-----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, RHiO0hkbOslk/2iB2eQM8lSgcXyjFKRha0FtFBz3xsf7Z6kKaWhrhStjKFZUvWZf eDg67b8ZljTBWxC/8ybQfg== 0000004457-00-000018.txt : 20000211 0000004457-00-000018.hdr.sgml : 20000211 ACCESSION NUMBER: 0000004457-00-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000210 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: 531379 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7756886300 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 12/31/99 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 December 31, 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 February 10, 2000. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at February 10, 2000. 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 December 31, 1999 and March 31, 1999................................................ 4 b) Consolidated Statements of Earnings for the Nine months ended December 31, 1999 and 1998.................................... 6 c) Consolidated Statements of Changes in Stockholders' Equity for the Nine months ended December 31, 1999................... 7 d) Consolidated Statements of Comprehensive Income for the Nine months ended December 31, 1999 and 1998.................. 8 e) Consolidated Statements of Earnings for the Quarters ended December 31, 1999 and 1998.................................... 9 f) Consolidated Statements of Cash Flows for the Nine months ended December 31, 1999 and 1998.................................... 10 g) Notes to Consolidated Financial Statements - December 31, 1999, March 31, 1999 and December 31, 1998.......................... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 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 December 31, March 31, Assets 1999 1999 ------------------------- (Unaudited) (in thousands) Cash and cash equivalents $ 17,176 44,505 Trade receivables, net 172,399 173,050 Notes and mortgage receivables, net 219,556 217,910 Inventories, net 80,581 80,159 Prepaid expenses 10,363 16,363 Investments, fixed maturities 905,124 900,995 Investments, other 171,548 181,892 Deferred policy acquisition costs 82,990 63,283 Other assets 102,156 114,522 ------------------------ Property, plant and equipment, at cost: Land 196,582 196,960 Buildings and improvements 832,287 806,421 Furniture and equipment 248,205 234,894 Rental trailers and other rental equipment 204,726 186,660 Rental trucks 1,019,165 992,418 ------------------------ 2,500,965 2,417,353 Less accumulated depreciation 1,164,814 1,122,529 ------------------------ Total property, plant and equipment 1,336,151 1,294,824 ------------------------ Total Assets $ 3,098,044 3,087,503 ======================== The accompanying notes are an integral part of these consolidated financial statements. 5 December 31, March 31, Liabilities and Stockholders' Equity 1999 1999 ------------------------- (Unaudited) (in thousands, except share and per share data) Liabilities: Accounts payable and accrued expenses $ 148,912 169,185 Notes and loans payable 1,101,824 1,114,748 Policy benefits and losses, claims and loss expenses payable 517,422 546,599 Liabilities from premium deposits 457,677 457,759 Cash overdraft 36,163 28,169 Other policyholders' funds and liabilities 49,963 48,889 Deferred income 41,285 41,549 Deferred income taxes 96,462 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 December 31, 1999 and March 31, 1999 - - Series B preferred stock, with no par value, 100,000 shares authorized; none and 25,000 shares outstanding as of December 31, 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 December 31, 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 December 31, 1999 and March 31, 1999 9,122 9,122 Additional paid-in capital 275,242 299,905 Accumulated other comprehensive income (26,365) (17,740) Retained earnings 768,031 703,322 ------------------------ 1,027,471 996,050 Less: Cost of common shares in treasury, net (19,635,913 shares as of December 31, 1999 and March 31, 1999) 363,533 363,533 Unearned employee stock ownership plan shares 15,602 16,492 ------------------------ Total stockholders' equity 648,336 616,025 Contingent liabilities and commitments ------------------------ Total Liabilities and Stockholders' Equity $ 3,098,044 3,087,503 ======================== The accompanying notes are an integral part of these consolidated financial statements. 6 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Nine months ended December 31, (Unaudited) 1999 1998 ------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 907,802 848,771 Net sales 148,669 143,169 Premiums 167,020 165,492 Net investment and interest income 61,341 53,664 ----------------------- Total revenues 1,284,832 1,211,096 Costs and expenses Operating expenses 705,245 666,109 Cost of sales 87,737 84,568 Benefits and losses 126,944 130,468 Amortization of deferred acquisition costs 27,340 16,902 Lease expense 98,999 87,632 Depreciation, net 61,553 53,480 ----------------------- Total costs and expenses 1,107,818 1,039,159 Earnings from operations 177,014 171,937 Interest expense 61,038 55,003 ----------------------- Pretax earnings 115,976 116,934 Income tax expense (40,867) (41,055) ----------------------- Net earnings $ 75,109 75,879 ======================= Earnings per common share: Basic $ 2.95 2.85 Diluted $ 2.93 - ======================= Weighted average common shares outstanding: Basic 21,964,513 21,934,264 Diluted 22,353,402 - ======================= The accompanying notes are an integral part of these consolidated financial statements. 7 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Nine months ended December 31, (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 December 31, 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 December 31, 1999 Beginning and end of period 9,122 ----- Additional paid-in capital: Beginning of period 299,905 Preferred stock repurchase (25,000) Issuance of common shares under leveraged employee stock ownership plan 337 ------- End of period 275,242 ------- Accumulated other comprehensive income: Beginning of period (17,740) Foreign currency translation 4,100 Fair market value of cash flow hedge 2,130 Unrealized loss on investments (14,855) ------- End of period (26,365) ------- Retained earnings: Beginning of period 703,322 Net earnings 75,109 Preferred stock dividends paid: Series A ($1.59 per share) (9,721) Series B ($27.14 per share) (679) ------- End of period 768,031 ------- 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 3 Repayments from loan (893) ------- End of year 15,602 ------- Total stockholders' equity $ 648,336 ======= The accompanying notes are an integral part of these consolidated financial statements. 8 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Comprehensive Income Nine months ended December 31, (Unaudited) 1999 1998 ------------------- (in thousands) Comprehensive Income: Net earnings $ 75,109 75,879 Changes in other comprehensive income: Foreign currency translation 4,100 (6,420) Fair market value of cash flow hedge 2,130 (4,819) Unrealized gain (loss) on investments (14,855) 5,761 ------------------- Total Comprehensive Income $ 66,484 70,401 =================== The accompanying notes are an integral part of these consolidated financial statements. 9 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Quarters ended December 31, (Unaudited) 1999 1998 -------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 264,772 249,870 Net sales 38,548 35,602 Premiums 59,217 69,269 Net investment and interest income 19,959 18,378 ------------------------ Total revenues 382,496 373,119 Costs and expenses Operating expenses 240,870 217,535 Cost of sales 25,003 21,659 Benefits and losses 42,929 50,477 Amortization of deferred acquisition costs 9,459 8,103 Lease expense 34,787 31,100 Depreciation, net 23,002 21,578 ------------------------ Total costs and expenses 376,050 350,452 Earnings from operations 6,446 22,667 Interest expense 21,223 18,368 ------------------------ Pretax earnings (loss) (14,777) 4,299 Income tax benefit (expense) 5,452 (1,821) ------------------------ Net earnings (loss) $ (9,325) 2,478 ======================== Loss per common share (both basic and diluted $ (0.57) (0.07) ======================== Weighted average common shares outstanding: 21,975,889 21,942,190 ======================== The accompanying notes are an integral part of these consolidated financial statements. 10 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Nine months ended December 31, (Unaudited) 1999 1998 (in thousands) ------------------- Cash flows from operating activities: Net earnings $ 75,109 75,879 Depreciation and amortization 108,155 80,717 Provision for losses on accounts receivable 3,575 3,545 Net gain on sale of real and personal property (6,776) (681) Net (gain) loss on sale of investments 84 (1,745) Changes in policy liabilities and accruals (24,863) 7,368 Additions to deferred policy acquisition costs (35,773) (36,117) Net change in other operating assets and liabilities 19,423 (98,843) ------------------- Net cash provided by operating activities 138,934 30,123 ------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (269,530) (235,035) Fixed maturities (114,778) (141,792) Common stock - (2,553) Preferred stock (369) (20,700) Mortgage loans (11,955) (1,582) Proceeds from sale of investments: Property, plant and equipment 167,305 196,506 Fixed maturities 87,604 177,162 Preferred stock 968 1,858 Real estate 827 5,196 Mortgage loans 8,382 14,661 Changes in other investments 12,295 (3,560) ------------------- Net cash used by investing activities (119,251) (9,839) ------------------- Cash flows from financing activities: Net change in short-term borrowings 17,160 44,500 Proceeds from notes 150,000 - Debt issuance costs (7,490) (378) Leveraged Employee Stock Ownership Plan: Purchase of shares (3) (201) Repayments from loan 893 1,203 Principal payments on notes (180,084) (46,370) Repurchase of preferred stock (25,000) (25,000) Net change in cash overdraft 7,995 12,716 Preferred stock dividends paid (10,400) (13,479) Investment contract deposits 45,435 56,217 Investment contract withdrawals (45,518) (46,149) ------------------- Net cash used by financing activities (47,012) (16,941) ------------------- Increase (decrease) in cash and cash equivalents (27,329) 3,343 Cash and cash equivalents at beginning of period 44,505 31,606 ------------------- Cash and cash equivalents at end of period $ 17,176 34,949 =================== The accompanying notes are an integral part of these consolidated financial statements. 11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1999, March 31, 1999 and December 31, 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 December 31, 1999 and the related consolidated statements of earnings for the three and nine months ended December 31, 1999 and 1998, and the related consolidated statements of changes in stockholders' equity for the nine months ended December 31, 1999 and the consolidated statements of comprehensive income and cash flows for the nine months ended December 31, 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 three and nine months ended December 31, 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: September 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 $ 17,964 $ 18,894 117 (299) 18,712 U.S. government agency mortgage- backed securities $ 19,804 19,713 86 (275) 19,524 Obligations of states and political subdivisions $ 1,500 1,517 82 - 1,599 Corporate securities $ 98,970 103,647 1,832 (1,564) 103,915 Mortgage-backed securities $ 37,118 37,354 331 (486) 37,199 Redeemable preferred stocks 4,561 115,253 454 (9,373) 106,334 ---------------------------------------- 296,378 2,902 (11,997) 287,283 ---------------------------------------- September 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 $ 35,385 $ 36,135 1,231 (855) 36,511 U.S. government agency mortgage- backed securities $ 37,543 37,252 317 (444) 37,125 Obligations of states and political subdivisions $ 13,350 13,514 519 (130) 13,903 Corporate securities $ 459,757 461,768 4,567 (12,361) 453,974 Mortgage-backed securities $ 35,242 34,997 1,075 (159) 35,913 Redeemable preferred stocks 1,311 32,675 169 (1,524) 31,320 ---------------------------------------- 616,341 7,878 (15,473) 608,746 ---------------------------------------- Total $ 912,719 10,780 (27,470) 896,029 ======================================== 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: September 30, ------------------- 1999 1998 ------------------- (in thousands) Investments, fixed maturities $ 413,845 407,755 Investments, other 22,942 23,720 Receivables 115,407 139,145 Deferred policy acquisition costs 12,720 8,472 Due from affiliate 23,772 24,831 Deferred federal income taxes 12,538 14,475 Other assets 17,847 24,821 ------------------- Total assets $ 619,071 643,219 =================== Policy liabilities and accruals $ 324,214 360,657 Unearned premiums 48,885 54,200 Other policyholders' funds and liabilities 29,872 21,272 ------------------- Total liabilities 402,971 436,129 Stockholder's equity 216,100 207,090 ------------------- Total liabilities and stockholder's equity $ 619,071 643,219 =================== A summarized consolidated income statement for Republic is presented below: Quarter ended Nine months ended September 30, September 30, ------------------------------------------ 1999 1998 1999 1998 ------------------------------------------ (in thousands) Premiums $ 35,721 39,476 100,289 104,737 Net investment income 8,141 8,979 24,830 27,221 ----------------- ------------------ Total revenue 43,862 48,455 125,119 131,958 Benefits and losses 28,674 30,171 82,387 86,711 Amortization of deferred policy acquisition costs 3,312 3,001 10,144 5,402 Operating expenses 7,775 7,649 23,511 25,693 ----------------- ------------------ Total expenses 39,761 40,821 116,042 117,806 Income from operations 4,101 7,634 9,077 14,152 Federal income tax expense (1,217) (2,555) (2,783) (4,515) ----------------- ------------------ Net income $ 2,884 5,079 6,294 9,637 ================= ================== 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: September 30, -------------------- 1999 1998 -------------------- (in thousands) Investments, fixed maturities $ 491,279 471,015 Investments, other 129,900 115,010 Receivables 35,406 42,083 Deferred policy acquisition costs 70,270 54,925 Due from (to) affiliate (9,681) 3,046 Other assets 10,559 34,143 ------------------- Total assets $ 727,733 720,222 =================== Policy liabilities and accruals $ 141,995 155,735 Premium deposits 457,677 433,647 Other policyholders' funds and liabilities 23,191 22,147 Deferred federal income taxes 17,550 12,471 ------------------- Total liabilities 640,413 624,000 Stockholder's equity 87,320 96,222 ------------------- Total liabilities and stockholder's equity $ 727,733 720,222 =================== A summarized consolidated income statement for Oxford is presented below: Quarter ended Nine months ended September 30, September 30, ------------------------------------------ 1999 1998 1999 1998 ------------------------------------------ (in thousands) Premiums $ 24,334 35,087 71,541 71,389 Net investment income 5,673 5,046 15,811 14,486 ----------------- ----------------- Total revenue 30,007 40,133 87,352 85,875 Benefits and losses 14,255 20,306 44,557 43,757 Amortization of deferred policy acquisition costs 6,147 13,303 17,196 19,701 Operating expenses 5,809 3,567 15,337 12,707 ----------------- ----------------- Total expenses 26,211 37,176 77,090 76,165 Income from operations 3,796 2,957 10,262 9,710 Federal income tax expense (1,180) (903) (3,352) (2,991) ----------------- ----------------- Net income $ 2,616 2,054 6,910 6,719 ================= ================= In December 1998, North American Fire & Casualty Insurance Company (NAFCIC) 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 4,100 - - 4,100 Fair market value of cash flow hedge, net of taxes of $1,195 - - 2,130 2,130 Unrealized gain (loss) on investments, net of taxes of $6,365 - (14,855) - (14,855) ------- ------- ------ ------- Balance at December 31, 1999 $ (21,311) (3,553) (1,501) (26,365) ======= ======= ====== ======= Balance at March 31, 1998 $ (18,675) 9,291 - (9,384) Foreign currency translation (6,420) - - (6,420) Fair market value of cash flow hedge, net of taxes of $2,595 - - (4,819) (4,819) Unrealized gain (loss) on investments, net of taxes of $2,262 - 5,761 - 5,761 ------- ------- ------ ------- Balance at December 31, 1998 $ (25,095) 15,052 (4,819) (14,862) ======= ======= ====== =======
5. CONTINGENT LIABILITIES AND COMMITMENTS During the nine months ended December 31, 1999, a subsidiary of U-Haul entered into fifteen transactions and has subsequently entered into one transaction, whereby the subsidiary sold rental trucks and subsequently leased them back. AMERCO has guaranteed $22,460,000 of residual values at December 31, 1999 and an additional $1,571,000 subsequent to December 31, 1999 for these assets at the end of the respective lease terms. Following are the lease commitments for the leases executed during the nine months ended December 31, 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 $ 9,442 256 9,698 2001 16,220 1,533 17,753 2002 16,220 1,533 17,753 2003 16,220 1,533 17,753 2004 16,220 1,533 17,753 Thereafter 39,218 4,346 43,564 ------------------------------------ $ 113,540 10,734 124,274 ==================================== 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: Nine months ended December 31, 1999 1998 ----------------------- (in thousands) Receivables $ (3,394) (131,711) ======================= Inventories $ (422) (2,004) ======================= Accounts payable and accrued liabilities $ (24,365) (52,556) ======================= Income taxes paid in cash amounted to $638,000 and $1,065,000 for the nine months ended December 31, 1999 and 1998, respectively. Interest paid in cash amounted to $60,639,000 and $57,094,000 for the nine months ended December 31, 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 December 31, 1999: Loss from operations $ (9,325) Less dividends on preferred shares 3,241 ------- Basic and diluted loss per common share (12,566) 21,975,889 $ (0.57) ======= ========== ==== Quarter ended December 31, 1998: Earnings from operations $ 2,478 Less dividends on preferred shares 4,046 ------- Basic and diluted loss per common share (1,568) 21,942,190 $ (0.07) ======= ========== ==== Nine months ended December 31, 1999: Earnings from operations $ 75,109 Less dividends on preferred shares 10,259 ------- Basic earnings per common share 64,850 21,964,513 $ 2.95 Effect of dilutive securities - Series B preferred shares 537 388,889 ------ ---------- Diluted earnings per common share 65,387 22,353,402 $ 2.93 ====== ========== ==== Nine months ended December 31, 1998: Earnings from operations $ 75,879 Less dividends on preferred shares 13,292 ------ Basic and diluted earnings per common share 62,587 21,934,264 $ 2.85 ====== ========== ====
18 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. RELATED PARTIES During the nine months ended December 31, 1999, 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 payments of $14,783,000 and principal payments of $29,456,000 from SAC Holdings during the nine months ended December 31, 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 $3,348,000 and $1,620,000 were received during the nine months ended December 31, 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 nine months ended December 31, 1999, a subsidiary of AMERCO funded through a note receivable the purchase of properties and construction costs for SAC Holdings of approximately $37,948,000. 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 year 1999, AMERCO adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". As of December 31, 1999, AMERCO recorded an after tax adjustment of $2,130,000 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 nine months ended December 31, 1999, AMERCO recognized $22,000 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) Nine months ended December 31, 1999 ----------------------------------- Revenues: Outside $ 1,069,592 7,579 121,254 86,407 - 1,284,832 Intersegment - 53,075 3,865 945 (57,885) - ---------- ------- ------- ------- -------- --------- Total revenue $ 1,069,592 60,654 125,119 87,352 (57,885) 1,284,832 Depreciation/ amortization $ 62,278 7,664 10,529 27,684 - 108,155 Interest expense $ 61,038 30,926 - - (30,926) 61,038 Pretax earnings $ 78,245 18,392 9,077 10,262 - 115,976 Income tax $ (28,294) (6,438) (2,783) (3,352) - (40,867) Identifiable assets $ 1,385,918 705,396 619,071 727,733 (340,074) 3,098,044
Nine months ended December 31, 1998 ----------------------------------- Revenues: Outside $ 999,705 4,192 122,226 84,973 - 1,211,096 Intersegment - 54,466 9,732 902 (65,100) - ---------- ------- ------- ------- -------- --------- Total revenue $ 999,705 58,658 131,958 85,875 (65,100) 1,211,096 Depreciation/ amortization $ 45,778 8,448 6,757 19,734 - 80,717 Interest expense $ 55,003 30,645 - - (30,645) 55,003 Pretax earnings $ 78,343 14,729 14,152 9,710 - 116,934 Income tax $ (28,394) (5,155) (4,515) (2,991) - (41,055) Identifiable assets $ 1,282,166 701,190 643,219 720,222 (345,689) 3,001,108
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 December 31, 1999 ------------------------------- Revenues: Outside $ 307,882 1,583 43,347 29,684 - 382,496 Intersegment - 17,777 515 323 (18,615) - -------- ------ ------ ------ ------- ------- Total revenue $ 307,882 19,360 43,862 30,007 (18,615) 382,496 Depreciation/ amortization $ 21,862 2,623 3,544 16,327 - 44,356 Interest expense $ 21,223 10,653 - - (10,653) 21,223 Pretax earnings $ (27,150) 4,476 4,101 3,796 - (14,777) Income tax $ 9,812 (1,963) (1,217) (1,180) - 5,452
Quarter ended December 31, 1998 ------------------------------- Revenues: Outside $ 288,112 1,713 43,474 39,820 - 373,119 Intersegment - 18,259 4,981 313 (23,553) - -------- ------ ------ ------ ------- ------- Total revenue $ 288,112 19,972 48,455 40,133 (23,553) 373,119 Depreciation/ amortization $ 17,952 2,698 3,319 9,072 - 33,041 Interest expense $ 18,368 10,513 - - (10,513) 18,368 Pretax earnings $ (11,165) 4,873 7,634 2,957 - 4,299 Income tax $ 3,342 (1,705) (2,555) (903) - (1,821)
Geographic Area Data United United (All amounts are in States Canada Consolidated States Canada Consolidated U.S. $'s) -------------------------------- ----------------------------- Nine months ended Quarter ended -------------------------------- ----------------------------- (in thousands) December 31, 1999 ----------------- Total revenues $ 1,256,619 28,213 1,284,832 375,137 7,359 382,496 Depreciation/ amortization $ 105,459 2,696 108,155 43,360 996 44,356 Interest expense $ 61,022 16 61,038 21,218 5 21,223 Pretax earnings $ 113,047 2,929 115,976 (13,930) (847) (14,777) Income tax $ (40,867) - (40,867) 5,452 - 5,452 Identifiable assets $ 3,051,332 46,712 3,098,044 n/a n/a n/a December 31, 1998 ----------------- Total revenues $ 1,186,216 24,880 1,211,096 366,629 6,490 373,119 Depreciation/ amortization $ 78,211 2,506 80,717 32,173 868 33,041 Interest expense $ 54,994 9 55,003 18,366 2 18,368 Pretax earnings $ 115,062 1,872 116,934 4,444 (145) 4,299 Income tax $ (41,055) - (41,055) (1,821) - (1,821) Identifiable assets $ 2,961,188 39,920 3,001,108 n/a n/a n/a
21 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 11. SUBSEQUENT EVENTS On January 10, 2000, the United States Supreme Court denied review of the Bankruptcy Court's ruling that the plaintiffs (non-management members of the Shoen family and their affiliates) are entitled to interest related to a previous resolution of a long-standing legal dispute involving the Shoen family and related to control of AMERCO. In 1996, AMERCO deposited approximately $48.2 million into an escrow account to secure payment of the disputed interest, pending final resolution of this issue. The escrow account is reflected as a component of "Other assets" in AMERCO's consolidated financial statements. The amount deposited into the escrow account will be transferred to the plaintiffs in the near future. The release of the escrow will not have the effect of increasing or decreasing AMERCO's net earnings, but will reduce stockholders' equity. On February 4, 2000, AMERCO issued $200,000,000 of 8.80% Senior Notes due 2005. On February 8, 2000, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of February 18, 2000. 22 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 NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS NINE MONTHS ENDED DECEMBER 31, 1998 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenue was $907.8 million and $848.8 million for the nine months ended December 31, 1999 and 1998, respectively. Net revenues from the rental of moving related equipment increased by $56.5 million. This increase is primarily attributable to higher truck rental revenues. The growth in truck rental revenue primarily reflects improved utilization, an increase in the average revenue per transaction and higher truck rental inventory. Net sales revenues were $148.7 million and $143.2 million for the nine months ended December 31, 1999 and 1998, respectively. Revenue growth from propane sales, which was up by 10.2% during the nine months ended December 31, 1999, and from the sale of moving support items (i.e. boxes, etc.), which was up by 3.5% during the nine months ended December 31, 1999, led to the improvement. Cost of sales was $87.7 million and $84.6 million for the nine months ended December 31, 1999 and 1998, respectively. A higher sales volume contributed to the increase. Operating expenses before intercompany eliminations increased to $721.0 million for the nine months ended December 31, 1999 from $679.9 million for the nine months ended December 31, 1998. Increased expenditure levels for rental equipment maintenance and personnel, due to an increase in truck rental transactions and in fleet size, were primarily responsible. Lease expense was $97.7 million and $87.5 million for the nine months ended December 31, 1999 and 1998, respectively. This increase reflects additional leasing activity over the past twelve months. Net depreciation expense for the nine months ended December 31, 1999 was $54.8 million, as compared to $45.0 million in the same period of the prior year. The increase reflects an increase in depreciation recognized on the rental truck fleet. 23 Real Estate Operations Rental revenue before intercompany eliminations was $55.0 million and $56.1 million for the nine months ended December 31, 1999 and 1998, respectively. Intercompany revenue was $53.1 million and $54.5 million for the nine months ended December 31, 1999 and 1998, respectively. Net investment and interest income was $5.7 million for the nine months ended December 31, 1999 as compared to $2.5 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 $3.2 million for the nine months ended December 31, 1999 versus $4.7 million for the nine months ended December 31, 1998. Reduced building maintenance expense accounted for the majority of the decline from the prior year. Lease expense for the nine months ended December 31, 1999 and 1998 was $1.3 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 nine months ended December 31, 1999 was $6.8 million, as compared to $8.5 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 $100.3 million and $104.7 million for the nine months ended September 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 $35.6 million from $50.9 million, respectively. This decrease resulted 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 $14.5 million for the nine months ended September 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 1999. Additionally, assumed treaty reinsurance increased to $35.0 million for the nine months ended September 30, 1999 as compared to $34.0 million for the nine months ended September 30, 1998. Direct multiple peril and general agency premium increased to $17.9 million and $11.6 million, respectively, for the nine months ended September 30, 1999 compared to $15.2 million and $4.6 million, respectively, for the nine months ended September 30, 1998. Net investment income was $24.8 million and $27.2 million for the nine months ended September 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 $82.4 million and $86.7 million for the nine months ended September 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) consist of commissions and other costs, which vary with and are primarily related to the production of new business. The prior year commissions, and other related expenses, are amortized over the following year. The amortization expenses for the nine months ended September 30, 1999 and 1998 were $10.1 million and $5.4 million, respectively. The increase from 1998 to 1999 is due mainly to Republic's subsidiary company's DAC expense, which increased to $3.0 million for the nine months ended September 30, 1999 from a negligible amount for the nine months ended September 30, 1998. Also contributing was a $1.4 million increase in the nonaffiliated agents expense. The Field Underwriting and Mobile Home programs increased due to 1998 written and unearned premiums and the Excess Worker's Compensation program increased due to 1998 commission expenses relating to a settlement agreement with the previous general agent. Operating expenses were $23.5 million and $25.7 million for the nine months ended September 30, 1999 and 1998, respectively. Commissions decreased to $12.0 million for the nine months ended September 30, 1999 compared to $14.9 million for the nine months ended September 30, 1998. This is mainly attributable to Republic's subsidiary's DAC earned for the nine months ended September 30, 1999. This subsidiary was purchased in December 1998; therefore, there was no DAC included for this subsidiary for the nine months ended September 30, 1998. Additionally, there was an increase in the nonaffiliated agents and assumed treaty reinsurance DAC earned relating to the increase in the DAC expense mentioned above. Slightly offsetting were increased lease expenses of $1.4 million and $0.8 million for the nine months ended September 30, 1999 and 1998, respectively. All other underwriting expenses were $10.1 million and $10.0 million for the nine months ended September 30, 1999 and 1998, respectively. 24 Operating profit before tax and intercompany elimination was $9.1 million and $14.1 million for the nine months ended September 30, 1999 and 1998, respectively. This represents a decrease in 1999 of $5.0 million from 1998 and resulted mainly from decreased premium revenue and investment income. Life Insurance Net premiums were $71.5 million and $71.4 million for the nine months ended September 30, 1999 and 1998, respectively. 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 $6.1 million. Oxford began marketing a new single premium whole life policy in 1998; this product accounted for $2.9 million of new premiums in 1999 over 1998. With the sale of NAFCIC, credit insurance premiums decreased by $4.3 million. As expected, premiums decreases occurred in non-essential NAI lines that were terminated and due to fewer annuitizations. These changes accounted for a $4.7 million decrease in premiums through the first nine months of 1999. Net investment income before intercompany eliminations was $15.8 million and $14.5 million for the nine months ended September 30, 1999 and 1998, respectively. 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 $44.6 million and $43.8 million for the nine months ended September 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 $3.7 million of benefit variance. Annuity benefits combined with the elimination of non-focused NAI health lines reduced benefits by $2.9 million. Amortization of DAC and the value of business acquired (VOBA) was $17.2 million and $19.7 million for the nine months ended September 30, 1999 and 1998, 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 dynamically amortizing the VOBA asset recognized at purchase. This asset relates to the future profits of the credit insurance policies in force at the time of purchase. The amortization of this asset led to higher 1998 amortization amounts. In 1999, Oxford did not have amortization charges related to NAFCIC that were present in 1998. Operating expenses were $15.3 million and $12.7 million for the nine months ended September 30, 1999 and 1998, respectively. Commissions have increased $1.5 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. Operating profit before tax and intercompany eliminations was $10.3 million and $9.7 million for the nine months ended September 30, 1999 and 1998, respectively. The increase over the prior year reflects improved investment returns, a result of a higher asset base from new business and acquisitions, improving loss ratios on the Medicare supplement business and better than expected loss experience for the credit business. Interest Expense Interest expense was $61.0 million for the nine months ended December 31, 1999, as compared to $55.0 million for the nine months ended December 31, 1998. The increase can be attributed to an increase in average debt outstanding and a modest increase in the average cost of debt. 25 Consolidated Group As a result of the foregoing, pretax earnings of $116.0 million were realized in the nine months ended December 31, 1999, as compared to $116.9 million for the same period in 1998. After providing for income taxes, net earnings for the nine months ended December 31, 1999 were $75.1 million, as compared to $75.9 million for the same period of the prior year. QUARTERLY RESULTS The following table presents unaudited quarterly results for the eleven quarters in the period beginning April 1, 1997 and ending December 31, 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 Dec 31 1999 1999 1999 ---------------------------------- (in thousands, except share and per share data) Total revenues $ 439,640 462,696 382,496 Net earnings (loss) 42,307 42,127 (9,325) Weighted average common shares outstanding Basic 21,953,199 21,964,452 21,975,889 Diluted 22,953,199 22,131,119 - Net earnings per common share (1) (6) Basic 1.77 1.77 (0.57) 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) 26 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) (2) (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) _______________ (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. 27 QUARTER ENDED DECEMBER 31, 1999 VERSUS QUARTER ENDED DECEMBER 31, 1998 Moving and Storage Operations Revenues consist of rental revenues and net sales. Rental revenue was $264.8 million and $249.9 million in the quarters ended December 31, 1999 and 1998, respectively. This reflects a $14.9 million increase in revenues from the rental of moving related equipment due to improved truck utilization, higher average revenue per transaction and higher truck rental inventory. Net sales revenues were $38.5 million in the quarter ended December 31, 1999 as compared to net sales of $35.6 million in the quarter ended December 31, 1998. Revenue growth from the sale of propane and hitches led to the majority of the increase during the quarter. Cost of sales was $25.0 million in the quarter ended December 31, 1999, which represents an increase from $21.7 million for the same period of the prior year. Increased material costs and a higher sales volume contributed to the increase. Operating expenses before intercompany elimination increased to $244.6 million in the quarter ended December 31, 1999 from $219.9 million in the quarter ended December 31, 1998. The increase reflects higher personnel and rental equipment maintenance expenditures associated with an increase in truck rental transactions and inventory levels. Also contributing was an increase in advertising expense as providers shifted the publish dates of several directories to December 1999 to avoid possible Y2K problems. Lease expense was $34.1 million and $31.1 million for the quarters ended December 31, 1999 and 1998, respectively. The increase reflects additional leasing activity. Net depreciation expense for the quarter ended December 31, 1999 was $20.8 million, as compared to $18.7 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 $18.4 million in the quarter ended December 31, 1999, compared to $18.9 million in the quarter ended December 31, 1998. Intercompany revenue was $17.8 million as compared to $18.3 million in the prior year's third quarter. Net investment and interest income was $0.9 million in the quarter ended December 31, 1999 as compared to $1.1 million in the quarter ended December 31, 1998. Operating expenses were $1.3 million in the quarter ended December 31, 1999 versus $1.7 million in the quarter ended December 31, 1998. Reduced building maintenance expense accounted for the majority of the decline from the prior year. Lease expense was $0.7 million during the quarter ended December 31, 1999 versus a negligible amount during quarter ended December 31, 1998. The increase reflects payments under a synthetic lease facility being utilized to develop storage properties. Net depreciation expense for the quarter ended December 31, 1999 was $2.1 million, as compared to $2.8 million in the same period of the prior year. The decrease reflects higher gains from the disposition of property. 28 Property and Casualty Republic's premiums were $35.7 million and $39.5 million for the quarters ended September 30, 1999 and 1998, respectively. The premium decrease in 1999 compared to 1998 resulted from the U-Haul Liability programs in the rental industry, which decreased to $11.7 million from $22.2 million, respectively. This decrease resulted 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 $10.9 million for the quarter ended September 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 1999. Assumed treaty reinsurance increased to $14.1 million for the quarter ended September 30, 1999 as compared to $10.5 million for the quarter ended September 30, 1998. Direct multiple peril was $5.2 million and $5.4 million for the quarters ended September 30, 1999 and 1998, respectively. General agency premiums totaled $3.4 million and $1.4 million for the quarters ended September 30, 1999 and 1998, respectively. Net investment income was $8.1 million and $9.0 million for the quarters ended September 30, 1999 and 1998, respectively. The decrease from 1998 to 1999 resulted from a decrease in invested assets and a lower yield. Benefits and losses incurred were $28.7 million and $30.2 million for the quarters ended September 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 commissions, and other related expenses, are amortized over the following year. Amortization expenses was $3.3 million and $3.0 million for the quarters ended September 30, 1999 and 1998, 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 September 30, 1999 from a negligible amount for the quarter ended September 30, 1998. Offsetting this increase were decreases in assumed treaty reinsurance of $0.5 million and in nonaffiliated agents of $0.1 million. Operating expenses were $7.8 million and $7.6 million for the quarters ended September 30, 1999 and 1998, respectively. Commissions increased slightly to $3.5 million for the quarter ended September 30, 1999 compared to $3.3 million for the quarter ended September 30, 1998. Lease expenses increased to $0.5 million for the quarter ended September 30, 1999 as compared to $0.4 million for the quarter ended September 30, 1998. All other underwriting expenses were $3.8 million and $3.9 million for the quarters ended September 30, 1999 and 1998, respectively. Operating profit before tax and intercompany elimination was $4.1 million and $7.6 million for the quarters ended September 30, 1999 and 1998, respectively. This represents a decrease in 1999 of $3.5 million from 1998 and resulted mainly from decreased premium revenue and investment income, offset slightly by decreased underwriting expenses. Republic's operating profit will exceed fourth quarter expectations. 29 Life Insurance Net premiums were $24.3 million and $35.1 million for the quarters ended September 30, 1999 and 1998, respectively. Oxford realized a premium decrease in the areas of Medicare supplement business. In the third quarter of 1998, Oxford acquired a block of Medicare supplement policies through the reinsurance. Through the acquisition accounting for this transaction, Oxford recognized the transferred reserves as premium in the quarter; this accounts for $7.6 million of the variance. Production sales of Oxford's new single premium whole life policy increased by $0.6 million in the third quarter compared to 1998. These increases were offset by fewer reinsurance annuitizations in 1999 than in 1998, leading to $0.8 million less in annuity premium. Credit life and disability premiums decreased by $2.3 million for the quarter as a result of Oxford's sale of its NAFCIC subsidiary. In addition, there were $0.7 million in premium decreases for the third quarter resulting from the planned termination of NAI products not part of Oxford's strategic focus. Net investment income before intercompany eliminations was $5.7 million and $5.0 million for the quarters ended September 30, 1999 and 1998, respectively. This increase is due to a larger invested base. Benefits incurred were $14.3 million and $20.3 million for the quarters ended September 30, 1999 and 1998, respectively. The decrease relates to the Medicare supplement assumption mentioned above. These benefits accounted for $7.4 million of the decrease. Related to the decrease in annuitizations in 1999 from 1998, annuity benefits decreased $0.5 million. Benefits related to life insurance increased to $0.5 million from 1998 due to increased production in single premium whole life product. Other Medicare supplement benefits increased $0.5 million for the quarter. Credit insurance benefits increased by $0.9 million for the quarter. Amortization of DAC and VOBA was $6.1 million and $13.3 million for the quarters ended September 30, 1999 and 1998, 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 dynamically amortizing the VOBA asset recognized at the time of purchase. The amortization curve decreases as the underlying profits are recognized. This asset relates to the future profits of the credit insurance policies in force at the time of purchase. In addition, the amortization charge decreased due to the sale of NAFCIC. Operating expenses were $5.8 million and $3.6 million for the quarters ended September 30, 1999 and 1998, respectively. Operating expenses for the quarter increased by $0.2 million stemming from the administration costs associated with new reinsurance contracts. Oxford's intercompany interest charges increased by $0.2 million for the outstanding surplus notes due AMERCO. Other increases resulted from new product development activities. Operating profit before tax and intercompany eliminations was $3.8 million and $3.0 million for the quarters ended September 30, 1999 and 1998, respectively. The increase stems from improved investment income performance for the quarter. Interest Expense Interest expense was $21.2 million for the quarter ended December 31, 1999, as compared to $18.4 million for the quarter ended December 31, 1998. The increase can be attributed to a higher level of average debt outstanding. Consolidated Group As a result of the foregoing, a pretax loss of $14.8 million was recognized during the quarter ended December 31, 1999, as compared to pretax earnings of $4.3 million for the same period in 1998. After providing for income taxes, the net loss for the quarter ended December 31, 1999 was $9.3 million, as compared to net earnings of $2.5 million for the same period of the prior year. 30 LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At December 31, 1999, net property, plant and equipment represented approximately 63.9% of total assets from non-insurance operations and approximately 43.1% of consolidated assets. In the nine months ended December 31, 1999, capital expenditures were $269.5 million, as compared to $235.0 million in the nine months ended December 31, 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 $131.9 million in the nine months ended December 31, 1999, as compared to $65.8 million in the nine months ended December 31, 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 December 31, 1999, total outstanding notes and loans payable was $1,101.8 million as compared to $1,114.7 million at March 31, 1999. Real Estate Operations Cash provided by operating activities was $10.7 million for the nine months ended December 31, 1999. Cash used by operating activities was $7.4 million for the nine months ended December 31, 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 $9.2 million and $29.6 million for the nine months ended September 30, 1999 and 1998, respectively. The 1999 to 1998 change resulted from decreased paid losses recoverable, decreased accounts receivable and a smaller increase in funds withheld. Offsetting this increase in cash was a decrease in unearned premium reserves. Republic's cash and cash equivalents and short-term investment portfolio were $1.4 million and $9.3 million at September 30, 1999 and 1998, respectively. The decrease 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 94.1% 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 108.4% 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 $216.1 million and $207.1 million at September 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. 31 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 $5.6 million and $11.3 million for the nine months ended September 30, 1999 and 1998, respectively. Cash flows provided/(used) by financing activities were approximately $(0.1) million and $10.1 million for the nine months ended September 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 nine months of 1999 compared to the first nine 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 September 30, 1999 and 1998, short- term investments were $52.1 million and $32.3 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford decreased to $87.3 million in 1999 from $96.2 million in 1998. The decrease is a result of the unrealized losses on the available for sale investment portfolio. Oxford did not pay dividends 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 September 30, 1999. These restrictions are not expected to have a material adverse effect on the ability of AMERCO to meet its cash obligations. 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 December 31, 1999, AMERCO had $1,101.8 million in total notes and loans payable outstanding and unutilized lines of credit of approximately $61.0 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 December 31, 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. Reference is made to Note 5 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 1999 for additional information about the credit agreements. 32 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. 33 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. 34 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 class certification was mailed on or about August 24, 1999. The class opt-out period ended on October 11, 1999. Trial is set for July, 2000. Management does not expect the Plaintiffs' damage claims to result in a material loss to AMERCO. 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. 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) 4.1 Senior Indenture dated April 1, 1999 (3) 4.2 Senior Supplemental Indenture dated February 4, 2000 (4) 27 Financial Data Schedule b. Reports on Form 8-K. A report on Form 8-K was filed on February 4, 2000 in connection with AMERCO's issuance of $200,000,000 of 8.80% Notes due 2005. _____________________________________ (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. (3) Incorporated by reference to AMERCO's Current Report on Form 8-K dated April 5, 1999, file no. 1-11255. (4) Incorporated by reference to AMERCO's Current Report on Form 8-K dated February 4, 2000, 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: February 10, 2000 By: /S/ GARY B. HORTON ____________________________________ Gary B. Horton, Treasurer (Principal Financial Officer) EX-27 2 FDS DEC-31-1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-31-2000 DEC-31-1999 17,176 0 391,955 0 80,581 0 2,500,965 1,164,814 3,098,044 0 1,101,824 0 0 10,563 637,773 3,098,044 148,669 1,284,832 87,737 1,016,506 0 3,575 61,038 115,976 40,867 75,109 0 0 0 75,109 2.95 2.93 THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNT NET OF THEIR ALLOWANCES. AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
-----END PRIVACY-ENHANCED MESSAGE-----