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 June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. _______________________________________________________________________ 0-7862 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (702) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 22,614,087 shares of AMERCO Common Stock, $0.25 par value were outstanding at August 7, 1998. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at August 7, 1998. 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 June 30, 1998, March 31, 1998 and June 30, 1997................... 4 b) Consolidated Statements of Earnings for the Quarters ended June 30, 1998 and 1997.............. 6 c) Consolidated Statements of Changes in Stockholders' Equity for the Quarters ended June 30, 1998 and 1997........................................... 7 d) Consolidated Statements of Cash Flows for the Quarters ended June 30, 1998 and 1997.............. 8 f) Notes to Consolidated Financial Statements - June 30, 1998, March 31, 1998 and June 30, 1997...................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 17 PART II. OTHER INFORMATION Item 5. Other Information..................................... 23 Item 6. Exhibits and Reports on Form 8-K...................... 25
3 THIS PAGE LEFT INTENTIONALLY BLANK
4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets June 30, March 31, June 30, ASSETS 1998 1998 1997 ------------------------------------ (unaudited) (audited) (unaudited) (in thousands) Cash and cash equivalents $ 40,728 31,606 33,178 Receivables 340,388 317,620 242,214 Inventories 72,486 68,887 62,926 Prepaid expenses 17,330 21,154 19,775 Investments, fixed maturities 891,025 886,873 850,667 Investments, other 159,018 164,064 150,262 Deferred policy acquisition costs 49,682 44,255 50,924 Other assets 102,972 103,062 73,594 ---------------------------------- Property, plant and equipment, at cost: Land 207,982 208,028 210,995 Buildings and improvements 835,533 838,419 819,770 Furniture and equipment 219,173 214,513 201,911 Rental trailers and other rental equipment 179,632 179,225 174,373 Rental trucks 978,953 939,561 1,051,231 ---------------------------------- 2,421,273 2,379,746 2,458,280 Less accumulated depreciation 1,112,072 1,103,990 1,106,084 ---------------------------------- Total property, plant and equipment 1,309,201 1,275,756 1,352,196 ---------------------------------- $ 2,982,830 2,913,277 2,835,736 ================================== The accompanying notes are an integral part of these consolidated financial statements.
5 June 30, March 31, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998 1997 ---------------------------------- (unaudited) (audited) (unaudited) (in thousands) Liabilities: Accounts payable and accrued expenses $ 125,243 144,201 137,309 Notes and loans 1,062,512 1,025,323 1,035,340 Policy benefits and losses, claims and loss expenses payable 586,715 592,642 468,568 Liabilities from premium deposits 428,100 425,347 429,984 Cash overdraft 24,346 21,414 47,942 Other policyholders' funds and liabilities 38,533 34,911 31,896 Deferred income 45,111 45,298 36,317 Deferred income taxes 54,045 29,082 28,000 ----------------------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares authorized, issued and outstanding as of June 30, 1998, March 31, 1998 and June 30, 1997 - - - Series B preferred stock, with no par value, 100,000 shares authorized, 75,000 shares issued and outstanding as of June 30, 1998, March 31, 1998 and 100,000 issued and outstanding as of June 30, 1997 - - - Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized, 5,762,495 shares issued as of June 30, 1998, March 31, 1998 and June 30, 1997 1,441 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized, 36,487,505 shares issued as of June 30, 1998, March 31, 1998 and June 30, 1997 9,122 9,122 9,122 Additional paid-in capital 313,444 313,444 337,933 Accumulated other comprehensive income (12,873) (9,384) (15,797) Retained earnings 684,697 658,227 667,976 ---------------------------------- 995,831 972,850 1,000,675 Less: Cost of common shares in treasury, (19,635,913 shares as of June 30, 1998, March 31, 1998 and June 30, 1997) 359,723 359,723 359,723 Unearned employee stock ownership plan shares 17,883 18,068 20,572 ---------------------------------- Total stockholders' equity 618,225 595,059 620,380 Contingent liabilities and commitments $ 2,982,830 2,913,277 2,835,736 ================================== The accompanying notes are an integral part of these consolidated financial statements.
6 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Quarters ended June 30, (Unaudited) 1998 1997 ------------------------- (in thousands except share and per share data) Revenues Rental revenue $ 281,413 265,146 Net sales 56,313 55,482 Premiums 38,430 35,465 Net investment income 13,182 11,555 ---------------------- Total revenues 389,338 367,648 Costs and expenses Operating expense 209,536 189,773 Cost of sales 32,695 30,810 Benefits and losses 35,580 38,421 Amortization of deferred acquisition costs 4,611 3,460 Lease expense 26,962 23,017 Depreciation, net 17,573 20,579 ---------------------- Total costs and expenses 326,957 306,060 Earnings from operations 62,381 61,588 Interest expense, net of interest income of $3,642 and $3,478 in 1998 and 1997, respectively 15,009 17,468 ---------------------- Pretax earnings 47,372 44,120 Income tax expense (16,142) (14,922) ---------------------- Net earnings $ 31,230 29,198 ====================== Earnings per common share (both basic and diluted): Net earnings $ 1.21 1.09 ====================== Weighted average common shares outstanding 21,924,749 21,879,156 ====================== The accompanying notes are an integral part of these consolidated financial statements.
7 <TABLE> <CAPTION> AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Quarters ended June 30, 1998 and 1997 (unaudited) (in thousands) Unearned Accumulated Employee Series A Additional Other Stock Total Common Common Paid-in Comprehensive Retained Treasury Ownership Stockholders' Comprehensive Stock Stock Capital Income Earnings Stock Plan Shares Equity Income ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance at March 31, 1998 $ 1,441 9,122 313,444 (9,384) 658,227 (359,723) (18,068) 595,059 Leveraged employee stock ownership plan: Purchase of shares (1) (1) Repayments from loan 186 186 Preferred stock dividends: Series A ($0.53 per share) (3,241) (3,241) Series B ($20.39 per share) (1,519) (1,519) Comprehensive income: Net income 31,230 31,230 $ 31,230 Other comprehensive income, net of tax: Foreign currency translation (2,507) (2,507) (2,507) Unrealized loss on investments (982) (982) (982) ------ Comprehensive income $ 27,741 ----- ----- ------- ------- ------- -------- ------- ------- ====== Balance at June 30, 1998 1,441 9,122 313,444 (12,873) 684,697 (359,723) (17,883) 618,225 ===== ===== ======= ======= ======= ======== ======= ======= Balance at March 31, 1997 1,441 9,122 337,933 (9,722) 644,009 (359,723) (20,740) 602,320 Leveraged employee stock ownership plan: Purchase of shares (1) (1) Repayments from loan 169 169 Preferred stock dividends: Series A ($0.53 per share) (3,241) (3,241) Series B ($19.90 per share) (1,990) (1,990) Comprehensive income: Net income 29,198 29,198 $ 29,198 Other comprehensive income, net of tax: Foreign currency translation (232) (232) (232) Unrealized loss on investments (5,843) (5,843) (5,843) ------ Comprehensive income $ 23,123 ----- ----- ------- ------- ------- -------- ------- ------- ====== Balance at June 30, 1997 1,441 9,122 337,933 (15,797) 667,976 (359,723) (20,572) 620,380 ===== ===== ======= ======= ======= ======== ======= ======= <FN> The accompanying notes are an integral part of these consolidated financial statements. </FN> </TABLE>
8 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Quarters ended June 30, (Unaudited) 1998 1997 ------------------ (in thousands) Cash flows from operating activities: Net earnings $ 31,230 29,198 Depreciation and amortization 23,052 25,435 Provision for losses on accounts receivable 918 1,120 Net (gain) loss on sale of real and personal property (191) 89 Gain on sale of investments (719) 75 Changes in policy liabilities and accruals 8 7,870 Additions to deferred policy acquisition costs (10,038) (3,545) Net change in other operating assets and liabilities (22,289) 19,815 ------------------ Net cash provided by operating activities 21,971 80,057 ------------------ Cash flows from investing activities: Purchases of investments: Property, plant and equipment (97,357) (210,431) Fixed maturities (55,238) (39,134) Private equity investment - (24,500) Preferred Stock (1,500) (979) Mortgage loans (927) (6,036) Proceeds from sale of investments: Property, plant and equipment 45,684 82,937 Fixed maturities 52,980 39,757 Real estate 47 138 Mortgage loans 3,800 6,809 Changes in other investments 1,451 1,497 ------------------ Net cash provided (used) by investing activities (51,060) (149,942) ------------------ Cash flows from financing activities: Net change in short-term borrowings 38,500 76,000 Debt issuance costs (96) (439) Loan to leveraged Employee Stock Ownership Plan (1) (1) Repayments from leveraged Employee Stock Ownership Plan 186 169 Principal payments on notes (1,311) (24,210) Net change in cash overdraft 2,932 24,336 Preferred stock dividends paid (4,760) (5,231) Investment contract deposits 17,903 4,818 Investment contract withdrawals (15,142) (14,131) ------------------ Net cash provided (used) by financing activities 38,211 61,311 ------------------ Increase (decrease)in cash and cash equivalents 9,122 (8,574) Cash and cash equivalents at beginning of period 31,606 41,752 ------------------ Cash and cash equivalents at end of period $ 40,728 33,178 ================== The accompanying notes are an integral part of these consolidated financial statements.
9 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1998, March 31, 1998 and June 30, 1997 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (the Company), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (AREC), Republic Western Insurance Company (RWIC) and Oxford Life Insurance Company (Oxford). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its subsidiaries, substantially all of which are wholly-owned. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The consolidated balance sheets as of June 30, 1998 and 1997, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the quarters ended June 30, 1998 and 1997 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There were no effects related to intervening events which would significantly affect consolidated financial position or results of operations for the financial statements presented herein. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual financial statements and notes. Basic earnings per common share are computed based on the weighted average number of shares outstanding for the period, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of the Company. Net income is reduced for preferred dividends for the purpose of the calculation. The Company does not have any potential common stock that was not included in the calculation of diluted earnings per share because it is antidilutive in the current period. Accordingly, basic and diluted earnings per share are equal. Certain reclassifications have been made to the financial statements for the quarter ended June 30, 1997 to conform with the current year's presentation.
10 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: March 31, 1998 - -------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value --------------------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 13,415 $ 13,241 1,362 - 14,603 U.S. government agency mortgage- backed securities $ 37,230 37,026 461 (706) 36,781 Obligations of states and political subdivisions $ 27,045 26,896 1,343 - 28,239 Corporate securities $ 152,827 155,883 4,384 (395) 159,872 Mortgage-backed securities $ 94,539 93,272 1,704 (429) 94,547 Redeemable preferred stocks 2,828 75,183 991 (108) 76,066 ----------------------------------------- 401,501 10,245 (1,638) 410,108 ----------------------------------------- March 31, 1998 - -------------- Gross Gross Estimated Consolidated Amortized unrealized unrealized market Available-for-Sale Par Value cost gains losses value --------------------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 18,205 18,324 978 (5) 19,297 U.S. government agency mortgage- backed securities $ 34,794 34,252 1,227 (13) 35,466 States, municipalities and political subdivisions $ 8,125 8,551 431 (28) 8,954 Corporate securities $ 341,722 344,564 11,971 (1,674) 354,861 Mortgage-backed securities $ 53,993 53,715 1,287 (56) 54,946 Redeemable preferred stocks 591 15,369 645 (14) 16,000 ----------------------------------------- 474,775 16,539 (1,790) 489,524 ----------------------------------------- Total $ 876,276 26,784 (3,428) 899,632 =========================================
11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized consolidated balance sheet for RWIC is presented below: March 31, --------------------- 1998 1997 --------------------- (in thousands) Investments - fixed maturities $ 425,133 411,652 Other investments 25,194 22,122 Receivables 137,311 114,790 Deferred policy acquisition costs 7,203 9,778 Due from affiliate 34,304 22,352 Deferred federal income taxes 16,724 14,751 Other assets 8,205 9,095 --------------------- Total assets $ 654,074 604,540 ===================== Policy liabilities and accruals $ 380,573 336,969 Unearned premiums 44,767 48,823 Other policyholders' funds and liabilities 31,937 25,721 --------------------- Total liabilities 457,277 411,513 Stockholder's equity 196,797 193,027 --------------------- Total liabilities and stockholder's equity $ 654,074 604,540 ===================== A summarized consolidated income statement for RWIC is presented below: Quarter ended March 31, ----------------------- 1998 1997 ----------------------- (in thousands) Premiums $ 22,727 34,482 Net investment income 8,237 7,282 --------------------- Total revenue 30,964 41,764 Benefits and losses 24,456 31,880 Amortization of deferred policy acquisition costs 1,801 2,155 Other expenses 2,484 2,706 --------------------- Income from operations 2,223 5,023 Federal income tax expense (625) (1,550) --------------------- Net income $ 1,598 3,473 =====================
12 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: March 31, --------------------- 1998 1997 --------------------- (in thousands) Investments - fixed maturities $ 465,892 439,015 Other investments 112,446 105,911 Receivables 54,524 12,349 Deferred policy acquisition costs 42,479 41,146 Due from affiliate 506 507 Other assets 30,938 2,928 ------------------- Total assets $ 706,785 601,856 =================== Policy liabilities and accruals $ 161,375 82,776 Premium deposits 428,100 429,984 Other policyholders' funds and liabilities 18,521 6,587 Deferred taxes 11,256 8,856 ------------------- Total liabilities 619,252 528,203 Stockholder's equity 87,533 73,653 ------------------- Total liabilities and stockholder's equity $ 706,785 601,856 =================== A summarized consolidated income statement for Oxford is presented below: Quarter ended March 31, ----------------------- 1998 1997 ----------------------- (in thousands) Premiums $ 16,018 5,943 Net investment income 4,395 4,388 -------------------- Total revenue 20,413 10,331 Benefits and losses 11,124 6,541 Amortization of deferred policy acquisition costs 2,810 1,305 Other expenses 2,698 434 -------------------- Income from operations 3,781 2,051 Federal income tax expense (1,262) (604) -------------------- Net income $ 2,519 1,447 ==================== On November 21, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore) for $11,569,000. Encore's primary subsidiary is North American Insurance Company (NAI). NAI is an insurance company domiciled in Wisconsin whose premium volume is primarily derived from the sale of credit life and disability products. NAI owns all of the issued and outstanding common shares of North American Fire & Casualty Insurance Company, a property and casualty insurance company domiciled in Louisiana. On November 24, 1997, Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company for $2,243,000, domiciled in Texas, whose premium volume is derived from the sale of credit life and disability products. These purchases greatly increase Oxford's distribution channels and enhance administrative capabilities in these markets.
13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 4. CONTINGENT LIABILITIES AND COMMITMENTS During the three months ended June 30, 1998, a subsidiary of U-Haul entered into three transactions, and has subsequently entered into three additional transactions, whereby the Company sold rental trucks and subsequently leased back. The Company has guaranteed $5,522,000 of residual values at June 30, 1998, and an additional $4,203,000 of residual values subsequent to June 30, 1998 for these assets at the end of the respective lease terms. U-Haul also subsequently entered into one transaction, whereby the Company sold and subsequently leased back computer equipment. Following are the lease commitments for the leases executed during the three months ended June 30, 1998, and subsequently which have a term of more than one year (in thousands): Net activity Year ended Lease subsequent to March 31, Commitments quarter end Total ---------------------------------------------------------- 1999 $ 3,115 2,053 5,168 2000 3,886 2,996 6,882 2001 3,886 2,996 6,882 2002 3,886 2,996 6,882 2003 3,886 2,996 6,882 Thereafter 8,546 6,934 15,480 ------------------------------------ $ 27,205 20,971 48,176 ==================================== In the normal course of business, the Company is a defendant in a number of suits and claims. The Company is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean-up of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving the Company, individually or in the aggregate are expected to result in a material loss. 5. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Quarters ended June 30, ----------------------- 1998 1997 ----------------------- (in thousands) Receivables $ (24,243) (9,049) ====================== Inventories $ (3,599) 2,868 ====================== Accounts payable and accrued liabilities $ (30,210) 6,744 ====================== There were no income taxes paid in cash for the quarters ended June 30, 1998 and 1997. Interest paid in cash amounted to $20,282,000 and $17,395,000 for the quarters ended June 30, 1998 and 1997, respectively.
14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 6. EARNINGS PER SHARE Earnings per share are computed based on the weighted average number of shares outstanding for the year and quarterly periods, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of the Company. Net income is reduced for preferred dividends for purposes of the calculation. The following table reflects the calculation of the earnings per share: Quarters ended June 30, ------------------------ 1998 1997 ------------------------ (in thousands except share and per share data) Earnings from operations $ 31,230 29,198 Less dividends on preferred shares 4,744 5,255 ----------------------- Net earnings for per share calculation $ 26,486 23,943 ======================= Earnings per common share $ 1.21 1.09 ======================= Weighted average common shares outstanding 21,924,749 21,879,156 ======================= 7. RELATED PARTIES During the three months ended June 30, 1998, a subsidiary held various senior and junior notes with SAC Holding corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of the Company. The Company's subsidiary received interest payments of $1,794,000 from SAC Holdings during the quarter. The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The Company received management fees of $520,000 during the three months ended June 30, 1998. The management fee percentage is consistent with the fees received by the Company for other properties managed by the Company. 8. NEW ACCOUNTING STANDARDS On April 1, 1995, the Company implemented Statement of Position 93-7, "Reporting on Advertising Costs", issued by the Accounting Standards Executive Committee in December 1993. This statement of position provides guidance on financial reporting on advertising costs in annual financial statements. The Company is currently reviewing its implementation procedures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. It also provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of (a) the changes in the fair value of hedged asset or liability attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. This statement becomes effective for fiscal periods beginning after June 15, 1999. The Company is evaluating the effect this statement will have on its financial reporting and disclosures and when it will adopt the statement.
15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. NEW ACCOUNTING STANDARDS, continued Other pronouncements issued by the Financial Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO's three industry segments are Moving and Storage Operations, Property and Casualty Insurance and Life Insurance. Moving and Storage Operations is composed of the operations of U-Haul International, Inc., which is engaged in the rental of various kinds of equipment and sales of related products and services and AREC. Property and Casualty Insurance is composed of the operations of Republic Western Insurance Company which operates in various property and casualty lines. Life Insurance is composed of the operations of Oxford Life Insurance Company which operates in various life, accident and health and annuity lines. Information concerning operations by industry segment follows: Moving Property/ Adjustments and Storage Casualty Life and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------ (in thousands) 1998 - ---- Revenues: Outside $ 338,276 30,935 20,127 - 389,338 Intersegment - 29 286 (315) - ---------------------------------------------------------- Total revenue $ 338,276 30,964 20,413 (315) 389,338 Depreciation/ amortization $ 17,755 2,024 3,273 - 23,052 Interest expense, net of interest income of $3,642 $ 15,009 - - - 15,009 Pretax earnings $ 41,368 2,223 3,781 - 47,372 Income tax $ 14,255 625 1,262 - 16,142 Identifiable assets $1,958,341 654,074 706,785 (336,370) 2,982,830 1997 - ---- Revenues: Outside $ 320,513 37,098 10,037 - 367,648 Intersegment - 4,666 294 (4,960) - ---------------------------------------------------------- Total revenue $ 320,513 41,764 10,331 (4,960) 367,648 Depreciation/ amortization $ 21,474 2,650 1,311 - 25,435 Interest expense, net of interest income of $3,478 $ 17,468 - - - 17,468 Pretax earnings $ 37,046 2,051 5,023 - 44,120 Income tax $ 12,768 1,550 604 - 14,922 Identifiable assets $1,933,630 604,540 601,856 (304,290) 2,835,736
16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Geographic Area Data - United States Canada Consolidated --------------------------------------- (All amounts are in U.S. $'s) (in thousands) 1998 - ---- Total revenues $ 379,912 9,426 389,338 Depreciation/amortization $ 22,112 940 23,052 Interest expense, net $ 15,077 (68) 15,009 Income tax $ 16,142 - 16,142 Identifiable assets $ 2,930,942 51,888 2,982,830 1997 - ---- Total revenues $ 338,828 28,820 367,648 Depreciation/amortization $ 22,991 2,444 25,435 Interest expense, net $ 17,579 (111) 17,468 Income tax $ 14,922 - 14,922 Identifiable assets $ 2,785,311 50,425 2,835,736 10. SUBSEQUENT EVENTS On July 13, 1998, the Company declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of August 14, 1998. In July 1998, the Company paid a cash dividend of $232,000 to the Series B preferred stockholder. The Company also redeemed 25,000 shares of its Series B Preferred Stock for $25,000,000 in July, 1998.
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Information on industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 9 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 QUARTER ENDED JUNE 30, 1998 VERSUS QUARTER ENDED JUNE 30, 1997 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenues increased by $16.3 million, 6.1%, to $281.4 million during the first quarter of fiscal 1999. Net revenues from the rental of moving related equipment increased by $15.0 million primarily due to an increase in truck rental revenue. The growth in truck rental revenue reflects higher utilization, increased inventory levels and a slight increase in gross per transaction. Storage revenues increased 6.5% due to increased occupancy of existing rooms and an increase in additional rentable square footage. Net sales revenues were $56.3 million in the first quarter of fiscal 1999, which represents a 1.5% increase as compared to the first quarter of fiscal 1998 net sales of $55.5 million. A 7.0% increase in revenue from the sale of moving support items (i.e. boxes, etc.) led to the improvement during the quarter. Cost of sales was $32.7 million for the first quarter of fiscal 1999, which represents an increase of 6.2% from $30.8 million for the first quarter of fiscal 1998. Higher material costs associated with higher sales of moving support items was the major contributing factor towards the increase. Operating expenses increased to $204.7 million in the first quarter of fiscal 1999 from $191.6 million in the first quarter of fiscal 1998, an increase of $13.1 million. Higher rental equipment maintenance expenditures are due to an increase in fleet size and transaction levels. Equipment maintenance expenditures are within the planned target range for fiscal 1999. Lease expense increased to $27.0 million in the first quarter of fiscal 1999 from $23.0 million in the first quarter of fiscal 1998 reflecting an increase in the number of leased rental vehicles plus a shift towards a higher number of leased rental vehicles versus owned rental vehicles. Net depreciation expense was $17.6 million for the first quarter of fiscal 1999, as compared to $20.6 million during the comparable period of the fiscal 1998. The decrease is primarily related to non-rental equipment and support rental items (SRI). Property and Casualty RWIC gross premium writings for the quarter ended March 31, 1998 were $26.1 million as compared to $33.1 million in the first quarter of 1997. A decrease in premium writings with U-Haul resulted in the rental industry share of total premiums declining to 17.4% for the quarter ending March 31, 1998 from 38.1% in the first quarter 1997. These writings include U-Haul, U-Haul customers and fleetowners as well as other rental industry insureds with similar characteristics. RWIC underwrites professional reinsurance via broker markets and premiums in this area increased during the first quarter of 1998 to 49.7% of total gross premiums, from comparable 1997 figures of 44.5%. RWIC continues its direct multiple peril coverage of various commercial properties and businesses in 1998. These premiums accounted for 19.4% of total gross premiums during first quarter 1998, as compared to 13.3% in 1997. Premiums in selected general agency lines increased to a 13.5% share of written premiums in 1998 as compared to a 4.1% share in 1997. This increase can be attributed to increased writing of excess workers compensation business. Net earned premiums decreased to $22.7 million for the quarter ended March 31, 1998, compared with $34.5 million for the quarter ended March 31, 1997. The premium decrease resulted from the UHaul Liability programs in the rental industry market which decreased $12.6 million from $18.3 million at March 31, 1997. An additional $0.3 million decrease is due to the general agency lines program which consisted of $1.6 million and $1.9 million for
18 the quarter ended March 31, 1998 and March 31, 1997 respectively. Offsetting this decrease was the net earned premiums increase in the direct multiple peril segment to $4.9 million compared to $3.7 million for the quarter ended March 31, 1997. The assumed treaty reinsurance program's writings were consistent with March 31, 1997 at $10.5 million. Net investment income was $8.2 million for the quarter ended March 31, 1998, an increase of 12.3% over 1997 net investment income of $7.3 million. Underwriting expenses incurred were $28.7 million for the quarter ended March 31, 1998, a decrease of $8.0 million, or 21.8% from 1997. The losses and loss adjustment expenses incurred decrease of $9.2 million resulted from the return premium mentioned earlier and corresponds to the decrease in liabilities for unpaid claims due to estimated future losses for current and prior policies on the rental industry and assumed treaty reinsurance programs. Approximately $2.0 million of the increase in net commissions is due to the American Bonding program. At March 31, 1998 the balance no longer includes a $2.0 million allowance for doubtful accounts which was expensed as an audited statutory adjustment in19 96. All other underwriting expenses decreased in the aggregate by $0.8 million. RWIC completed the first quarter of 1998 with income before tax expense of $2.2 million as compared to $5.0 million for the comparable period ended March 31, 1997. This represents a decrease of $2.8 million, or 56.0% over 1997. Decreased net earned premiums for the quarter were the primary cause. Life Insurance Premiums from Oxford's reinsurance lines before intercompany eliminations were $5.5 million for the quarter ended March 31, 1998, an increase of $1.6 million or approximately 41% over 1997 and accounted for 34.3% of Oxford's premiums in 1998. These premiums are primarily from term life insurance and deferred annuity contracts that have matured. Increases in premiums are primarily due to increased annuitizations. Premiums from Oxford's direct lines before intercompany eliminations were $1.8 million for the quarter ended March 31, 1998, a decrease of $0.2 million or 10.0% from the prior year. This decrease in direct premium is primarily attributable to credit life and disability. Oxford's direct business related to group life and disability coverage issued to employees of the Company for the quarter ended March 31, 1998 accounted for approximately 3.8% of premiums. Other direct lines, including credit life and health business, accounted for approximately 7.5% of Oxford's premiums in 1998. Premiums from Oxford's subsidiaries, North American Insurance Company and Safe Mate Life Insurance Company were $8.7 million and accounted for 54.4% of premiums for the quarter ended March 31, 1998. Net investment income before intercompany eliminations was $4.4 million for the quarters ended March 31, 1998 and1997. Benefits and expenses incurred were $17.7 million for the quarter ended March 31, 1998. Oxford's benefits and expenses were $9.9 million, an increase of 10% over 1997. Comparable benefits and expenses incurred for 1997 were $9.0 million. This increase is primarily due to an increase in general expenses and amortization of deferred acquisition costs. Benefits and expenses related to Oxford's subsidiaries were $7.8 million for the quarter ended March 31, 1998. Operating profit before tax and before intercompany elimination increased by $1.7 million or approximately 81.0% in 1998 to $3.8 million, primarily due to the acquisition of North American Insurance Company and Safe Mate Life Insurance Company. Interest Expense Net interest expense declined to $15.0 million for the first quarter of fiscal 1999, as compared to $17.5 million for the first quarter of fiscal 1998. The decrease can be attributed to a reduction in the average cost of debt due to the Company's debt restructuring completed in fiscal 1998's second and third quarters. Consolidated Group As a result of the foregoing, pretax earnings of $47.4 million were realized in the first quarter of fiscal l999, as compared to $44.1 million for the first quarter of fiscal 1998. After providing for income taxes, net earnings for the first quarter of fiscal 1999 were $31.2 million, as compared to $29.2 million for the first quarter of fiscal 1998.
19 QUARTERLY RESULTS The following table presents unaudited quarterly results for the nine quarters in the period beginning April 1, 1996 and ending June 30, 1998. The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements incorporated herein by reference. The Company's U-Haul rental operations are seasonal and proportionally more of the Company's revenues and net earnings from its U-Haul rental operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period (in thousands except for per share data). Quarter Ended ------------- Jun 30 1998 ------------- Total revenues $ 389,338 Net earnings 31,230 Weighted average common shares outstanding (4) 21,924,749 Net earnings per common share (both basic and diluted) (1) 1.21 Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1997 1997 1997 1998 ---------------------------------------------- Total revenues $ 372,021 416,771 322,543 298,607 Earnings from operations before extraordinary loss on early extinguishment of debt (6) (7) 29,198 39,032 (5,390) (14,184) Net earnings (loss) (3) (6) (7) 29,198 34,894 (15,236) (13,872) Weighted average common shares outstanding (4) 21,879,156 21,890,072 21,901,521 21,913,654 Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (2) (6) (7) 1.09 1.54 (0.49) (0.85) Net earnings (loss) per common share (both basic and diluted) (1) (2) (4) (6) (7) 1.09 1.35 (0.94) (0.84) Quarter Ended ---------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1996 1996 1996 1997 ---------------------------------------------- Total revenues $ 361,053 398,449 316,892 283,381 Earnings from operations before extraordinary loss on early extinguishment of debt (5) 40,005 39,741 (9,538) (16,024) Net earnings (loss) (5) 40,005 37,737 (9,853) (16,024) Weighted average common shares outstanding (4) 32,015,301 27,675,192 20,359,873 21,868,241 Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (1) (4) (5) 1.15 1.29 (0.72) (0.97) Net earnings (loss) per common share (both basic and diluted) (1) (4) (5) 1.15 1.22 (0.74) (0.97)
20 _______________ (1) Net earnings (loss) per common share amounts were computed after giving effect to the dividends on the Company's Preferred Stock. (2) Reflects the adoption of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" during the fourth quarter of fiscal 1998. (3) Reflects the change in estimated residual values during the fourth quarter of fiscal 1998. (4) Reflects the acquisition of treasury shares acquired pursuant to the Shoen Litigation as discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Stockholder Litigation" of the Company's Form 10-K for the year ended March 31, 1998. (5) During second quarter of fiscal 1997, the Company extinguished $76.3 million of debt and $86.2 million of its long-term notes originally due in fiscal 1997 through fiscal 1999. This resulted in an extraordinary loss of $2.3 million, net of tax of $1.4 million ($0.09 per share). (6) During the second quarter of fiscal 1998, the Company extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal 1999 through fiscal 2002. This resulted in an extraordinary loss of $4.0 million, net of tax of $2.4 million ($0.18 per share). (7) During the third quarter of fiscal 1998, the Company extinguished $255.0 million of 6.43% to 8.13% interest-bearing notes originally due in fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss of $9.7 million, net of tax of $5.6 million ($0.44 per share).
21 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 June 30, 1998, net property, plant and equipment represented approximately 66.9% of total U-Haul assets and approximately 43.9% of consolidated assets. In the first quarter of fiscal 1998, capital expenditures were $97.4 million, as compared to $210.4 million in the first quarter of fiscal 1998, reflecting expansion of the rental truck fleet and real property acquisitions. These acquisitions were funded with internally generated funds from operations, debt and lease financings. Cash flows provided by operating activities were $31.4 million in the first quarter of fiscal 1999, as compared to $67.5 million in the first quarter of fiscal 1998. The decrease results from an increase in receivables and a decrease in accounts payable and accrued expenses. Property and Casualty Cash flows provided (used) by operating activities were $(13.1) million and $1.5 million for the quarters ended March 31, 1998 and March 31, 1997, respectively. The change resulted mainly from increases in due from affiliates, paid losses recoverable and decreased loss and expense reserves and a smaller unearned premium decrease compared to the quarter ended March 31, 1997. Offsetting this cash decrease was a decrease in accounts receivable and an increase in other liabilities. RWIC's cash and cash equivalents and short-term investment portfolio were $5.3 million and $6.2 million at March 31, 1998 and March 31, 1997, respectively. This balance reflects funds in transition from maturity proceeds to long- term investments. This level of liquid assets, combined with budgeted cash flow, is adequate to meet periodic needs. Capital and operating budgets allow RWIC to schedule cash needs in accordance with investment and underwriting proceeds. RWIC maintains a diversified securities investment portfolio, primarily in bonds at varying maturity levels with 94.7% 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 98.8% of total liabilities. Stockholder's equity increased $3.8 million from $193.0 million at March 31, 1997 to $196.8 at March 31, 1998. RWIC considers current shareholder's equity to be adequate to support future growth and absorb unforeseen risk events. RWIC does not use debt or equity issues to increase capital and therefore has no exposure to capital market conditions. Life Insurance Oxford's primary sources of cash are premiums, 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 $3.7 million and $11.0 million for the quarters ended March 31, 1998 and 1997, respectively. Cash flows provided (used) by financing activities were $2.8 million and $(9.3) million for the quarters ended March 31, 1998 and 1997, respectively. Cash flows from deferred annuity sales increase investment contract deposits which are a component of financing activities, as well as the purchase of fixed maturities, which are a component of investing activities. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. At March 31, 1998 and 1997, short-term investments amounted to $21.8 million and $6.5 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford increased to $87.5 million in 1998 from $73.7 million in 1997 primarily as a result of earnings from operations.
22 Applicable laws and regulations of the State of Arizona require the Company's insurance subsidiaries to maintain minimum capital and surplus determined in accordance with statutory accounting practices. With respect to Oxford, the amount is $0.4 million. In addition, the amount of dividends that can be paid to shareholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends without regulatory approval was $4.6 million during the quarter ended March 31, 1998. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. Consolidated Group During each of the fiscal years ending March 31, 1999, 2000 and 2001, U-Haul estimates gross capital expenditures will average approximately $325 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with an average of approximately $30-$115 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $325-375 million. Management estimates that U-Haul will fund 100% of these requirements with internally generated funds, including proceeds from the disposition of older trucks and other asset sales. Credit Agreements The Company's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes and revolving lines of credit with domestic and foreign banks. Principally to finance its fleet of trucks and trailers, the Company routinely enters into sale and leaseback transactions. As of June 30, 1998, the Company had $1,062.5 million in total notes and loans payable outstanding, as compared with $1,025.3 million at March 31, 1998, and $1,035.3 million at June 30, 1997. Unutilized committed lines of credit are $175.0 million at June 30, 1998. Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At June 30, 1998, the Company was in compliance with these covenants. The Company is further restricted in the issuance of certain types of preferred stock. The Company is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment or mandatory prepayment, or that allow the holders thereof to require the Company or a subsidiary of the Company to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. Year 2000 Disclosure The Company is and has been working since 1997 to identify and evaluate the changes necessary to its existing computerized business systems to make these systems compliant for Year 2000 processing. The Year 2000 processing problem is caused by currently installed computer systems and software products, including several used by the Company, being coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. The Company's date critical functions related to the Year 2000 and beyond, such as rental transaction processing and financial systems, may be adversely affected unless these computer systems are or become Year 2000 compliant. The Company has been replacing, upgrading or modifying key financial systems in the normal course of business. The Company is utilizing both internal and external resources to identify, correct, reprogram and test its systems for Year 2000 compliance. The Company has completed the assessment phase and has started the conversion and testing phase. In particular, the Company has an outside consulting firm on-site currently making the necessary modifications to existing systems. The Company is also reviewing its non-information technology items for Year 2000 compliance, such as rental vehicles, storage facilities security systems and manufacturing functions. The Company expects to be fully Year 2000 compliant by March 1999 at an estimated cost of approximately $2.0 million, of which $0.6 million has been incurred through June 30, 1998. Although the Company believes it will achieve compliance on a timely basis and does not anticipate incurring material costs beyond the estimated $2.0 million, no assurance can be given that the Company's computer systems will be Year 2000 compliant by March 1999 or
23 otherwise in a timely manner or that the Company will not incur significant additional costs pursuing Year 2000 compliance. If the appropriate modifications are not made, or are not timely, the Year 2000 problem may have a material adverse effect on the Company. Furthermore, even if the Company's systems will be Year 2000 compliant, there can be no assurance the Company will not be adversely affected by the failure of others to become Year 2000 compliant. For example, the Company may be affected by, among other things, the failure of inventory suppliers, credit card processors, security companies or other vendors and service providers to become Year 2000 compliant. The Company has started communication with its major third party business partners to determine the efforts being made on their part for compliance. The Company is in the process of developing a contingency plan to be used, if in the worst case scenario, a third party is not Year 2000 compliant. In an effort to evaluate and reduce its exposure in this area, the Company has ongoing communication with its vendors and other service providers about their progress in identifying and addressing problems to ensure that their computer systems will be Year 2000 compliant. However, despite the Company's efforts to date, there can be no assurance that the Year 2000 problem will not have a material adverse effect on the Company in the future. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION. On July 13, 1998, the Board of Directors of AMERCO (the "Company") declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of Common Stock, par value $0.25 per share, and Serial Common Stock, par value $0.25 per share, of the Company (collectively, the "Common Stock"). The dividend distribution is payable on August 17, 1998 (the "Record Date") to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one onehundredth of a share of Series C Junior Participating Preferred Stock, no par value per share (the "Preferred Stock") of the Company at a price of $132.00 per one one-hundredth of a share of Preferred Stock (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated as of August 7, 1998, as the same may be amended from time to time (the "Rights Agreement"), between the Company and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent (the "Rights Agent"). Until the earlier to occur of (i) the close of business on the tenth business day following the date of public announcement or the date on which the Company first has notice or determines that a person or group of affiliated or associated persons (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company, or certain "grandfathered persons" described below) (an "Acquiring Person") has acquired, or obtained the right to acquire, 10% or more of the outstanding shares of voting stock of the Company without the prior express written consent of the Company executed on behalf of the Company by a duly authorized officer of the Company following express approval by action of at least a majority of the members of the Board of Directors then in office (the "Stock Acquisition Date") or (ii) the close of business on the tenth business day (or such later date as may be determined by action of the Board of Directors but not later than the Stock Acquisition Date) following the commencement of a tender offer or exchange offer, without the prior written consent of the Company, by a person (other than the Company, any subsidiary of the Company or an employee benefit plan of the Company) which, upon consummation, would result in such party's control of 10% or more of the Company's voting stock (the earlier of the dates in clause (i) or (ii) above being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificates. A "grandfathered person" is a person who, as of August 7, 1998, together with all affiliates and associates, was the beneficial owner of more than 10% of the outstanding shares of voting stock of the Company; provided, that such person together with all affiliates and associates does not increase its or their percentage ownership of the outstanding shares of voting stock of the Company by more than one (1) percentage point without the prior express written consent of the Company. The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the Company's Common Stock. Until the Distribution Date (or earlier redemption, exchange or expiration of the Rights), new Common Stock certificates issued after the Record Date upon transfer or new issuances of Common Stock will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption, exchange or expiration of the Rights), the surrender for transfer of any certificates for shares of Common Stock outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights, will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders
24 of record of the Common Stock as of the close of business on the Distribution Date and such separate certificates alone will then evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire, if not previously exercised, on August 7, 2008 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company. The Purchase Price payable, and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights and the number of one onehundredths of a share of Preferred Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the Common Stock or a stock dividend on the Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of the Common Stock occurring, in any such case, prior to the Distribution Date. Shares of Preferred Stock purchasable upon exercise of the Rights will not be redeemable and junior to any other series of preferred stock the Company may issue (unless otherwise provided in the terms of such stock). Each share of Preferred Stock will have a preferential dividend in an amount equal to 100 times any dividend declared on each share of Common Stock. In the event of liquidation, the holders of the Preferred Stock will receive a preferred liquidation payment of equal to the greater of $100 and 100 times the payment made per share of Common Stock. Each share of Preferred Stock will have 100 votes, voting together with the Common Stock. In the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 100 times the amount and type of consideration received per share of Common Stock. The rights of the Preferred Stock as to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions. Because of the nature of the Preferred Stock's dividend, liquidation and voting rights, the value of the one one-hundredth interest in a share of Preferred Stock purchasable upon exercise of each Right should approximate the value of one share of Common Stock. If any person or group (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or certain grandfathered persons) acquires 10% or more of the Company's outstanding voting stock without the prior written consent of the Board of Directors, each Right, except those held by such persons, would entitle each holder of a Right to acquire such number of shares of the Company's Common Stock as shall equal the result obtained by multiplying the then current Purchase Price by the number of one one-hundredths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by 50% of the then current per-share market price of Company Common Stock. If any person or group (other than the Company, any subsidiary of the Company or any employee benefit plan of the Company or certain grandfathered persons) acquires more than 10% but less than 50% of the outstanding Company Common Stock without prior written consent of the Board of Directors, each Right, except those held by such persons, may be exchanged by the Board of Directors for one share of Company Common Stock. If the Company were acquired in a merger or other business combination transaction where the Company is not the surviving corporation or where Company Common Stock is exchanged or changed or 50% or more of the Company's assets or earnings power is sold in one or several transactions without the prior written consent of the Board of Directors, each Right would entitle the holders thereof (except for the Acquiring Person) to receive such number of shares of the acquiring company's common stock as shall be equal to the result obtained by multiplying the then current Purchase Price by the number one one-hundredths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by 50% of the then current market price per share of the common stock of the acquiring company on the date of such merger or other business combination transaction.
25 With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares of Preferred Stock will be issued (other than fractions which are integral multiples of one one- hundredth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading day prior to the date of exercise. At any time prior to the time an Acquiring Person becomes such, the Board of directors may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, except that from and after such time as any person or group of affiliated or associated persons becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The form of Rights Agreement between the Company and the Rights Agent specifying the terms of the Rights, which includes as Exhibit B thereto the form of Right Certificate, is attached hereto as Exhibit 4 and is incorporated herein by reference. The foregoing description of the Rights does not purport to be complete and is qualified in its entirety by reference to the form of Rights Agreement (and the exhibits thereto) attached hereto. 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 Rights Agreement, dated as of August 7, 1998 between AMERCO and ChaseMellon Shareholders Services, L.L.C., as Rights Agent, which includes the form of Certificate of Designations, setting forth the terms of the Series C Junior Participating Preferred Stock no par value as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Preferred Stock Purchase Rights as Exhibit C. Pursuant to the Rights Agreement, printed Right Certificates will not be mailed until as soon as practicable after the earlier of the tenth day after public announcement that a person or group (except for certain exempted person or groups) has acquired beneficial ownership of 10% or more of the outstanding shares of Common Stock of the tenth business day (or such later date as may be determined by action of the Board of Directors) after a person commences, or announces its intention to commence, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group 10% or more of the outstanding shares of Common Stock. 27 Financial Data Schedule 99 Press release dated August 7, 1998 b. Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended June 30, 1998. _____________________________________ (1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 0-7862. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, file no. 0-7862.
26 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: August 7, 1998 By: /S/ GARY B. HORTON ___________________________________ Gary B. Horton, Treasurer (Principal Financial Officer)