-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OTmKatOcQEeg4RJ+70N5EB7cbw0YIs1p631A2tn+EINGllBiVM1RrmGF+tiT0hlK jvCSDj0mAFCLMpnuIWRhqA== 0000004457-99-000043.txt : 19991109 0000004457-99-000043.hdr.sgml : 19991109 ACCESSION NUMBER: 0000004457-99-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11255 FILM NUMBER: 99743354 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7026886300 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 10-Q 1 FORM 10-Q 09/30/99 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 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, Ste. 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 22,614,087 shares of AMERCO Common Stock, $0.25 par value were outstanding at November 8, 1999. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at November 8, 1999. U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. a) Consolidated Balance Sheets as of September 30, 1999 and March 31, 1999................................................ 4 b) Consolidated Statements of Earnings for the Six months ended September 30, 1999 and 1998................................... 6 c) Consolidated Statements of Changes in Stockholders' Equity for the Six months ended September 30, 1999................... 7 d) Consolidated Statements of Comprehensive Income for the Six months ended September 30, 1999 and 1998.................. 8 e) Consolidated Statements of Earnings for the Quarters ended September 30, 1999 and 1998................................... 9 f) Consolidated Statements of Cash Flows for the Six months ended September 30, 1999 and 1998................................... 10 g) Notes to Consolidated Financial Statements - September 30, 1999, March 31, 1999 and September 30, 1998......................... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 32 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 33 Item 4. Submission of Matters to a Vote of Security Holders............... 34 Item 6. Exhibits and Reports on Form 8-K.................................. 35 3 THIS PAGE LEFT INTENTIONALLY BLANK 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets September 30, March 31, Assets 1999 1999 ------------------------- (unaudited) (in thousands) Cash and cash equivalents $ 49,635 44,505 Trade receivables, net 168,156 173,050 Notes and mortgage receivables, net 234,892 217,910 Inventories, net 76,328 80,159 Prepaid expenses 9,213 16,363 Investments, fixed maturities 881,394 900,995 Investments, other 199,007 181,892 Deferred policy acquisition costs 71,781 63,283 Other assets 118,430 114,522 ------------------------ Property, plant and equipment, at cost: Land 197,002 196,960 Buildings and improvements 821,578 806,421 Furniture and equipment 241,468 234,894 Rental trailers and other rental equipment 203,718 186,660 Rental trucks 1,004,197 992,418 ------------------------ 2,467,963 2,417,353 Less accumulated depreciation 1,149,666 1,122,529 ------------------------ Total property, plant and equipment 1,318,297 1,294,824 ------------------------ Total Assets $ 3,127,133 3,087,503 ======================== The accompanying notes are an integral part of these consolidated financial statements. 5 September 30, March 31, Liabilities and Stockholders' Equity 1999 1999 ------------------------ (unaudited) (in thousands, except share and per share data) Liabilities: Accounts payable and accrued expenses $ 164,556 169,185 Notes and loans payable 1,087,377 1,114,748 Policy benefits and losses, claims and loss expenses payable 529,131 546,599 Liabilities from premium deposits 457,612 457,759 Cash overdraft 23,963 28,169 Other policyholders' funds and liabilities 50,343 48,889 Deferred income 43,165 41,549 Deferred income taxes 106,898 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 issued and outstanding as of September 30, 1999 and March 31, 1999 - - Series B preferred stock, with no par value, 100,000 shares authorized; none and 25,000 shares issued and outstanding as of September 30, 1999 and March 31, 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 September 30, 1999 and March 31, 1999 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized; 36,487,505 shares issued as of September 30, 1999 and March 31, 1999 9,122 9,122 Additional paid-in capital 274,905 299,905 Accumulated other comprehensive income (22,159) (17,740) Retained earnings 780,596 703,322 ------------------------ 1,043,905 996,050 Less: Cost of common shares in treasury, net (19,635,913 shares as of September 30, 1999 and March 31, 1999) 363,533 363,533 Unearned employee stock ownership plan shares 16,284 16,492 ------------------------ Total stockholders' equity 664,088 616,025 Contingent liabilities and commitments ------------------------ Total Liabilities and Stockholders' Equity $ 3,127,133 3,087,503 ======================== The accompanying notes are an integral part of these consolidated financial statements. 6 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Six months ended September 30, (Unaudited) 1999 1998 -------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 643,030 598,901 Net sales 110,121 107,567 Premiums 107,803 96,223 Net investment and interest income 41,027 35,286 ----------------------- Total revenues 901,981 837,977 Costs and expenses Operating expense 465,443 448,574 Cost of sales 62,734 62,909 Benefits and losses 84,015 79,991 Amortization of deferred acquisition costs 16,458 8,799 Lease expense 64,212 56,532 Depreciation, net 38,551 31,902 ----------------------- Total costs and expenses 731,413 688,707 Earnings from operations 170,568 149,270 Interest expense 39,815 36,635 ----------------------- Pretax earnings 130,753 112,635 Income tax expense (46,319) (39,234) ----------------------- Net earnings $ 84,434 73,401 ======================= Earnings per common share: Basic $ 3.53 2.93 Diluted $ 3.46 - ======================= Weighted average common shares outstanding: Basic 21,958,826 21,930,301 Diluted 22,542,159 - ======================= The accompanying notes are an integral part of these consolidated financial statements. 7 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Six months ended September 30, (Unaudited) 1999 ------------------------- (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 as of September 30, 1999 Beginning and end of period $ 1,441 ------- Common stock of $0.25 par value: 150,000,000 shares authorized, 36,487,505 shares issued as of September 30, 1999 Beginning and end of period 9,122 ------- Additional paid-in capital: Beginning of period 299,905 Preferred stock repurchase 25,000 ------- End of period 274,905 ------- Accumulated other comprehensive income: Beginning of period (17,740) Foreign currency translation 2,605 Fair market value of cash flow hedge 1,497 Unrealized loss on investments (8,521) ------- End of period (22,159) ------- Retained earnings: Beginning of period 703,322 Net earnings 84,434 Preferred stock dividends paid: Series A ($1.06 per share) (6,481) Series B ($27.14 per share) (679) ------- End of period 780,596 ------- Less Treasury stock: Beginning and end of period 363,533 ------- Less Unearned employee stock ownership plan shares: Beginning of period 16,492 Purchase of shares 2 Repayments from loan (210) ------- End of year 16,284 ------- Total stockholders' equity $ 664,088 ======= The accompanying notes are an integral part of these consolidated financial statements. 8 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Six months ended September 30, (Unaudited) 1999 1998 ------------------- (in thousands) Comprehensive Income: Net earnings $ 84,434 73,401 Changes in other comprehensive income: Foreign currency translation 2,605 (5,496) Fair market value of cash flow hedge 1,497 - Unrealized loss on investments (8,521) (762) ------------------- Total Comprehensive Income $ 80,015 67,143 =================== The accompanying notes are an integral part of these consolidated financial statements. 9 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Quarters ended September 30, (Unaudited) 1999 1998 ------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 337,464 317,488 Net sales 52,481 51,254 Premiums 51,727 57,793 Net investment and interest income 20,899 17,698 ------------------------ Total revenues 462,571 444,233 Costs and expenses Operating expense 243,403 238,274 Cost of sales 31,360 30,214 Benefits and losses 40,306 44,411 Amortization of deferred acquisition costs 9,908 4,188 Lease expense 32,816 29,570 Depreciation, net 19,772 14,329 ------------------------ Total costs and expenses 377,565 360,986 Earnings from operations 85,006 83,247 Interest expense 19,617 17,984 ------------------------ Pretax earnings 65,389 65,263 Income tax expense (23,262) (23,092) ------------------------ Net earnings $ 42,127 42,171 ======================== Earnings per common share: Basic $ 1.77 1.71 Diluted $ 1.76 - ======================== Weighted average common shares outstanding: Basic 21,964,452 21,935,854 Diluted 22,131,119 - ======================== The accompanying notes are an integral part of these consolidated financial statements. 10 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Six months ended September 30, (Unaudited) 1999 1998 ------------------- (in thousands) Cash flows from operating activities: Net earnings $ 84,434 73,401 Depreciation and amortization 63,799 47,676 Provision for losses on accounts receivable 2,285 2,272 Net gain on sale of real and personal property (6,058) (1,677) Gain on sale of investments (378) (1,979) Changes in policy liabilities and accruals (8,376) (210) Additions to deferred policy acquisition costs (21,769) (17,654) Net change in other operating assets and liabilities 31,112 (8,148) ------------------- Net cash provided by operating activities 145,049 93,681 ------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (182,680) (190,031) Fixed maturities (62,530) (113,073) Preferred stock (369) (15,500) Mortgage loans (8,395) (1,246) Proceeds from sale of investments: Property, plant and equipment 120,403 129,258 Fixed maturities 66,219 110,366 Preferred stock 903 658 Real estate 733 4,749 Mortgage loans 6,194 9,710 Changes in other investments (15,978) 5,063 ------------------- Net cash used by investing activities (75,500) (60,046) ------------------- Cash flows from financing activities: Net change in short-term borrowings (147,335) 19,000 Proceeds from notes 150,000 - Debt issuance costs (1,228) (378) Leveraged Employee Stock Ownership Plan: Purchase of shares (2) (2) Repayments from loan 210 186 Principal payments on notes (30,036) (46,341) Repurchase of preferred stock (25,000) (25,000) Net change in cash overdraft (4,205) 3,610 Preferred stock dividends paid (7,160) (9,247) Investment contract deposits 31,856 39,257 Investment contract withdrawals (31,519) (32,176) ------------------- Net cash used by financing activities (64,419) (51,091) ------------------- Increase (decrease) in cash and cash equivalents 5,130 (17,456) Cash and cash equivalents at beginning of period 44,505 31,606 ------------------- Cash and cash equivalents at end of period $ 49,635 14,150 =================== The accompanying notes are an integral part of these consolidated financial statements. 11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1999, March 31, 1999 and September 30, 1998 (Unaudited) 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). 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. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in AMERCO's annual financial statements and notes. The consolidated balance sheet as of September 30, 1999 and the related consolidated statements of earnings for the three and six months ended September 30, 1999 and 1998, and the related consolidated statements of changes in stockholders' equity for the six months ended September 30, 1999 and the consolidated statements of comprehensive income and cash flows for the six months ended September 30, 1999 and 1998 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There were no effects related to intervening events which would materially affect the consolidated financial position or results of operations for the financial statements presented herein. Certain reclassifications have been made to the financial statements for the six months ended September 30, 1998 to conform with the current year's presentation. 12 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows: June 30, 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 $ 20,434 $ 19,752 178 (221) 19,709 U.S. government agency mortgage- backed securities $ 21,581 21,491 189 (176) 21,504 Obligations of states and political subdivisions $ 1,500 1,517 96 - 1,613 Corporate securities $ 105,957 106,888 1,782 (695) 107,975 Mortgage-backed securities $ 39,508 38,245 653 (223) 38,675 Redeemable preferred stocks 4,811 116,253 305 (4,244) 112,314 ---------------------------------------- 304,146 3,203 (5,559) 301,790 ---------------------------------------- June 30, 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 $ 34,685 35,511 1,425 (633) 36,303 U.S. government agency mortgage- backed securities $ 38,325 38,026 522 (189) 38,359 Obligations of states and political subdivisions $ 12,485 12,598 572 (80) 13,090 Corporate securities $ 420,862 423,282 5,932 (8,621) 420,593 Mortgage-backed securities $ 35,162 34,911 1,194 (70) 36,035 Redeemable preferred stocks 1,313 32,734 921 (787) 32,868 ---------------------------------------- 577,062 10,566 (10,380) 577,248 ---------------------------------------- Total $ 881,208 13,769 (15,939) 879,038 ======================================== 13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized consolidated balance sheet for Republic is presented below: June 30, --------------------- 1999 1998 --------------------- (in thousands) Investments, fixed maturities $ 408,273 431,983 Investments, other 27,761 22,829 Receivables 111,227 139,927 Deferred policy acquisition costs 11,710 6,116 Due from affiliate 26,247 23,533 Deferred federal income taxes 11,477 17,244 Other assets 25,744 8,588 ------------------- Total assets $ 622,439 650,220 =================== Policy liabilities and accruals $ 328,114 380,188 Unearned premiums 46,260 47,562 Other policyholders' funds and liabilities 34,515 22,891 ------------------- Total liabilities 408,889 450,641 Stockholder's equity 213,550 199,579 ------------------- Total liabilities and stockholder's equity $ 622,439 650,220 =================== A summarized consolidated income statement for Republic is presented below: Quarter ended Six months ended June 30, June 30, ---------------------------------------- 1999 1998 1999 1998 ---------------------------------------- (in thousands) Premiums $ 30,775 42,534 64,568 65,261 Net investment income 8,182 9,241 16,334 18,242 ---------------- ----------------- Total revenue 38,957 51,775 80,902 83,503 Benefits and losses 25,428 36,497 53,713 56,540 Amortization of deferred policy acquisition costs 3,622 600 6,832 2,401 Operating expenses 6,922 10,383 15,381 18,044 ---------------- ----------------- Total expenses 35,972 47,480 75,926 76,985 Income from operations 2,985 4,295 4,976 6,518 Federal income tax expense (939) (1,335) (1,566) (1,960) ---------------- ----------------- Net income $ 2,046 2,960 3,410 4,558 ================ ================= 14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized consolidated balance sheet for Oxford is presented below: June 30, --------------------- 1999 1998 --------------------- (in thousands) Investments, fixed maturities $ 473,121 470,371 Investments, other 152,577 109,225 Receivables 35,375 33,543 Deferred policy acquisition costs 60,071 47,132 Other assets 26,659 29,589 ------------------- Total assets $ 747,803 689,860 =================== Policy liabilities and accruals $ 151,401 139,224 Premium deposits 457,612 429,730 Other policyholders' funds and liabilities 19,351 19,475 Deferred federal income taxes 19,413 11,047 Due to affiliate 9,324 307 ------------------- Total liabilities 657,101 599,783 Stockholder's equity 90,702 90,077 ------------------- Total liabilities and stockholder's equity $ 747,803 689,860 =================== A summarized consolidated income statement for Oxford is presented below: Quarter ended Six months ended June 30, June 30, ---------------------------------------- 1999 1998 1999 1998 ---------------------------------------- (in thousands) Premiums $ 22,095 20,284 47,207 36,302 Net investment income 4,624 5,045 10,138 9,440 ---------------- ---------------- Total revenue 26,719 25,329 57,345 45,742 Benefits and losses 14,878 12,327 30,302 23,451 Amortization of deferred policy acquisition costs 6,286 3,588 9,626 6,398 Operating expenses 2,949 6,442 10,951 9,140 ---------------- ---------------- Total expenses 24,113 22,357 50,879 38,989 Income from operations 2,606 2,972 6,466 6,753 Federal income tax expense (911) (826) (2,172) (2,088) ---------------- ---------------- Net income $ 1,695 2,146 4,294 4,665 ================ ================ In December 1998, North American Fire & Casualty Insurance Company was sold to Republic. 15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 4. ACCUMULATED OTHER COMPREHENSIVE INCOME A summary of accumulated comprehensive income components follows:
Unrealized Fair market Accumulated Foreign gain (loss) value of other currency on cash flow comprehensive translation investments hedge income ---------------------------------------------------- (in thousands) Balance at March 31, 1999 $ (25,411) 11,302 (3,631) (17,740) Foreign currency translation 2,605 - - 2,605 Fair market value of cash flow hedge, net of taxes of $806 - - 1,497 1,497 Unrealized gain (loss) on investments, net of taxes of $4,048 - (8,521) - (8,521) ------- ------ ------ ------- Balance at September 30, 1999 $ (22,806) 2,781 (2,134) (22,159) ======= ====== ====== ======= Balance at March 31, 1998 $ (18,675) 9,291 - (9,384) Foreign currency translation (5,496) - - (5,496) Unrealized gain (loss) on investments, net of taxes of $404 - (762) - (762) ------- ------ ------ ------- Balance at September 30, 1998 $ (24,171) 8,529 - (15,642) ======= ====== ====== =======
5. CONTINGENT LIABILITIES AND COMMITMENTS During the six months ended September 30, 1999, a subsidiary of U-Haul entered into ten transactions and has subsequently entered into one transaction, whereby AMERCO sold rental trucks and subsequently leased back. AMERCO has guaranteed $15,379,000 of residual values at September 30, 1999 and an additional $2,157,000 subsequent to September 30, 1999 for these assets at the end of the respective lease terms. Following are the lease commitments for the leases executed during the six months ended September 30, 1999, and subsequently which have a term of more than one year (in thousands): Net activity Year ended Lease subsequent to March 31, Commitments period end Total ---------------------------------------------------------- 2000 $ 7,741 650 8,391 2001 11,199 1,417 12,616 2002 11,199 1,417 12,616 2003 11,199 1,417 12,616 2004 11,199 1,417 12,616 Thereafter 25,856 3,604 29,460 ------------------------------------ $ 78,393 9,922 88,315 ==================================== 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 clean-up 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. 16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 6. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Six months ended September 30, 1999 1998 ----------------------- (in thousands) Receivables $ (2,917) (25,092) ====================== Inventories $ 3,831 (6,349) ====================== Accounts payable and accrued liabilities $ (8,595) (12,195) ====================== Income taxes paid in cash amounted to $505,000 and $820,000 for the six months ended September 30, 1999 and 1998, respectively. Interest paid in cash amounted to $34,321,000 and $36,921,000 for the six months ended September 30, 1999 and 1998, respectively. 17 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 7. EARNINGS PER SHARE The following table reflects the calculation of the earnings per share:
Weighted Average Common Shares Income Outstanding Per Share (Numerator) (Denominator) Amount ----------- ---------------- --------- (in thousands, except share and per share data) Quarter ended September 30, 1999: Earnings from operations $ 42,127 Less dividends on preferred shares 3,313 ------ Basic earnings per common share 38,814 21,964,452 $ 1.77 Effect of dilutive securities - Series B preferred shares 72 166,667 ------ ---------- Diluted earnings per common share 38,886 22,131,119 $ 1.76 ====== ========== ==== Quarter ended September 30, 1998: Earnings from operations $ 42,171 Less dividends preferred shares 4,586 ------ Basic and diluted earnings per common share 37,585 21,935,854 $ 1.71 ====== ========== ==== Six months ended September 30, 1999: Earnings from operations $ 84,434 Less dividends on preferred shares 7,018 ------ Basic earnings per common share 77,416 21,958,826 $ 3.53 Effect of dilutive securities - Series B preferred shares 537 583,333 ------ ---------- Diluted earnings per common share 77,953 22,542,159 $ 3.46 ====== ========== ==== Six months ended September 30, 1998: Earnings from operations $ 73,401 Less dividends on preferred shares 9,073 ------ Basic and diluted earnings per common share 64,328 21,930,301 $ 2.93 ====== ========== ==== 18 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. RELATED PARTIES During the six months ended September 30, 1999, a subsidiary of U-Haul 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. U-Haul's subsidiary received interest payments of $8,610,000 from SAC Holdings during the six months ended September 30, 1999. The terms of the notes receivable with SAC Holdings are consistent with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $2,269,000 and $1,074,000 were received during the six months ended September 30, 1999 and 1998, respectively. The management fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. During the six months ended September 30, 1999, a subsidiary of AMERCO funded through a note receivable the purchase of properties and construction costs for SAC Holdings of approximately $21,580,000. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 9. NEW ACCOUNTING STANDARDS During fiscal 1999, AMERCO adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". As of September 30, 1999, AMERCO recorded an after tax adjustment of $1,497,000 to accumulated other comprehensive income recognizing the fair value of derivatives designated as cash flow hedges. AMERCO uses interest rate swap agreements to potentially mitigate the impact of changes in interest rates on its variable rate debt. For the six months ended September 30, 1999, AMERCO recognized $15,000 as interest income, representing the ineffectiveness of the cash flow hedging activity. Other pronouncements issued by the Financial Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of AMERCO. 19 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 10. 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).
Information concerning operations by industry segment follows:
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------------- (in thousands) Six months ended September 30, 1999 ----------------------------------- Revenues: Outside $ 761,710 5,996 77,552 56,723 - 901,981 Intersegment - 35,298 3,350 622 (39,270) - --------- ------- ------- ------- -------- --------- Total revenue $ 761,710 41,294 80,902 57,345 (39,270) 901,981 Depreciation/ amortization $ 40,416 5,041 6,985 11,357 - 63,799 Interest expense $ 39,815 20,273 - - (20,273) 39,815 Pretax earnings $ 105,395 13,916 4,976 6,466 - 130,753 Income tax $ 37,710 4,871 1,566 2,172 - 46,319 Identifiable assets $1,400,884 708,010 622,439 738,479 (342,679) 3,127,133
Six months ended September 30, 1998 ----------------------------------- Revenues: Outside $ 711,593 2,479 78,752 45,153 - 837,977 Intersegment - 36,207 4,751 589 (41,547) - --------- ------- ------- ------- -------- --------- Total revenue $ 711,593 38,686 83,503 45,742 (41,547) 837,977 Depreciation/ amortization $ 27,826 5,750 3,438 10,662 - 47,676 Interest expense $ 36,635 20,132 - - (20,132) 36,635 Pretax earnings $ 89,508 9,856 6,518 6,753 - 112,635 Income tax $ 31,736 3,450 1,960 2,088 - 39,234 Identifiable assets $1,270,602 651,747 650,220 689,553 (330,654) 2,931,468
20 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 10. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------------- (in thousands) Quarter ended September 30, 1999 -------------------------------- Revenues: Outside $ 394,999 3,039 38,130 26,403 - 462,571 Intersegment - 17,688 827 316 (18,831) - --------- ------- ------- ------- -------- --------- Total revenue $ 394,999 20,727 38,957 26,719 (18,831) 462,571 Depreciation/ amortization $ 21,272 2,566 3,626 6,788 - 34,252 Interest expense $ 19,617 10,035 - - (10,035) 19,617 Pretax earnings $ 53,480 6,138 2,985 2,786 - 65,389 Income tax $ 19,263 2,149 939 911 - 23,262 Identifiable assets $1,400,884 708,010 622,439 738,479 (342,679) 3,127,133
Quarter ended September 30, 1998 -------------------------------- Revenues: Outside $ 371,122 1,032 47,053 25,026 - 444,233 Intersegment - 18,149 4,722 303 (23,174) - --------- ------- ------- ------- -------- --------- Total revenue $ 371,122 19,181 51,775 25,329 (23,174) 444,233 Depreciation/ amortization $ 13,305 2,516 1,414 7,389 - 24,624 Interest expense $ 17,984 10,076 - - (10,076) 17,984 Pretax earnings $ 52,603 5,393 4,295 2,972 - 65,263 Income tax $ 19,041 1,890 1,335 826 - 23,092 Identifiable assets $1,270,602 651,747 650,220 689,553 (330,654) 2,931,468
Geographic Area Data - United United (All amounts are in States Canada Consolidated States Canada Consolidated U.S $'s) -------------------------------- ----------------------------- Six months ended Quarter ended -------------------------------- ----------------------------- (in thousands) September 30, 1999 ------------------ Total revenues $ 881,127 20,854 901,981 451,002 11,569 462,571 Depreciation/ amortization $ 62,099 1,700 63,799 33,347 905 34,252 Interest expense $ 39,804 11 39,815 19,614 3 19,617 Income tax $ 46,319 - 46,319 23,262 - 23,262 Identifiable assets $ 3,082,969 44,164 3,127,133 n/a n/a n/a September 30, 1998 ------------------ Total revenues $ 819,566 18,411 837,977 434,519 9,714 444,233 Depreciation/ amortization $ 46,038 1,638 47,676 23,926 698 24,624 Interest expense $ 36,628 7 36,635 17,983 1 17,984 Income tax $ 39,234 - 39,234 23,092 - 23,092 Identifiable assets $ 2,892,406 39,062 2,931,468 n/a n/a n/a
11. SUBSEQUENT EVENTS On November 1, 1999, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of November 11, 1999. 21 ITEM 2. 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 AMERCO's 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 industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 10 of Notes to Consolidated Financial Statements". The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographical area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies. RESULTS OF OPERATIONS SIX MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1998 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenue increased by $44.1 million to $643.0 million for the six months ended September 30, 1999. Net revenues from the rental of moving related equipment increased by $41.6 million. This increase is primarily attributable to higher truck rental revenues. The growth in truck rental revenue primarily reflects improved utilization and an increase in the average revenue per transaction. Net sales revenues were $110.1 million and $107.6 million for the six months ended September 30, 1999 and 1998, respectively. Revenue growth from the sale of moving support items (i.e. boxes, etc.), which was up by 4.0% during the six months ended September 30, 1999, led to the improvement. Cost of sales was $62.7 million for the six months ended September 30, 1999, which represents a marginal decrease from $62.9 million for the same period of the prior year. Operating expenses before intercompany eliminations increased to $476.5 million for the six months ended September 30, 1999 from $459.9 million for the six months ended September 30, 1998. Increased expenditure levels for rental equipment maintenance and personnel due to an increase in fleet size and inventory levels were primarily responsible. Lease expense was $63.6 million and $56.4 million for the six months ended September 30, 1999 and 1998, respectively. This increase reflects additional leasing activity over the past twelve months. Net depreciation expense for the six months ended September 30, 1999 was $34.0 million, as compared to $26.3 million in the same period of the prior year. The increase reflects an increase in depreciation recognized on the rental truck fleet. 22 Real Estate Operations Rental revenue before intercompany eliminations was $36.5 million for the six months ended September 30, 1999, compared to $37.3 million for the six months ended September 30, 1998. Intercompany revenue was $35.3 million and $36.2 million for the six months ended September 30, 1999 and 1998, respectively. Net investment and interest income was $4.7 million for the six months ended September 30, 1999 as compared to $1.4 million during the same period of the prior year. This increase correlates to a significant increase in average note and mortgage receivables outstanding. Operating expenses were $1.9 million for the six months ended September 30, 1999 versus $3.0 million for the six months ended September 30, 1998. Reduced building maintenance expense accounted for the majority of the decline from the prior year. Lease expense for the six months ended September 30, 1999 and 1998 was $0.6 million and $0.1 million, respectively. The increase reflects payments under a synthetic lease facility being utilized to develop storage properties. Net depreciation expense for the six months ended September 30, 1999 was $4.6 million, as compared to $5.6 million in the same period of the prior year. The decrease reflects higher gains from the disposition of property and lower levels of depreciable assets. Property and Casualty Republic's premiums were $64.6 million and $65.3 million for the six months ended June 30, 1999 and 1998, respectively. The decrease in premium for 1999 as compared to 1998 resulted from the U-Haul Liability programs in the rental industry, which decreased to $23.9 million from $28.8 million, 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 premiums by $3.5 million for the six months ended June 30, 1999 as compared to 1998. The impact of this change will result in an overall savings of $0.6 million in premium taxes for policy year 1999. Additionally, assumed treaty reinsurance decreased to $20.9 million for the six months ended June 30, 1999 as compared to $23.5 million for the six months ended June 30, 1998 due to the 1998 Crop Hail premium accrued at December 1998. Premiums for these programs are accrued during the fourth quarter and are settled in the first quarter of the following year. Direct multiple peril and general agency premium increased to $11.6 million and $8.2 million, respectively, for the six months ended June 30, 1999 compared to $9.8 million and $3.2 million, respectively, for the six months ended June 30, 1998. Net investment income was $16.3 million and $18.2 million for the six months ended June 30, 1999 and 1998, respectively. The decrease from 1998 to 1999 is attributable to a decrease in invested assets and a lower yield on reinvested funds. Benefits and losses were $53.7 million and $56.5 million for the six months ended June 30, 1999 and 1998, respectively. The decrease from 1998 to 1999 resulted from a decrease in the U-Haul Liability programs for unpaid reported claims corresponding to the decrease in premiums mentioned above. Deferred acquisition costs (DAC) consists of commissions and other costs, which vary with and are primarily related to the production of new business. The prior year end commissions, and other related expenses, are amortized over the following year. The amortization expenses for the six months ended June 30, 1999 and 1998 consisted of $6.8 million and $2.4 million, respectively. The increase from 1998 to 1999 is due mainly to Republic's subsidiary company's DAC expense, which increased to $1.9 million for the six months ended June 30, 1999 from a negligible amount for the six months ended June 30, 1998. Also contributing was a $1.5 million increase in the nonaffiliated agents' expense. Field Underwriters increased due to 1998 written and unearned premiums and Republic Western Specialty Underwriters increased due to 1998 commission expenses relating to a settlement agreement with the previous general agent. Additionally, 1999 assumed treaty reinsurance increased $0.9 million due to increased 1998 premium writings. 23 Operating expenses were $15.4 million and $18.0 million for the six months ended June 30, 1999 and 1998, respectively. Commissions decreased to $8.5 million for the six months ended June 30, 1999 compared to $11.5 million for the six months ended June 30, 1998. This is mainly attributable to Republic's subsidiary's DAC earned for the six months ended June 30, 1999. No DAC for this subsidiary was included for the six months ended June 30, 1998, as the subsidiary was purchased in December 1998. Additionally, there was an increase in the nonaffiliated agents' DAC expense mentioned above. Slightly offsetting were increased lease expenses of $0.9 million for the six months ended June 30, 1999 from $0.4 million for the six months ended June 30, 1998. All other underwriting expenses consisted of $6.0 million and $6.1 million for the six months ended June 30, 1999 and 1998, respectively. Operating profit before tax and intercompany elimination was $5.0 million and $6.5 million for the six months ended June 30, 1999 and 1998, respectively. This represents a decrease in 1999 of $1.5 million over 1998 and resulted mainly from decreased premium revenue and investment income and increased underwriting expenses. Republic's operating profit remains on plan to meet year end expectations. Life Insurance Net premiums were $47.2 million for the six months ended June 30, 1999 and $36.3 million for 1998. Oxford realized premium increases 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 through new programs; these increased premiums by $12.4 million. Credit life and disability premiums grew $2.7 million from increased marketing efforts. Both Oxford's recently acquired companies, North American Insurance Company (NAI) and Safe Mate Life Insurance Company (Safe Mate), heavily market credit life and disability insurance. Oxford began marketing a new single premium whole life policy in 1998; this product accounted for $2.4 million of new premiums. As expected, premiums decreased due to fewer annuitizations, the termination of non-essential NAI lines and the sale of North American Fire & Casualty Insurance Company at the end of 1998 to Republic. These changes accounted for a $6.6 million decrease in premiums through the first six months of 1999. Net investment income before intercompany eliminations was $10.1 million for the six months ended June 30, 1999 and $9.4 million for 1998. This increase is due to the increase in the average invested assets for the year, which was the result of new premium in 1999 and the increased asset base from the acquisition of NAI and Safe Mate. Benefits incurred were $30.3 million and $23.5 million for the six months ended June 30, 1999 and 1998, respectively. This increase is primarily due to Medicare supplement benefits incurred. These benefits are related to the new business recorded in 1998. The new Medicare supplement reinsurance accounted for $8.9 million of benefit variance. Oxford has experienced improved loss ratios in its credit insurance products, partially offsetting the new Medicare supplement benefits. Amortization of DAC was $9.6 million and $6.4 million for the six months ended June 30, 1999 and 1998, respectively. Typically, 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. Operating expenses were $11.0 million and $9.1 million for the six months ended June 30, 1999 and 1998, respectively. A key component of operating expenses is the amortization of acquisition costs resulting from the purchase of NAI. This amounts to $1.7 million in 1999. Commissions have increased $2.0 million in 1999 in proportion to the increase in new premiums. Operating expenses, still within budgeted expectations, have increased in 1999 due to the expansion of business volume. Operating profit before tax and intercompany eliminations was $6.5 million and $6.8 million for the six months ended June 30, 1999 and 1998, respectively. The decrease over the prior year is primarily due to increased health loss ratios. This negative trend is being corrected through statutory premium rate filings. Interest Expense Interest expense was $39.8 million for the six months ended September 30, 1999, as compared to $36.6 million for the six months ended September 30, 1998. The increase can be attributed to an increase in average debt outstanding and a modest increase in the average cost of debt. 24 Consolidated Group As a result of the foregoing, pretax earnings of $130.8 million were realized in the six months ended September 30, 1999, as compared to $112.6 million for the same period in 1998. After providing for income taxes, net earnings for the six months ended September 30, 1999 were $84.4 million, as compared to $73.4 million for the same period of the prior year. QUARTERLY RESULTS The following table presents unaudited quarterly results for the ten quarters in the period beginning April 1, 1997 and ending September 30, 1999. 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, its results. 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. Quarter Ended ---------------------- Jun 30 Sep 30 1999 1999 ---------------------- (in thousands, except share and per share data) Total revenues $ 439,410 462,571 Net earnings 42,307 42,127 Weighted average common shares outstanding Basic 21,953,199 21,964,452 Diluted 22,953,199 22,131,119 Net earnings per common share (1) (6) Basic 1.77 1.77 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) (6) 1.21 1.71 (0.07) (0.78) Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1997 1997 1997 1998 ---------------------------------------------- (in thousands, except share and per share data) Total revenues $ 371,180 416,374 323,598 314,104 Earnings (loss) from operations before extraordinary loss on early extinguishment of debt (2) (3) (4) (5) 29,198 39,032 (5,390) (14,184) Net earnings (loss) (3) (4) (5) 29,198 34,894 (15,236) (13,872) Weighted average common shares outstanding 21,879,156 21,890,072 21,901,521 21,913,654 Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (2) (3) (4) (5) (6) 1.09 1.54 (0.49) (0.85) Net earnings (loss) per common share (both basic and diluted) (1) (2) (3) (4) (5) (6) 1.09 1.35 (0.94) (0.84) 25 _______________ (1) Net earnings (loss) per common share amounts were computed after giving effect to the dividends on AMERCO's Preferred Stock. (2) Reflects the adoption of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" during the fourth quarter of fiscal year 1998. (3) Reflects the change in estimated residual values during the fourth quarter of fiscal year 1998. (4) During the second quarter of 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). (5) During the third quarter of fiscal year 1998, AMERCO 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). (6) Reflects the redemption of $25 million, $50 million and $25 million of Series B preferred stock in fiscal years 2000, 1999 and 1998, respectively. 26 QUARTER ENDED SEPTEMBER 30, 1999 VERSUS QUARTER ENDED SEPTEMBER 30, 1998 Moving and Storage Operations Revenues consist of rental revenues and net sales. Rental revenue increased by $20.0 million to $337.5 million in the quarter ended September 30, 1999. This increase reflects an $18.4 million increase in revenues from the rental of moving related equipment reflecting improved local truck utilization, higher average revenue per transaction and higher truck rental inventory. Net sales revenues were $52.5 million in the quarter ended September 30, 1999 as compared to net sales of $51.3 million in the quarter ended September 30, 1998. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and hitches led to the majority of the increase during the quarter. Cost of sales was $31.4 million in the quarter ended September 30, 1999, which represents an increase from $30.2 million for the same period of the prior year. Rising material costs from the sale of propane accounted from almost half of the increase. Operating expenses before intercompany elimination increased to $250.9 million in the quarter ended September 30, 1999 from $242.0 million in the quarter ended September 30, 1998. The increase reflects higher personnel and rental equipment maintenance expenditures associated with an increase in truck rental transactions and inventory levels. Net depreciation expense for the quarter ended September 30, 1999 was $17.2 million, as compared to $12.2 million in the same period of the prior year. The increase reflects an increase in depreciation recognized on the rental truck fleet. Real Estate Operations Rental revenue before intercompany eliminations was $18.3 million in the quarter ended September 30, 1999, compared to $18.6 million in the quarter ended September 30, 1998. Intercompany revenue was $17.7 million as compared to $18.1 million in the prior year's first quarter. Net investment and interest income was $2.4 million in the quarter ended September 30, 1999 as compared to $0.5 million in the quarter ended September 30, 1998. This increase correlates to a significant increase in average note and mortgage receivables outstanding. Operating expenses were $1.4 million in the quarter ended September 30, 1999 versus $1.5 million in the quarter ended September 30, 1998. Reduced building maintenance expense accounted for the majority of the decline from the prior year. Lease expense was $0.6 million during the quarter ended September 30, 1999 versus a negligible amount during quarter ended September 30, 1998. The increase reflects payments under a synthetic lease facility being utilized to develop storage properties. Net depreciation expense for the quarter ended September 30, 1999 was $2.6 million, as compared to $2.1 million in the same period of the prior year. The increase reflects lower gains from the disposition of property. 27 Property and Casualty Republic's premiums for the quarters ended June 30, 1999 and 1998 were $30.8 million and $42.5 million, respectively. The premium decrease in 1999 compared to 1998 resulted from the U-Haul Liability programs in the rental industry, which decreased to $9.4 million from $23.0 million, 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 premiums by $12.5 million for the quarter ended June 30, 1999 as compared to 1998. The result of this change will result in an overall savings of $0.6 million in premium taxes for policy year 1999. Additionally, assumed treaty reinsurance decreased to $11.0 million for the quarter ended June 30, 1999 as compared to $13.0 million for the quarter ended June 30, 1998 due to a decrease in writings as a result of canceled treaties not replaced in 1999. Direct multiple peril and general agency premiums increased to $6.1 million and $4.3 million, respectively for the quarter ended June 30, 1999 compared to $4.9 million and $1.6 million, respectively for the quarter ended June 30, 1998. Net investment income was $8.2 million and $9.2 million for the quarters ended June 30, 1999 and 1998, respectively. The decrease from 1998 to 1999 resulted from a decrease in invested assets and a lower yield on reinvested funds. Benefits and losses incurred were $25.4 million and $36.5 million for the quarters ended June 30, 1999 and 1998, respectively. The decrease from 1998 to 1999 is due to a decrease in the U-Haul Liability programs for unpaid unreported claims corresponding to the decrease in premiums mentioned above. DAC consists of commissions and other costs, which vary with and are primarily related to the production of new business. The prior year end commissions, and other related expenses, are amortized over the following year. The amortization expenses for the quarters ended June 30, 1999 and 1998 consisted of $3.6 million and $0.6 million, respectively. The increase from 1998 to 1999 is mainly due to Republic's subsidiary company's DAC expenses, which increased to $1.1 million for the quarter ended June 30, 1999 from a negligible amount for the quarter ended June 30, 1998. Also contributing was a $1.0 million increase in the nonaffiliated agents' expense. Field Underwriting increased due to increased 1998 written and unearned premiums and Republic Western Specialty Underwriters increased due to 1998 commission expenses relating to a settlement agreement with the previous general agent. Additionally, 1999 assumed treaty reinsurance increased $0.7 million from 1998 due to increased 1998 premium writings. Operating expenses were $6.9 million and $10.4 million for the quarters ended June 30, 1999 and 1998, respectively. Commissions decreased to $4.4 million for the quarter ended June 30, 1999, compared to $7.1 million for the quarter ended June 30, 1998. This is mainly attributable to Republic's subsidiary's DAC earned for the quarter ended June 30, 1999. Since this subsidiary was purchased in December 1998, there was no DAC included for the quarter ended June 30, 1998. Additionally, there was an increase in the nonaffiliated agents' and assumed treaty reinsurance DAC which relates to the increase in the expense mentioned above. Slightly offsetting were increased lease expenses of $0.5 million for the quarter ended June 30, 1999 as compared to $0.2 million for the quarter ended June 30, 1998. All other underwriting expenses consisted of $2.0 million and $3.1 million for the quarters ended June 30, 1999 and 1998, respectively. Operating profit before tax and intercompany elimination was $3.0 million and $4.3 million for the quarters ended June 30, 1999 and 1998, respectively. This represents a decrease in 1999 of $1.3 million over 1998 and resulted mainly from decreased premium revenue and investment income, offset slightly by decreased underwriting expenses. 28 Life Insurance Net premiums were $22.1 million for the quarter ended June 30, 1999 and $20.3 million for 1998. Oxford realized premium increases in the areas of Medicare supplement, credit life and disability and single premium whole life insurance products. In 1999, Oxford increased premium over 1998 Medicare supplement premium through the reinsurance of a block of policies and by adding direct premium through new programs; these increased premiums by $2.2 million. Credit life and disability premiums remained constant with production gains being offset by new ceding activities. Production sales of Oxford's new single premium whole life policy increased by $0.9 million in the second quarter compared to 1998. These increases were offset by fewer reinsurance annuitizations in 1999 than 1998, leading to $0.8 million less in annuity premium. In addition, there were $0.5 million in premium decreases for the second quarter resulting from the planned termination of NAI products not part of Oxford's strategic focus. Net investment income before intercompany eliminations was $4.6 million for the quarter ended June 30, 1999 and $5.0 million for 1998. This decrease is due to lower rates on short-term invested assets for the quarter. Mortgage loan interest income dropped as the portfolio decreased. Benefits incurred were $14.9 million and $12.3 million for the quarters ended June 30, 1999 and 1998, respectively. This increase is primarily due to Medicare supplement benefits incurred. These benefits are related to the new business recorded during the last quarter of 1998. The new Medicare supplement reinsurance accounted for $4.3 million of the increase. Annuity benefits decreased $1.0 million in the period due to the decrease in annuitizations in 1999 over 1998. Amortization of DAC was $6.3 million and $3.6 million for the quarters ended June 30, 1999 and 1998, respectively. Typically, 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. Operating expenses were $2.9 million and $6.4 million for the quarters ended June 30, 1999 and 1998, respectively. From 1998, the dynamic amortization of the purchase value of the policies acquired in the Encore Financial, Inc. purchase has decreased in relation to the short-term nature of the business that was in force. Commissions have increased $1.1 million in 1999 in proportion to the increase in new premiums. Compared to the second quarter in 1998, operating expenses increased for the quarter by $1.1 million stemming from the administration costs associated with new reinsurance contracts. Operating profit before tax and intercompany eliminations was $2.6 million and $3.0 million for the quarters ended June 30, 1999 and 1998, respectively. The decrease over prior year is primarily due to higher loss ratios for the health products. Interest Expense Interest expense was $19.6 million for the quarter ended September 30, 1999, as compared to $18.0 million for the quarter ended September 30, 1998. The increase can be attributed to an increase in average debt outstanding and a modest increase in the average cost of debt. Consolidated Group As a result of the foregoing, pretax earnings were $65.4 million during the quarter ended September 30, 1999, as compared to $65.3 million for the same period in 1998. After providing for income taxes, net earnings for the quarter ended September 30, 1999 were $42.1 million, as compared to $42.2 million for the same period of the prior year. 29 LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At September 30, 1999, net property, plant, and equipment represented approximately 62.6% of total assets from non-insurance operations and approximately 42.2% of consolidated assets. In the six months ended September 30, 1999, capital expenditures were $182.7 million, as compared to $190.0 million in the six months ended September 30, 1998. These expenditures primarily reflect the expansion of the rental truck fleet. The capital required to fund these acquisitions was obtained through internally generated funds from operations and through lease financings. Cash flow from operations was $149.2 million in the six months ended September 30, 1999, as compared to $100.1 million in the six months ended September 30, 1998. The increase results from a combination of earnings growth, higher levels of depreciation and amortization and changes in other operating assets and liabilities. At September 30, 1999, total outstanding notes and loans payable was $1,087.4 million as compared to $1,114.8 million at March 31, 1999. Real Estate Operations Cash provided by operating activities was $7.0 million for the six months ended September 30, 1999. Cash used by operating activities was $2.8 million for the six months ended September 30, 1998. The increase resulted from a combination of increased earnings and changes in other operating assets and liabilities. Property and Casualty Cash flows used by operating activities were $6.6 million and $8.8 million for the six months ended June 30, 1999 and 1998, respectively. The 1999 to 1998 change resulted from decreased paid losses recoverable and increased other liabilities offset by an increase in other assets and the change in both unearned premium and loss and loss expense reserves. Republic's cash and cash equivalents and short-term investment portfolio were $10.5 million and $2.9 million at June 30, 1999 and 1998, respectively. The increase from 1998 to 1999 resulted from the timing difference of maturities/calls being reinvested. 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. Republic maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 96.1% 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 106.1% of total liabilities. The liability for reported and unreported losses are based upon company 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. Stockholder's equity was $213.6 million and $199.6 million at June 30, 1999 and 1998, 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. 30 Life Insurance Oxford's primary sources of cash are premiums, receipts from interest-sensitive products, and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. Cash flows provided by operating activities were $2.4 million for the six months ended June 30, 1999 and 1998. Cash flows provided by financing activities were approximately $0.3 million and $7.1 million for the six months ended June 30, 1999 and 1998, respectively. Cash flows from deferred annuity sales increase investment contract deposits, which are a component of financing activities, as well as the purchase of fixed maturities, which are a component of investing activities. The decrease in cash flows provided by financing activities for the first six months of 1999 compared to the first six months of 1998 is due to lower ratio of annuity deposits to withdrawals. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. At June 30, 1999 and 1998, short-term investments were $75.6 million and $22.0 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford increased to $90.7 million in 1999 from $90.1 million in 1998. Oxford did not pay dividends to its parent in 1999 or 1998. Applicable laws and regulations of the State of Arizona require AMERCO's insurance subsidiaries to maintain minimum capital and surplus determined in accordance with statutory accounting practices. With respect to Oxford, the amount is $450,000. In addition, the amount of dividends that can be paid to shareholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends without regulatory approval is $0.7 million at June 30, 1999. These restrictions are not expected to have a material adverse effect on the ability of AMERCO to meet its cash obligation. Consolidated Group During each of the fiscal years ended March 31, 2000, 2001 and 2002, U-Haul estimates gross capital expenditures will average approximately $325 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with an average of approximately $30-$115 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $355-$440 million. Management estimates that U-Haul will fund 100% of these requirements with internally generated funds, including proceeds from the disposition of older trucks and other asset sales. Credit Agreements 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. Principally to finance its fleet of trucks and trailers, AMERCO routinely enters into sale and leaseback transactions. As of September 30, 1999, AMERCO had $1,087.4 million in total notes and loans payable outstanding and unutilized lines of credit of approximately $225.0 million. 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 September 30, 1999, AMERCO was in compliance with these covenants. AMERCO is further restricted in the issuance of certain types of preferred stock. AMERCO is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment, or mandatory prepayment, or that allow the holders thereof to require AMERCO or any subsidiary of AMERCO to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. 31 Year 2000 Disclosure AMERCO is and has been working since 1997 to identify and complete the changes necessary to its existing computerized business systems to make these systems compliant for Year 2000 processing. The Year 2000 processing problem is caused by currently installed computer systems and software products, including several used by AMERCO, being coded to accept only the last two digit entries in the date code field instead of four digits to indicate the year. Such programs may interpret the year 2000 to mean 1900 instead, producing erroneous information or date-related computer failures. AMERCO's date reliance functions related to the Year 2000 and beyond, such as rental transaction processing and financial systems, may be adversely affected unless these computer systems are or become Year 2000 compliant on a timely basis. Replacing, upgrading or modifying key financial systems has been on-going in the normal course of business. AMERCO is utilizing both internal and external resources to identify, correct, reprogram and test its systems for Year 2000 compliance. In particular, AMERCO has an outside consulting firm on- site currently making the Year 2000 compliance related modifications to existing systems. AMERCO's internal information technology conversion phase is underway, with the testing phase going on at the same time. AMERCO has communicated with its major business partners to determine the efforts being made on their part for compliance. Electronic data interchange with critical vendors has been tested. Testing has been completed with major banking partners and credit card processors. Approximately 90% of major business partners have given AMERCO written assurances that they will be Year 2000 compliant. However, there can be no assurance AMERCO will not be adversely affected by the failure of others to become Year 2000 compliant. For example, AMERCO may be affected by, among other things, the failure of inventory suppliers, credit card processors, security companies or other vendors and service providers to become Year 2000 compliant. AMERCO expects all of its critical systems to be Year 2000 compliant by calendar year end. AMERCO started with an initial budget of $2.0 million; as the conversion process continued, this amount was increased to $2.8 million. Through September 30, 1999, $2.5 million has been incurred for Year 2000 related work. AMERCO has not deferred any major computer programming or update projects due to Year 2000 efforts. Although AMERCO believes it will achieve compliance on a timely basis, no assurance can be given that AMERCO's computer systems will be Year 2000 compliant in a timely manner or that AMERCO will not incur significant additional costs pursuing Year 2000 compliance. If the appropriate modifications are not made, or are not timely, the Year 2000 problem may have a material adverse effect on AMERCO. AMERCO considers its most likely worst case scenario to be if a business partner is not Year 2000 compliant and direct processing of electronic data is inhibited. AMERCO's contingency plan, to be used if a business partner is not Year 2000 compliant, will include manual processing of rental transactions; manual preparation of payments to employees, vendors and claimants; manual licensing of equipment; manual preparation of financial statements and the movement of funds. AMERCO expects that the cost of conducting business manually would not have a material impact on its financial position. While AMERCO feels testing has been adequate and successful, the contingency plans have been formulated, with refinement continuing until the year 2000. Despite AMERCO's efforts to date, there can be no assurance that the Year 2000 problem will not have a material adverse effect on AMERCO in the future. 32 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 24, 1997, five (5) current and/or former Moving Center General Managers ("GM's") 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 class certification was mailed on or about August 24, 1999. The class opt-out period ended on October 11, 1999. AMERCO anticipates filing a motion to have the class de- certified, but regardless of the class status of the case, management does not expect the plaintiffs' damage claims to result in a material loss to AMERCO. Reference is made to Part II, Item 1, Legal Proceedings, in AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. Reference is made to Part I, Item 1, Business, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 1999 for a discussion of certain environmental proceedings. 34 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1999 Annual Meeting of Stockholders was held August 27, 1999. At the 1999 Annual Meeting of Stockholders, John P. Brogan and James J. Grogan were elected to serve until the 2003 Annual Meeting of Stockholders. Edward J. Shoen and Richard J. Herrera continue as directors with terms that expire at the 2000 Annual Meeting of Stockholders; John M. Dodds and James P. Shoen continue to serve as directors with terms that expire at the 2001 Annual Meeting of Stockholders; William E. Carty and Charles J. Bayer continue as directors with terms that expire at the 2002 Annual Meeting of Stockholders. The following table sets forth the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes with respect to each matter voted on at the 1999 Annual Meeting of Stockholders:
Matters Votes Broker Submitted Votes Cast Cast Votes Non- To a Vote For Against Withheld Abstentions Votes Election of Directors John P. Brogan 19,433,633 39,389 282,797 - - James J. Grogan 19,277,200 38,437 440,182 - -
35 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation (1) 3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2) 27 Financial Data Schedule b. Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended September 30, 1999. _____________________________________ (1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERCO ___________________________________ (Registrant) Dated: November 8, 1999 By: /S/ GARY B. HORTON ___________________________________ Gary B. Horton, Treasurer (Principal Financial Officer) EX-27 2 FDS SEP-30-1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-2000 SEP-30-1999 49,635 0 403,048 0 76,328 0 2,467,963 1,149,666 3,127,133 0 1,087,377 0 0 10,563 653,525 3,127,133 110,121 901,981 62,734 666,394 0 2,285 39,815 130,753 46,319 84,434 0 0 0 84,434 3.53 3.46 THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNT NET OF THEIR ALLOWANCES. AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
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