996 to conform with the current year's presentation.
73 Schedule I Condensed Financial Information of Registrant AMERCO Balance Sheets March 31, 2000 1999 --------------------- (in thousands) Assets ------ Cash $ 108 1,082 Investment in subsidiaries 844,115 785,616 Due from unconsolidated subsidiaries 1,042,992 1,021,146 Other assets 28,770 80,135 ---------------------- $ 1,915,985 1,887,979 ====================== Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Notes and loans payable $ 1,137,553 1,114,063 Other liabilities 176,889 141,634 ---------------------- Stockholders' equity: Preferred stock - - Common stock 10,563 10,563 Additional paid-in capital 275,242 299,905 Accumulated other comprehensive income (42,317) (17,740) Retained earnings: Beginning of year 703,322 658,227 Net earnings 65,491 62,509 Dividends paid (13,641) (17,414) ---------------------- 755,172 703,322 Less: Cost of common shares in treasury 397,000 363,533 Unearned employee stock ownership plan shares 117 235 ---------------------- Total stockholders' equity 601,543 632,282 ---------------------- $ 1,915,985 1,887,979 ====================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 74 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Earnings Years Ended March 31, 2000 1999 1998 ------------------------------------ (in thousands, except share and per share data) Revenues -------- Net interest income from subsidiaries $ 53,504 57,500 64,751 Expenses -------- Interest expense 77,561 73,960 76,969 Other expenses 5,823 7,394 6,040 ------------------------------------ Total expenses 83,384 81,354 83,009 ------------------------------------ Operating loss (29,880) (23,854) (18,258) Equity in earnings of unconsolidated subsidiaries 126,878 111,782 89,339 Income tax expense (31,173) (25,419) (25,615) Extraordinary loss on early extinguishment of debt, net (334) - (10,482) ------------------------------------ Net earnings $ 65,491 62,509 34,984 ==================================== Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.39 2.07 1.28 Extraordinary loss on early extinguishment of debt, net (0.02) - (0.62) ------------------------------------ Net earnings $ 2.37 2.07 0.66 ==================================== Weighted average common shares outstanding 21,934,390 21,937,686 21,896,101 ==================================== See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 75 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Cash Flows Years Ended March 31, 2000 1999 1998 -------------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 65,491 62,509 34,984 Amortization, net (569) (1,730) 270 Equity in earnings of subsidiaries 85,266 78,014 56,578 (Increase) decrease in amounts due from unconsolidated subsidiaries 14,150 (64,062) (74,909) Net change in operating assets and liabilities (83,449) (89,921) (69,642) Other, net (27,005) (4,695) 1,074 -------------------------------- Net cash provided (used) by operating activities 53,884 (19,885) (51,645) -------------------------------- Cash flows from financing activities: Net change in short term borrowings (146,500) 135,500 122,500 Proceeds from notes 350,000 - 300,000 Leveraged Employee Stock Ownership Plan-repayments from loan 118 1,017 1,717 Principal payments on notes (180,010) (45,008) (314,008) Debt issuance costs (6,024) (358) (2,664) Repurchase of preferred stock (25,000) (50,000) (25,000) Preferred stock dividends paid (13,641) (17,414) (20,766) Treasury stock purchase, net (33,467) (3,810) - Deferred tax-treasury stock - - - Escrow deposit - - - Extraordinary loss on early extinguishment of debt, net (334) - (10,482) -------------------------------- Net cash provided (used) by financing activities (54,858) 19,927 51,297 -------------------------------- Increase (decrease) in cash and cash equivalents (974) 42 (348) Cash and cash equivalents at beginning of year 1,082 1,040 1,388 -------------------------------- Cash and cash equivalents at end of year $ 108 1,082 1,040 ================================ Income taxes paid in cash amounted to $675,000, $1,425,000 and $2,588,000 for 2000, 1999 and 1998, respectively. Interest paid in cash amounted to $77,529,000, $74,026,000 and $76,035,000 for 2000, 1999 and 1998, respectively. See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 76 Schedule I, continued Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 2000, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMERCO, a Nevada corporation, was incorporated in April, 1969, and is the holding company for U-Haul International, Inc., Republic Western Insurance Company, Oxford Life Insurance Company and Amerco Real Estate Company. The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this Form 10-K. AMERCO is included in a consolidated Federal income tax return with all of its U.S. subsidiaries. Accordingly, the provision for income taxes has been calculated for Federal income taxes of the Registrant and subsidiaries included in the consolidated return of the Registrant. State taxes for all subsidiaries are allocated to the respective subsidiaries. The financial statements include only the accounts of the Registrant (a Nevada corporation), which include certain of the corporate operations of AMERCO. The debt and related interest expense of the Registrant have been allocated to the consolidated subsidiaries. The intercompany interest income and expenses are eliminated in the consolidated financial statements. 2. GUARANTEES AMERCO has guaranteed performance of certain long-term leases. See Note 14 of Notes to Consolidated Financial Statements. 3. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following: March 31, -------------------- 2000 1999 -------------------- (in thousands) Medium-term notes payable, unsecured, 6.71% to 8.08% interest rates, due through 2027 $ 237,000 317,000 Notes payable under Bond Backed Asset Trust, unsecured, 6.89% to 7.14% interest rates, due through 2033 200,000 300,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 - Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 - Other notes payable, unsecured, 9.50% interest rate, due through 2005 53 63 Notes payable to banks under revolving lines of credit, unsecured, 6.19% to 6.44% interest rates 159,000 297,000 Other short-term promissory notes, 6.32% interest rate 16,500 25,000 -------------------- $ 1,137,553 1,114,063 ==================== For additional information, see Note 5 of Notes to Consolidated Financial Statements. 77 Schedule V AMERCO AND CONSOLIDATED SUBSIDIARIES Supplemental Information (For Property-Casualty Insurance Underwriters) Years ended December 31, 1999, 1998 and 1997
Reserves Amorti- for Unpaid zation Paid Claims Claims and of Claims Deferred and Net Claim Adjustment Deferred and Policy Claim Net Invest- Expenses Incurred Policy Claim Net Affiliation Acqui- Adjust- Discount Earned ment Related to Acqui- Adjust- Premiums Fiscal With sition ment if any, Unearned Premiums Income Current Prior sition ment Written Year Registrant Costs Expenses Deducted Premiums (1) (3) Year Year Costs Expenses (2) ---- ---------- ----- -------- -------- -------- -------- ------ ---- ---- ----- -------- ------- (in thousands) 2000 Consolidated property - casualty entity $ 15,130 334,857 N/A 64,755 166,925 32,527 121,861 9,616 13,358 137,369 171,561 1999 Consolidated property - casualty entity 12,299 344,748 N/A 55,076 133,567 32,908 116,069 (8,827) 7,443 140,159 143,571 1998 Consolidated property - casualty entity 7,203 384,816 N/A 45,753 136,106 31,292 132,291 23,192 8,622 118,308 135,782 (1) The earned premiums are reported net of intersegment transactions. Earned premiums eliminated in consolidation amount to $6,878,000, $11,734,000 and $19,800,000 for the years ended 1999, 1998 and 1997, respectively. (2) The premiums written are reported net of intersegment transactions. Premiums written eliminated in consolidation amount to $11,921,000, $10,921,000 and $20,287,000 for the years ended 1999, 1998 and 1997, respectively. (3) Net Investment Income excludes net realized gains on investments of $477,000, $2,847,000 and $647,000 for the years 1999, 1998 and 1997, respectively.
78 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 29, 2000 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 29, 2000 ---------------------- Edward J. Shoen (Principal Executive Officer) /S/ GARY B. HORTON Principal Financial June 29, 2000 ---------------------- and Accounting Officer Gary B. Horton /S/ WILLIAM E. CARTY Director June 29, 2000 ---------------------- William E. Carty /S/ JAMES P. SHOEN Director June 29, 2000 ---------------------- James P. Shoen /S/ RICHARD J. HERRERA Director June 29, 2000 ---------------------- Richard J. Herrera /S/ CHARLES J. BAYER Director June 29, 2000 ---------------------- Charles J. Bayer /S/ JOHN M. DODDS Director June 29, 2000 ---------------------- John M. Dodds /S/ JAMES J. GROGEN Director June 29, 2000 ---------------------- James J. Grogen /S/ JOHN P. BROGAN Director June 29, 2000 ---------------------- John P. Brogan