ITEM 1. BUSINESS
A. THE COMPANY
AMERCO, a Nevada corporation (AMERCO or 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). Throughout this Form 10-K, unless the context otherwise requires, the term "Company" includes all of the Company's subsidiaries. The Company's principal executive offices are located at 1325 Airmotive Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number of the Company is (702) 688-6300. As used in this Form 10-K, all references to a fiscal year refer to the Company's fiscal year ended March 31 of that year. RWIC and Oxford have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1996, 1995 and 1994 correspond to the Company's fiscal years 1997, 1996 and 1995, respectively. See Note 20 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the Company's three primary industry segments, which are represented by Moving and Storage Operations (U-Haul and AREC), Property/Casualty (Republic Western Insurance Company) and Life Insurance (Oxford Life Insurance Company).
Moving and Storage Operations Moving and self-storage operations consist of the rental of trucks, automobile-type trailers and self-storage space to the do- it-yourself mover under the registered tradename U-Haul throughout the United States and Canada.
AREC owns the majority of the Company's real estate assets, including the Company's U-Haul Center and Storage locations.
Property/Casualty RWIC originates and reinsures property and casualty-type insurance products for various market participants, including independent third parties, the Company's customers and the Company.
Life Insurance Oxford originates and reinsures life, health and annuity-type insurance products and administers the Company's self-insured employee health and dental plans.
B. HISTORY
The Company was founded in 1945 under the name "U-Haul Trailer Rental Company". From 1945 to 1974, the Company rented trailers and, starting in 1959, trucks on a one-way and "In-Town" basis through independent dealers. Since 1974, the Company has developed a network of Company-owned rental centers (U-Haul Centers) through which U-Haul rents its trucks and trailers and provides related products and services (e.g., the sale and installation of hitches, as well as boxes and moving supplies). At March 31, 1997, the Company's distribution network included 1,100 U-Haul Centers and 14,200 independent dealers.
C. MOVING AND STORAGE OPERATIONS
Business Strategies The Company's present business strategy remains focused on do- it-yourself moving and self-storage customers. The Company believes that customer access, in terms of truck or trailer availability and proximity of rental locations, is critical to its success. Under the U-Haul name, this strategy is to offer, in an integrated manner over an extensive and geographically diverse network of over 15,000 Company-owned Centers and independent dealers, a wide range of products and services to do-it-yourself moving and self-storage customers.
Moving Operations U-Haul has a variety of product offerings. Rental trucks have been designed with do-it-yourself customers in mind, and include features such as Low Decks, air conditioning, power steering, automatic transmissions, Gentle-Ride Suspensions, AM/FM cassette stereo systems and over-the-cab storage. Aerodynamically designed U-Haul trailers are suited to the low profile of many newly manufactured automobiles. As of March 31, 1997, the U-Haul rental equipment fleet consisted of 86,000 trucks, 85,000 trailers and 15,000 tow dollies.
Additionally, the Company provides support rental items such as furniture pads, hand trucks, Appliance Dollies, Utility Dollies, mirrors, tow bars, tow dollies and bumper hitches. The Company also sells boxes, tape and packaging materials, and rents additional items such as floor polishers and carpet cleaning equipment at its U-Haul Center locations. U-Haul Centers also sell and install hitches and towing systems, and propane.
U-Haul offers protection packages such as (i) "Safemove", which provides moving customers with a damage waiver, cargo protection and medical and life coverage and (ii) "Safestor", which provides self-storage rental customers with various insurance coverages.
Independent dealers receive U-Haul equipment on a consignment basis and are paid a commission on gross revenues generated from their rentals. The Company maintains contracts with its independent dealers that can typically be canceled upon 30 days written notice by either party.
A high percentage of the Company's rental revenue is derived from do-it-yourself movers. Moving rentals include: (i) "In-Town" rentals, where the equipment is returned to the originating U-Haul location and (ii) one-way rentals, where the equipment is returned to a U-Haul location in another city.
The U-Haul truck and trailer rental business tends to be seasonal, with proportionally more transactions and revenues generated in the spring and summer months than during the balance of the year.
The Company designs and manufactures its truck van boxes, trailers and various other support rental equipment items. The Company's equipment is designed to achieve high safety standards, simplicity of operation, reliability, convenience, durability and fuel economy. Truck chassis are manufactured by both foreign and domestic truck manufacturers. These chassis receive certain post- delivery modifications and are joined with van boxes at seven Company-owned manufacturing and assembly facilities in the United States.
The Company services and maintains its trucks and trailers through an extensive preventive-maintenance program, generally performed at Company-owned facilities located at or near U-Haul Centers. Major repairs are performed either by the chassis manufacturers' dealers or by Company-owned repair shops and take advantage of manufacturers' warranties.
Self-Storage Business U-Haul entered the self-storage business in 1974 and since then has increased the rentable square footage of its storage locations through the acquisition of existing facilities and new construction. In addition, the Company has entered into management agreements to manage self-storage properties owned by others. The Company also provides financing and management services for independent self-storage businesses.
Through over 800 Company-owned or managed storage locations in the United States and Canada, the Company offers for rent more than 19.7 million square feet of self-storage space. The Company's self- storage facility locations range in size up to 149,000 square feet of storage space, with individual storage spaces in sizes from 16 square feet to 400 square feet or larger.
The primary market for storage rooms is the storage of household goods. With the addition of over 14,000 storage rooms during fiscal 1997, average occupancy rates were in the mid 80% range, with modest seasonal variation. During fiscal 1997 and fiscal 1996, delinquent rentals as a percentage of total storage rentals were approximately 6% in each year. The Company considers this rate to be satisfactory.
Competition The do-it-yourself moving truck and trailer rental market is highly competitive and dominated by national operators in both the "In-Town" and one-way markets. Two competitors, Ryder and Budget Rent-A-Car, were sold during the past year and are under new management. Management believes that there are two distinct users of rental trucks: commercial users and do-it-yourself users. As noted above, the Company focuses on the do-it-yourself mover. The Company believes that the principal competitive factors are convenience of rental locations, availability of quality rental equipment and price.
The self-storage industry is highly competitive. The top three national firms, including the Company, Public Storage and Shurgard, account for only 11% of total industry square footage. Efficient management of occupancy and delinquency rates, as well as price and convenience, are key competitive factors.
Employees For the period ended March 31, 1997, the Company's non- seasonal work force consisted of 14,400 employees.
Amerco Real Estate Operations AREC has responsibility for actively marketing properties available for sale or lease. AREC is also responsible for managing any environmental risks associated with the Company's real estate.
Environmental Matters The environment is protected by many federal, state and local laws. Environmental laws impact the way the Company stores and disposes of various petroleum products (including gasoline, fuel oil and waste oil), tires, batteries and other materials used in the rental, maintenance and manufacturing of its rental fleets. Since fiscal 1990, the Company has incurred environmental-related expenditures of approximately $31.5 million primarily for removal and disposal fees and remediation of over 2,600 underground storage tanks. There are approximately 400 underground storage tanks remaining.
The Company has been named as a "potentially responsible party" with respect to disposal of hazardous waste at 16 federal and one state superfund sites located in 13 states. The Company has entered into settlements for 15 of the sites for de minimus amounts. One of these sites has been disputed by the Company with no response for over five years.
A subsidiary of U-Haul owns one property located within two different state hazardous waste sites in the State of Washington. The property is located in Yakima, Washington and is believed to contain elevated levels of pesticide and other contaminant residue as a result of onsite operations conducted by one or more former owners. The State of Washington has designated the property as a state hazardous waste site known as the "Yakima Valley Spray Site". The subsidiary, U-Haul Co. of Inland Northwest (Inland Northwest), has been named by the State of Washington as a "potentially liable party" (PLP) under state law with respect to this site, along with approximately 100 other companies and individuals. Inland Northwest, together with eight other companies and persons, has formed a committee that has retained an environmental consultant. The process of site assessment on the Yakima Valley Spray Site is ongoing and, based upon the information currently available to Inland Northwest regarding the volume and nature of wastes present, Inland Northwest is unable to reasonably assess the potential investigation and cleanup costs, but the costs could be substantial. Although Inland Northwest has entered into an agreement with such other companies and persons under which Inland Northwest has assumed responsibility for 20% of the costs to investigate the site, no agreement among the parties with respect to cleanup costs has been entered into at the date hereof. In addition, Inland Northwest has been named by the State of Washington as a PLP along with 300 other PLPs with respect to another state-listed hazardous waste site known as the "Yakima Railroad Site". The Yakima Valley Spray Site is located within the Yakima Railroad Site. Inland Northwest has been notified that the Yakima Railroad Site involves potential groundwater contamination in an area of approximately two square miles. Inland Northwest has contested its designation as a PLP at this site, but, at the date hereof, no formal ruling has been issued in this matter.
In February 1992, the State of Washington issued an enforcement order to Inland Northwest and eight other parties requiring an interim remedial action and the provision of bottled water to households that obtain drinking water from wells within the Yakima Railroad Site. Without conceding any liability, Inland Northwest and several of the other PLPs have implemented the bottled water program. Over the past four years, Inland Northwest has incurred an average annual expense of $720 for the bottled water program. The State of Washington has stated its intention to expand the existing municipal water system to supply municipal water to those households currently receiving bottled water, and it is estimated that the cost thereof will be approximately $6 million, with such cost being allocated among the 300 PLPs.
In addition, there will be costs associated with remedial measures to address the regional groundwater contamination issue. The process of site assessment on the Yakima Railroad Site is ongoing and, based upon the information currently available to Inland Northwest regarding the volume and nature of wastes present, Inland Northwest is unable to reasonably assess the potential investigation and clean-up costs, but the costs could be substantial. Moreover, the investigative and remedial costs incurred by the State can be imposed upon Inland Northwest and any other PLP as a joint and several liability. At the date of this report, other than the indication of the expansion of the municipal water system, there has been no formal indication from the State of Washington of its intentions regarding future cost recoveries at the Yakima Railroad Site.
Based upon the information currently available to the Company, compliance with the environmental laws and its share of investigation and cleanup costs of the hazardous waste sites, the Company is not expecting to incur losses with respect to the sites that would have a material adverse effect on the Company's financial position or operating results.
D. INSURANCE OPERATIONS
Business Strategies RWIC's principal business strategy is to capitalize on its knowledge of insurance products aimed at the moving and rental markets. RWIC believes that providing U-Haul and U-Haul customers insurance coverage has enabled it to develop expertise in the areas of rental vehicle lessee insurance coverage, self-storage property coverage and general rental equipment coverage. RWIC plans to continue to use this knowledge to expand its customer base by offering similar products to insureds other than U-Haul and its customers. In addition, RWIC continues to expand its involvement in specialized areas by offering commercial multi-peril and excess workers' compensation coverages.
Oxford's business strategy emphasizes long-term capital growth funded through earnings from direct writing, reinsurance and investment activities. In the past, Oxford has selectively reinsured life, health and annuity-type insurance products. Oxford will pursue its growth strategy by originating life, annuity and health insurance products via agent and direct distribution channels. Oxford will also be providing reinsurance facilities to well-managed insurance or reinsurance companies which offer similar products and are in need of additional capital either as a result of rapid growth or regulatory demands, or are interested in divesting non-core business lines. Property and Casualty RWIC's underwriting activities consist of three basic areas: U-Haul and U-Haul-affiliated underwriting, direct underwriting and assumed reinsurance underwriting. U-Haul underwritings include coverage for U-Haul and U-Haul employees and U-Haul-affiliated underwritings consist primarily of coverage for U-Haul customers. For the year ended December 31, 1996, approximately 38.5% of RWIC's written premiums resulted from U-Haul and U-Haul-affiliated underwriting activities. RWIC's direct underwriting is done through underwriters and selected general agents. The products provided include liability coverage for rental vehicle lessees, storage rental properties and coverage for commercial multiple peril and excess workers' compensation. RWIC's assumed reinsurance underwriting is done via broker markets.
RWIC's liability for unpaid losses is based on estimates of the ultimate cost of settling claims reported prior to the end of the accounting period, estimates of reinsurers and estimates of incurred but unreported losses which are based on RWIC's experience and insurance industry historical experience. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid.
The liabilities are estimates of the amount necessary to settle all claims as of the date of the stated reserves and all incurred but not reported claims. RWIC updates the reserves as additional facts regarding claims become available. In addition, court decisions, economic conditions and public attitudes impact the estimation of reserves and also the ultimate cost of claims. In estimating reserves, no attempt is made to isolate inflation from the combined effect of numerous factors including inflation. Unpaid losses and unpaid loss expenses are not discounted.
RWIC's unpaid loss and loss expenses are certified annually by an independent actuarial consulting firm as required by state regulation.
Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows:
1996 1995 1994 --------------------------- (in thousands) Balance at January 1 $ 341,981 329,741 314,482 Less reinsurance recoverable 73,873 74,663 76,111 --------------------------- Net balance at January 1 268,108 255,078 238,371
Incurred related to: Current year 112,394 114,110 102,782 Prior years 11,527 8,292 6,576 --------------------------- Total incurred 123,921 122,402 109,358
Paid related to: Current year 30,633 22,576 22,269 Prior years 89,041 86,796 70,382 --------------------------- Total paid 119,674 109,372 92,651
Net balance at December 31 272,355 268,108 255,078 Plus reinsurance recoverable 60,319 73,873 74,663 --------------------------- Balance at December 31 $ 332,674 341,981 329,741 ===========================
As a result of changes in estimates of insured events in prior years, the provision for unpaid loss and loss adjustment expenses (net of reinsurance recoveries of $23.4 million) increased by $11.5 million in 1996 due to higher than anticipated losses and related expenses for claims associated with assumed reinsurance and certain retrospectively rated policies.
The table on page 10 illustrates the change in unpaid loss and loss adjustment expenses. The first line shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to that reserve. The third section, reading down, shows revised estimates of the original recorded reserve as of the end of successive years. The last section compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be summed.
The operating results of the property and casualty insurance industry, including RWIC, are subject to significant fluctuations due to numerous factors, including premium rate competition, catastrophic and unpredictable events (including man-made and natural disasters), general economic and social conditions, interest rates, investment returns, changes in tax laws, regulatory developments and the ability to accurately estimate liabilities for unpaid losses and loss adjustment expenses.
Life Insurance Oxford underwrites life, health and annuity insurance, both as a direct writer and as an assuming reinsurer. Oxford's direct writings are primarily related to the underwriting of credit life and credit accident and health business, which accounted for 18.7% of Oxford's premium revenues for the year ended December 31, 1996. Oxford's other direct lines are related to group life and disability coverage issued to employees of the Company. For the year ended December 31, 1996, approximately 7.9% of Oxford's premium revenues resulted from business with the Company. In addition, direct premium revenue includes individual life insurance acquired from other insurers. Oxford administers the Company's self-insured group health and dental plans.
Oxford's reinsurance assumed lines, which accounted for approximately 73.0% of Oxford's premium revenues for the year ended December 31, 1996, include individual life insurance coverage, annuity coverages, excess loss health insurance coverage, credit life and credit accident and health. These reinsurance arrangements are entered into with unaffiliated insurers.
Investments RWIC's and Oxford's investments must comply with the insurance laws of the State of Arizona, where the companies are domiciled. These laws prescribe the type, quality and concentration of investments that may be made. Moreover, in order to be considered an acceptable reinsurer by cedents and intermediaries, a reinsurer must offer financial security. The quality and liquidity of invested assets are important considerations in determining such security.
The investment philosophies of RWIC and Oxford emphasize protection of principal through the purchase of investment grade fixed-income securities. Approximately 97% of both RWIC's and Oxford's fixed-income securities consist of investment grade securities. The maturity distributions are designed to provide sufficient liquidity to meet future cash needs.
Reinsurance The Company's insurance operations assume and cede insurance from and to other insurers and members of various reinsurance pools and associations. Reinsurance arrangements are utilized to provide greater diversification of risk and to minimize exposure on large risks. However, the original insurer remains liable should the assuming insurer not be able to meet its obligations under the reinsurance agreements.
Regulation RWIC and Oxford are subject to comprehensive regulation throughout the United States. The regulation extends to such matters as licensing companies and agents, restricting the types or quality of investments, regulating capital and surplus and actuarial reserve maintenance, setting solvency standards, filing of annual and other reports on financial position, and regulating trade practices. State laws also regulate transactions and dividends between an insurance company and its parent or affiliates, and generally require prior approval or notification for any change in control of the insurance subsidiary.
In the past few years, the insurance and reinsurance regulatory framework has been subjected to increased scrutiny by the National Association of Insurance Commissioners (the NAIC), state legislatures, insurance regulators and the United States Congress. These regulators are considering increased regulations, with an emphasis on insurance company investment and solvency issues. It is not possible to predict the future impact of changing state and federal regulation on the operations of RWIC and Oxford. RWIC and Oxford have adopted the NAIC minimum risk-based capitalization requirements for insurance companies. As of December 31, 1996, RWIC and Oxford are in compliance with these requirements.
Competition The highly competitive insurance industry includes a large number of property and casualty insurance companies and life insurance companies. Many competitors have been in business for a longer period of time or possess substantially greater financial resources. Competition in the insurance business is based upon price, product design and services rendered to producers and policyholders.
ITEM 2.
ITEM 2. PROPERTIES
The Company and its subsidiaries own property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and that provide offices for the Company. Such facilities exist throughout the United States and Canada. The majority of land and buildings used by U-Haul is owned in fee and is substantially unencumbered, also U-Haul manages storage facilities owned by others. In addition, U-Haul owns certain real estate not currently used in its operations. U-Haul operates 1,100 U-Haul Centers (including Company-owned storage locations), manages 145 storage centers and operates 12 manufacturing and assembly facilities. The Company also operates 80 repair facilities located at or near a U-Haul Center.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
See Note 14 of Notes to Consolidated Financial Statements in Item 8 for disclosure of the action in the Superior Court of the State of Arizona, Maricopa County, entitled Samuel W. Shoen, M.D., et al. v. Edward J. Shoen, ------------------------------------------------- et al., No. CV88-20139, instituted August 2, 1988 and the resulting - ------- bankruptcy proceedings (the "Shoen Litigation").
On September 7, 1995, Paul F. Shoen, major stockholder of the Company and a director, filed a complaint in the Ninth Judicial District Court of the State of Nevada, Douglas County, entitled Paul F. Shoen v. AMERCO, Case ----------------------- No. 95-CV-0227. The complaint alleges that by failing to advance his expenses, including attorneys' fees and other charges, incurred by him in the Shoen Litigation and the subsequent bankruptcy proceedings, the Company breached his indemnification agreement with the Company. Mr. Shoen alleges that the Company has caused damages of no less than $297,183 as of September 7, 1995, and seeks additional amounts to be alleged at trial. The Company has denied the allegations and believes it has valid defenses against his claims. Paul F. Shoen filed a motion for partial summary judgment on November 15, 1995, and the Company filed an opposition and cross-motion for partial summary judgment on December 11, 1995. This matter was heard on November 12, 1996, and both motions were denied.
Sophia M. Shoen, a major stockholder of the Company, has reached a tentative agreement with the Company, which is subject to execution of definitive agreements, resolving a lawsuit in the Second Judicial District Court of the State of Nevada, Case No. CV96-01628 arising out of an arbitration proceeding entitled JAMS-ENDISPUTE Link No. 940517195. In the -------------- arbitration proceeding, Sophia Shoen alleged that the Company breached her Share Repurchase and Registration Rights Agreement, dated as of May 1, 1992 (the Rights Agreement), with the Company by failing to timely register the sale of her shares of Common Stock which were sold to the public in November 1994. If the tentative agreement if consummated, (i) the Company will pay Sophia M. Shoen $1.25 million, (ii) the Rights Agreement will be terminated, (iii) Sophia M. Shoen will release the Company and others from any liability relating to the foregoing proceedings and the Rights Agreement, (iv) the Company will release Sophia M. Shoen and others from any liability relating to the foregoing proceedings and the Rights Agreement and (v) the shares of Common Stock held by Sophia M. Shoen will be released from a stockholder agreement covering approximately 70% of the Company's Common Stock. No assurance can be given that definitive agreements will be executed or that this tentative agreement will be consummated.
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 the suits, claims, or proceedings involving the Company, individually or in the aggregate, are expected to result in a material loss. See "Item 1. Business - Environmental Matters." ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 17, 1997, the Company held its Combined Annual Meeting of Stockholders. Prior to the meeting, the Company had not held annual meetings of stockholders for 1994, 1995 or 1996. The 1994 Annual Meeting of Stockholders was delayed as a result of litigation initiated by Paul F. Shoen in July 1994. The 1994 Annual Meeting as well as the 1995 and 1996 Annual Meetings were subsequently delayed by court order in connection with certain litigation involving the Shoen family relating to control of the Company. As of October 1, 1996, the Company was no longer subject to any restriction on its ability to hold annual meetings of stockholders.
At the Combined Annual Meeting of Stockholders, Aubrey K. Johnson and Paul F. Shoen were elected to serve until the 1998 Annual Meeting of Stockholders; William E. Carty and Charles J. Bayer were elected to serve until the 1999 Annual Meeting of Stockholders; and Mark V. Shoen and Edward J. Shoen were elected to serve until the 2000 Annual Meeting of Stockholders. John M. Dodds and James P. Shoen continue as directors, with terms expiring at the 1997 Annual Meeting of Stockholders.
The following table sets forth the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes with respect to each matter voted on at the Combined Annual Meeting of Stockholders:
Matters Submitted Votes Votes Votes Abstentions Broker To a Vote Cast Cast Withheld Non- For Against Votes ===============================================================================
1. Election of Directors Aubrey K. Johnson 19,750,812 45,032 - - - Paul F. Shoen 19,590,162 118,054 - - - William E. Carty 19,759,375 45,032 - - - Charles J. Bayer 19,758,697 44,782 - - - Mark V. Shoen 19,743,851 45,683 - - - Edward J. Shoen 19,751,564 45,683 - - -
2. Proposal to Amend the Restated Articles of Incorporation of the Company 18,875,086 245,934 - 55,289 -
3. Proposal to ratify the decision of the Board of Directors to apply the U-Haul Drug Screening Program to members of the Board of Directors (advisory vote only) 18,314,727 743,517 - 96,618 -
Subsequent to the Combined Annual Meeting of Stockholders, on February 4, 1997, Mark V. Shoen resigned from the Board of Directors. On that date, pursuant to Article III, Section 2 of the Company's By-Laws, the Board of Directors elected Richard J. Herrera, whose term expired at the Combined Annual Meeting of Stockholders, to fill the vacancy created by Mark V. Shoen's resignation. PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 20, 1997, there were approximately 2,500 holders of record of the Company's Common Stock.
The Company's Common Stock has been traded on Nasdaq National Market (Nasdaq) since November 1994. In October 1996, the Company announced the change of its trading symbol to "UHAL" from "AMOO" to be more reflective of the majority of its operations. The following table sets forth the high and low closing prices of the common stock of AMERCO trading on Nasdaq for the periods indicated.
For the Years Ended March 31, --------------------------------------------- 1997 1996 --------------------------------------------- High Low High Low ------------------ ----------------- First quarter 28 1/4 19 1/2 23 3/4 19 1/2 Second quarter 41 21 1/2 19 3/4 14 3/4 Third quarter 48 1/2 33 1/2 21 16 1/2 Fourth quarter 38 1/2 24 1/2 25 1/2 17
The Company has not declared any cash dividends to common stockholders for the two most recent fiscal years.
The Company does not have a formal dividend policy. The Company's Board of Directors periodically considers the advisability of declaring and paying dividends in light of existing circumstances. See Note 19 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain statutory restrictions on the ability of the Company's insurance subsidiaries to pay dividends to the Company.
See Note 15 of Notes to Consolidated Financial Statements in Item 8 for a discussion of the Company's non-cash dividends. See Note 6 of Notes to Consolidated Financial Statements in Item 8 for a discussion of changes to common shares outstanding and per share amounts.
The common stock of U-Haul is wholly-owned by the Company. As a result, no active trading market exists for the purchase and sale of such common stock. No cash dividends were declared to the Company by U-Haul during the two most recent fiscal years.
On August 30, 1996, the Company sold 100,000 shares of its Series B Preferred Stock for a total purchase price of $100 million to Blue Ridge Investments, LLC, a subsidiary of NationsBank Corporation. Exemption from registration for this transaction was claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended, regarding transactions by an issuer not involving any public offering. The Series B Preferred Stock is convertible under certain circumstances into 4,000,000 shares, subject to the Company's prior right to redeem the Series B Preferred Stock, of AMERCO's Common Stock or all of the outstanding capital stock of Picacho Peak Investment Co., a wholly-owned subsidiary of the Company. Item 6.
Item 6. Selected Financial Data.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements This report contains forward looking statements. Additional written or oral forward looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. Such forward looking statements are within the meaning of that term in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements many 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 the Company's report and in the Notes to the Company's Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences, or that could affect the Company's stock price.
General For financial statement preparation, the Company's insurance subsidiaries report on a calendar year basis while the Company reports on a fiscal year basis ending March 31. Accordingly, with respect to the Company's insurance subsidiaries, any reference to the years 1996, 1995 and 1994 correspond to the Company's fiscal years 1997, 1996 and 1995, respectively. There have been no events related to such subsidiaries between January 1 and March 31 of 1997, 1996 or 1995 that would materially affect the Company's consolidated financial position or results of operations as of and for the fiscal years ended March 31, 1997, 1996 and 1995, respectively.
Information on industry segments is incorporated by reference to "Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants and Consolidated Financial Statements of the Company, including the notes to such statements and the related schedules, are set forth on pages 30 through 81 and are hereby incorporated herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT ING AND FINANCIAL DISCLOSURE
The Registrants have had no disagreements with their independent accountant in regard to accounting and financial disclosure matters and have not changed their independent accountant during the two most recent fiscal years.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information regarding (i) directors and executive officers of the Company is set forth under the captions "Election of Directors", "Executive Officers of the Company", and "Shoen Litigation" and (ii) compliance with Section 16(a) is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement") incorporated by reference into this Form 10-K Report, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended. With the exception of the foregoing information and other information specifically incorporated by reference into this report, the 1997 Proxy Statement is not being filed as a part hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth under the caption "Executive Compensation" in the 1997 Proxy Statement, which information is incorporated herein by reference; provided, however, that the "Board Report on Executive Compensation" and the "Performance Graph" contained in the 1997 Proxy Statement are not incorporated by reference herein.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and management is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 1997 Proxy Statement, which information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions of management is set forth under the captions "Certain Relationships and Related Transactions" and "Shoen Litigation" in the 1997 Proxy Statement, which information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report: Page No. -------- 1. Financial Statements
Report of Independent Accountants 30 Consolidated Balance Sheets - March 31, 1997 and 1996 31 Consolidated Statements of Earnings - Years ended March 31, 1997, 1996 and 1995 33 Consolidated Statements of Changes in Stockholders' Equity - Years ended March 31, 1997, 1996 and 1995 34 Consolidated Statements of Cash Flows - Years ended March 31, 1997, 1996 and 1995 36 Notes to Consolidated Financial Statements 38
2. Additional Information
Summary of Earnings of Independent Trailer Fleets 74 Notes to Summary of Earnings of Independent Trailer Fleets 75
3. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14
Condensed Financial Information of Registrant -- Schedule I 77 Supplemental Information (For Property-Casualty Insurance Underwriters) -- Schedule V 81
All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto.
(b) No report on Form 8-K has been filed during the last quarter of the period covered by this report. (c) Exhibits
Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3) 4.1 Debt Securities Indenture (1) 4.2 First Supplemental Indenture, Dated as of May 6, 1996 (4) 4.3 Stockholders Rights Plan (5) 4.4 AMERCO Stock Option and Incentive Plan(5) 10.1 AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (5) 10.2 U-Haul Dealership Contract (5) 10.3 Share Repurchase and Registration Rights Agreement (5) 10.4 Share Repurchase and Registration Rights Agreement (5) 10.5 ESOP Loan Credit Agreement (6) 10.6 ESOP Loan Agreement (6) 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan(6) 10.8 Amended Indemnification Agreement (6) 10.9 Indemnification Trust Agreement (6) 10.10 Promissory Note between SAC Holding Corporation and a subsidiary of AMERCO 10.11 Promissory Notes between Four SAC Self-Storage Corporation and a subsidiary of AMERCO 10.12 Management Agreement between Three SAC Self-Storage Corporation and a subsidiary of AMERCO 10.13 Management Agreement between Four SAC Self-Storage Corporation and a subsidiary of AMERCO 10.14 Settlement Agreement, dated September 19, 1995, among Mary Anna Shoen Eaton, Maran, Inc., Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, William E. Carty and AMERCO(8) 10.15 Full and Final Release of All Claims, dated September 19, 1995, executed by Maran, Inc., Mary Anna Shoen Eaton and Timothy Eaton (8) 10.16 Full and Final Release of All Claims, dated September 19, 1995, executed by AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.17 Stock Purchase Agreement, dated September 19, 1995 among Mary Anna Shoen Eaton, Maran, Inc., Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.18 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.19 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO (8) 10.20 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.21 Settlement Agreement with Paul F. Shoen (9) 10.22 Series B Preferred Stock Purchase Agreement, dated as of August 30, 1996 (3) 10.23 Side Agreement, dated as of October 29, 1996(3) 10.24 Settlement Agreement, dated October 15, 1996 between L.S. Shoen and AMERCO 12 Statements Re: Computation of Ratios 21 Subsidiaries of AMERCO c. Exhibits, continued 23 Consent of Independent Accountants 27 Financial Data Schedule
________________
(1) Incorporated by reference to the Company's Registration Statement on Form S-3, Registration no. 333-1195. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 0-7862. (3) Incorporated by reference to the Company Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 0-7862. (4) Incorporated by reference to the Company's Current Report on Form 8-K, dated May 6, 1996. (5) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 0-7862. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 0-7862. (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 0-7862. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 0-7862. (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended March 31, 1995, file no. 0-7862.
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Directors and Stockholders of AMERCO
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (3) on page 27 present fairly, in all material respects, the financial position of AMERCO and its subsidiaries at March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for advertising costs in fiscal 1996.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Summary of Earnings of Independent Trailer Fleets included on pages 74 through 76 of this Form 10-K is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
Phoenix, Arizona June 23, 1997 AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
March 31,
Assets 1997 1996 --------------------- (in thousands)
Cash and cash equivalents $ 41,752 31,168 Receivables 238,523 340,564 Inventories 65,794 45,891 Prepaid expenses 17,264 16,415 Investments, fixed maturities 859,694 879,702 Investments, other 127,306 126,555 Deferred policy acquisition costs 48,598 49,995 Other assets 72,997 16,402 ---------------------
Property, plant and equipment, at cost: Land 209,803 212,593 Buildings and improvements 814,744 769,380 Furniture and equipment 199,126 188,734 Rental trailers and other rental equipment 148,807 256,411 Rental trucks 947,911 968,131 General rental items 21,600 24,197 --------------------- 2,341,991 2,419,446 Less accumulated depreciation 1,094,925 1,102,731 ---------------------
Total property, plant and equipment 1,247,066 1,316,715 ---------------------
$ 2,718,994 2,823,407 =====================
The accompanying notes are an integral part of these consolidated financial statements.
Liabilities and Stockholders' Equity 1997 1996 --------------------- (in thousands) Liabilities: Accounts payable and accrued expenses $ 131,099 151,754 Notes and loans 983,550 998,220 Policy benefits and losses, claims and loss expenses payable 469,134 483,561 Liabilities from premium deposits 433,397 410,787 Cash overdraft 23,606 32,159 Other policyholders' funds and liabilities 30,966 25,713 Deferred income 35,247 2,926 Deferred income taxes 9,675 68,739 ---------------------
Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares authorized; 6,100,000 shares issued and outstanding as of March 31, 1997 and 1996 - - Series B preferred stock, with no par value, 100,000 shares authorized; 100,000 shares issued and outstanding as of March 31, 1997, none issued and outstanding as of March 31, 1996 - - Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized; 5,762,495 shares issued as of March 31, 1997 and 1996 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized; 36,487,505 and 34,237,505 shares issued as of March 31, 1997 and 1996, respectively 9,122 8,559 Additional paid-in capital 337,933 165,756 Foreign currency translation adjustment (14,133) (11,877) Unrealized gain on investments 4,411 11,097 Retained earnings 644,009 609,019 --------------------- 982,783 783,995 Less: Cost of common shares in treasury, net (19,635,913 and 7,209,077 shares as of March 31, 1997 and 1996, respectively) 359,723 111,118 Unearned employee stock ownership plan shares 20,740 23,329 --------------------- Total stockholders' equity 602,320 649,548
Contingent liabilities and commitments ---------------------
$ 2,718,994 2,823,407 =====================
The accompanying notes are an integral part of these consolidated financial statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Years ended March 31,
1997 1996 1995 ---------------------------------- (in thousands except per share data) Revenues Rental and other revenue $ 1,032,697 976,234 933,163 Net sales 179,382 173,806 170,204 Premiums 163,603 154,249 135,648 Net investment income 49,421 45,989 42,085 ---------------------------------- Total revenues 1,425,103 1,350,278 1,281,100
Costs and expenses Operating expense 915,102 827,622 730,685 Cost of sales 106,975 108,662 93,485 Benefits and losses 154,761 151,232 133,407 Amortization of deferred acquisition costs 16,493 17,131 10,896 Depreciation 74,721 81,847 151,409 Interest expense 73,523 67,558 67,762 ---------------------------------- Total costs and expenses 1,341,575 1,254,052 1,187,644
Pretax earnings from operations 83,528 96,226 93,456 Income tax expense (29,344) (35,832) (33,424) ---------------------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 54,184 60,394 60,032 Extraordinary loss on early extinguishment of debt, net (2,319) - - ---------------------------------- Net earnings $ 51,865 60,394 60,032 ==================================
Earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 1.44 1.33 1.23 Extraordinary loss on early extinguishment of debt, net (0.09) - - ---------------------------------- Net earnings $ 1.35 1.33 1.23 ==================================
Weighted average common shares outstanding 25,479,651 35,736,335 38,190,552 ==================================
The accompanying notes are an integral part of these consolidated financial statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended March 31,
1997 1996 1995 --------------------------- (in thousands) Series A common stock of $0.25 par value: 10,000,000 shares authorized, 5,762,495 shares issued in 1997, 1996 and 1995 Beginning of year $ 1,441 1,441 1,438 Exchange for Series A common stock - - 871 Exchange for common stock - - (868) --------------------------- End of year 1,441 1,441 1,441 ---------------------------
Common stock of $0.25 par value: 150,000,000 shares authorized in 1997, 1996 and 1995, 36,487,505 shares issued in 1997, 34,237,505 in 1996 and 1995 Beginning of year 8,559 8,559 8,562 Issuance of common stock 563 - - Exchange for Series A common stock - - (871) Exchange for common stock - - 868 --------------------------- End of year 9,122 8,559 8,559 ---------------------------
Additional paid-in capital: Beginning of year 165,756 165,675 165,651 Issuance of preferred stock 98,546 - - Issuance of common stock 73,146 - - Issuance of common shares under leveraged employee stock ownership plan 485 81 24 --------------------------- End of year 337,933 165,756 165,675 ---------------------------
Foreign currency translation: Beginning of year (11,877) (12,435) (11,152) Change during year (2,256) 558 (1,283) ---------------------------
End of year (14,133) (11,877) (12,435) ---------------------------
Unrealized gain (loss) on investments: Beginning of year 11,097 (6,483) 679 Change during year (6,686) 17,580 (7,162) ---------------------------
End of year 4,411 11,097 (6,483) ---------------------------
The accompanying notes are an integral part of these consolidated financial statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity, continued
Years ended March 31,
1997 1996 1995 --------------------------- (in thousands) Retained earnings: Beginning of year 609,019 561,589 514,521 Net earnings 51,865 60,394 60,032 Preferred stock dividends paid: Series A ($2.13 per share for 1997, 1996 and 1995) (12,964) (12,964) (12,964) Series B ($39.11 per share for 1997) (3,911) - - ---------------------------
End of year 644,009 609,019 561,589 ---------------------------
Less Treasury stock: Beginning of year 111,118 10,461 10,461 Net increase (12,426,836 shares in 1997, 5,873,140 shares in 1996) 248,605 100,657 - ---------------------------
End of year 359,723 111,118 10,461 ---------------------------
Less Unearned employee stock ownership plan shares: Beginning of year 23,329 21,101 17,451 Increase in loan 2 4,576 5,672 Repayments from loan (2,591) (2,348) (2,022) ---------------------------
End of year 20,740 23,329 21,101 ---------------------------
Total stockholders' equity $ 602,320 649,548 686,784 ===========================
The accompanying notes are an integral part of these consolidated financial statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31,
1997 1996 1995 ---------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 51,865 60,394 60,032 Depreciation and amortization 94,364 102,427 163,890 Provision for losses on accounts receivable 3,465 4,492 4,958 Net (gain) loss on sale of real and personal property (7,979) 2,142 (3,390) Gain on sale of investments (728) (5,172) (868) Changes in policy liabilities and accruals (403) 20,010 32,489 Additions to deferred policy acquisition costs (13,065) (21,507) (12,119) Net change in other operating assets and liabilities 60,662 24,056 (22,848) ---------------------------- Net cash provided by operating activities 188,181 186,842 222,144
Cash flows from investing activities: Purchases of investments: Property, plant and equipment (203,943) (291,057) (434,992) Fixed maturities (189,763) (332,155) (186,000) Preferred stock (10,875) - - Real estate - (8,127) (11,576) Mortgage loans (38,339) (10,560) (107,571) Proceeds from sales of investments: Property, plant and equipment 240,787 165,490 185,098 Fixed maturities 206,995 190,846 192,428 Preferred stock 59 - - Real estate 934 2,749 927 Mortgage loans 38,906 29,447 18,535 Changes in other investments 5,402 9,169 (12,327) ----------------------------- Net cash provided (used) by investing activities 50,163 (244,198) (355,478)
The accompanying notes are an integral part of these consolidated financial statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years ended March 31,
1997 1996 1995 ---------------------------- (in thousands) Cash flows from financing activities: Net change in short-term borrowings (347,000) 84,500 178,750 Proceeds from notes 562,300 140,141 68,845 Debt issuance costs (6,240) (1,663) (1,422) Loan to leveraged Employee Stock Ownership Plan (2) (4,576) (5,672) Repayments from leveraged Employee Stock Ownership Plan loan 2,591 2,348 2,022 Principal payments on notes (229,970) (107,643) (90,137) Issuance of preferred stock 98,546 - - Issuance of common stock 73,709 - - Extraordinary loss on early extinguishment of debt, net (2,319) - - Net change in cash overdraft (8,553) 796 4,804 Preferred stock dividends paid (16,875) (12,964) (12,964) Treasury stock acquisitions, net (248,605) (100,657) - Deferred tax-treasury stock (80,997) (34,938) - Investment contract deposits 81,678 163,423 65,386 Investment contract withdrawals (57,789) (75,529) (59,434) Escrow deposit (48,234) - - ----------------------------
Net cash provided (used) by financing activities (227,760) 53,238 150,178 ----------------------------
Increase (decrease) in cash and cash equivalents 10,584 (4,118) 16,844 Cash and cash equivalents at beginning of year 31,168 35,286 18,442 ---------------------------- Cash and cash equivalents at end of year $ 41,752 31,168 35,286 ============================
The accompanying notes are an integral part of these consolidated financial statements.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
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). All references to a fiscal year refer to the Company's fiscal year ended March 31 of that year.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its subsidiaries, all of which are wholly-owned. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated.
The operating results and financial position of AMERCO's consolidated insurance operations are determined as of December 31 of each year. There were no effects related to intervening events between January 1 and March 31 of 1997, 1996 or 1995 that would materially affect the consolidated financial position or results of operations for the financial statements presented herein. See Note 19 of Notes to Consolidated Financial Statements for additional information regarding the insurance subsidiaries.
DESCRIPTION OF BUSINESS Moving and self-storage operations consist of the rental of trucks, automobile-type trailers and self-storage space to the do-it- yourself mover under the registered tradename U-Haulr throughout the United States and Canada. Additionally, the Company sells related products (such as boxes, tape and packaging materials). AREC owns the majority of the Company's real estate assets, including the Company's Center and Storage locations. AREC has responsibility for actively marketing properties available for sale or lease. AREC is also responsible for managing any environmental risks associated with the Company's real estate.
RWIC originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, the Company's customers and the Company. RWIC's principal strategy is to capitalize on its knowledge of insurance products aimed at the moving and rental markets.
Oxford originates and reinsures life, health and annuity type insurance products and administers the Company's self-insured employee health plan.
RWIC and Oxford have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 1996, 1995 and 1994 correspond to the Company's fiscal years 1997, 1996 and 1995, respectively.
FOREIGN CURRENCY The consolidated financial statements include the accounts of U- Haul Co. (Canada) Ltd., a subsidiary of the Company.
Assets and liabilities, denominated in currencies other than U.S. dollars, are translated to U.S. dollars at the exchange rate as of the balance sheet date. Income and expense amounts are translated at the average exchange rate during the fiscal year. The related translation gains or losses are included as a separate component of shareholders' equity. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS The Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
RECEIVABLES Accounts receivable of RWIC and Oxford include premiums and agents' balances due, net of commissions payable and amounts due from ceding reinsurers. Accounts receivable of RWIC and Oxford are reduced by amounts considered by management to be uncollectible. Accounts receivable of the Company's moving and storage subsidiaries include mortgage and other notes receivable and trade accounts receivable. Accounts receivable are reduced by amounts considered by management to be uncollectible based on historical collection loss experience and a review of the current status of existing receivables by the Company's rental subsidiaries.
INVENTORIES Inventories are primarily valued at the lower of cost or market. Cost is determined using the LIFO (last-in, first-out) method.
INVESTMENTS Fixed maturities consist of bonds and redeemable preferred stocks which are classified as held-to-maturity or available-for-sale. Fixed maturity investments classified as held-to-maturity are recorded at cost adjusted for the amortization of premiums or accretion of discounts while those classified as available-for-sale are recorded at fair value with unrealized gains or losses reported on a net basis as a separate component of shareholders' equity. Gains and losses on the sale of securities classified as available-for-sale are reported as a component of revenues using the specific identification method. The Company does not currently maintain a trading portfolio. Mortgage loans on real estate held by the insurance subsidiaries are carried at unpaid balances, net of allowance for possible losses and any unamortized premium or discount. Real estate is carried at cost less accumulated depreciation. Policy loans are carried at their unpaid balance. Impaired securities are written down to fair value which becomes the new cost basis. Fair values for investments are based on quoted market prices or dealer quotes.
Short-term investments consist of other securities scheduled to mature within one year of their acquisition date. See Note 4 of Notes to Consolidated Financial Statements.
Interest on bonds and mortgage loans is recognized when earned. Dividends on common and redeemable preferred stocks are recognized on ex-dividend dates. Realized gains and losses on the sale of investments are recognized at the trade date and included in revenues using the specific identification method. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
DEFERRED POLICY ACQUISITION COSTS Commissions and other costs incurred in acquiring traditional life insurance, interest sensitive annuity contracts, accident and health insurance and property-casualty insurance, which vary with and are primarily related to the production of new business, have been deferred.
Traditional life, certain annuity and accident and health acquisition costs are amortized over the premium paying period of the related policies in proportion to the ratio of annual premium income to expected total premium income. Such expected premium income is estimated using assumptions as to mortality and withdrawals consistent with those used in calculating the policy benefit reserves.
Credit and health acquisition costs are deferred and amortized over the term of the contracts in relation to premiums earned.
Acquisition costs for annuity contracts are being amortized over the lives of the contracts in relation to the present value of estimated gross profits from surrender charges and investment, mortality and expense margins.
Property-casualty acquisition costs are amortized over the related contract period which generally does not exceed one year.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are included in other revenue when realized. Interest costs incurred as part of the initial construction of assets are capitalized. Interest expense of $3,430,000, $1,807,000 and $1,727,000 was capitalized in the years ended 1997, 1996 and 1995, respectively.
During fiscal 1996, based on an in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks. The effect of the change increased net income for the year ended March 31, 1996 by $44,373,000 ($1.24 per share).
Certain recoverable environmental costs related to the removal of underground storage tanks or related contamination are capitalized and depreciated over the estimated useful lives of the properties. The capitalized costs improve the safety or efficiency of the property as compared to when the property was originally acquired or are incurred in preparing the property for sale.
At March 31, 1997, the book value of the Company's real estate that is no longer necessary for use in the Company's current operations, and available for sale/lease, was approximately $32,682,000. Such properties available for sale are carried at cost, less accumulated depreciation, which is less than or approximate to fair value.
FINANCIAL INSTRUMENTS The Company enters into interest rate swap agreements to reduce its interest rate exposure; the Company does not use the agreements for trading purposes. Amounts to be paid or received under the agreements are accrued. Although the Company is exposed to credit loss for the interest rate differential in the event of nonperformance by the counterparties to the agreements, it does not anticipate nonperformance by the counterparties. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The Company has mortgage receivables which potentially expose the Company to credit risk. The portfolio of notes is principally collateralized by mini-warehouse storage facilities and other residential and commercial properties. The Company has not experienced losses related to the notes from individual notes or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings.
Fair value summary of mortgage receivables:
March 31, ----------------------------------------------- 1997 1996 ----------------------------------------------- Book Estimated Book Estimated value fair value value fair value ----------------------------------------------- (in thousands)
Mortgage receivables $ 58,682 66,484 154,736 157,867 ===============================================
Other financial instruments that are subject to fair value disclosure requirements are carried in the financial statements at amounts that approximate fair value, unless elsewhere disclosed. See Notes 4 and 5 of Notes to Consolidated Financial Statements.
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The Company places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many different industries and geographic areas.
POLICY BENEFITS RESERVES, UNPAID LOSSES AND LOSS EXPENSES Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using the net level premium method and include mortality and withdrawal assumptions which are based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 1996, interest assumptions used to compute policy benefits payable range from 2.5% to 12.8%.
With respect to annuity policies accounted for as investment contracts, the liability for investment contract deposits consists of policy account balances that accrue to the benefit of the policyholders, excluding surrender charges. Fair value of investment contract deposits were $399,953,000 and $380,774,000 at December 31, 1996 and 1995, respectively.
Liabilities for accident and health and other policy claims and benefits payable represent estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred but not yet reported. These estimates are based on past claims experience and consider current claim trends as well as social and economic conditions. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
With respect to property-casualty, the liability for unpaid losses is based on the estimated ultimate cost of settling claims reported prior to the end of the accounting period, estimates received from ceding reinsurers and estimates for unreported losses based on RWIC's historical experience supplemented by insurance industry historical experience. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made.
RENTAL AND OTHER REVENUE The Company recognizes its share of rental revenue less commission on the accrual basis pursuant to contractual arrangements between AMERCO and it's fleet owners, rental dealers and customers. See Note 9 of Notes to Consolidated Financial Statements for further discussion.
PREMIUM REVENUE Accident and health, credit life and health and property-casualty gross premiums are earned on a pro rata basis over the term of the related contracts. The portion of premiums not earned at the end of the period is recorded as unearned premiums. Traditional life and annuity premiums are recognized as revenue when due from policyholders. Revenue for annuity policies accounted for as investment contracts consist of investment margins and surrender charges that have been assessed against policy account balances during the period.
REINSURANCE Reinsurance premiums, commissions and expense reimbursements related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Assets and liabilities relating to reinsured contracts are reported gross of the effects of reinsurance. See also "Policy Benefits Reserves, Unpaid Losses and Loss Expenses" above.
INCOME TAXES In addition to charging income for taxes paid or payable, the provision for income taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company files a consolidated federal income tax return with its insurance subsidiaries.
NEW ACCOUNTING STANDARDS 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. Upon implementation, the Company recognized additional advertising expense of $8,647,000 for advertising costs not qualifying as direct-response. The adoption had the effect of reducing net income by $5,474,000 ($0.15 per share) for the year ended March 31, 1996. The Company is currently reviewing its implementation procedures. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Other pronouncements issued by the Financial Accounting Standards Board adopted during the year are not material to the consolidated financial statements of the Company. Further, pronouncements with future effective dates are either not applicable or not material to the consolidated financial statements of the Company.
EARNINGS PER SHARE Earnings per common share are computed by dividing net earnings after deduction of preferred stock dividends by the weighted average number of common shares outstanding, 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. See Notes 6 and 7 of Notes to Consolidated Financial Statements for further discussion.
FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the financial statements for the years ended 1996 and 1995 to conform with the current year's presentation.
2. RECEIVABLES
A summary of receivables follows:
March 31, -------------------- 1997 1996 -------------------- (in thousands)
Trade accounts receivable $ 15,273 16,885 Mortgage and note receivables, net of discount 39,806 54,802 Note receivable and accrued interest from SAC Holding Corporation and its subsidiaries 46,690 105,327 Premiums and agents' balances in course of collection 28,307 38,345 Reinsurance recoverable 73,069 83,261 Accrued investment income 14,308 15,243 Independent dealer receivable 6,995 11,189 Other receivables 16,457 18,800 -------------------- 240,905 343,852 Less allowance for doubtful accounts 2,382 3,288 --------------------
$ 238,523 340,564 ====================
During fiscal 1997, a subsidiary of the Company 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 principal payments of $436,000 and interest payments of $6,281,000 from SAC Holdings during fiscal 1997. The note receivable balance outstanding at March 31, 1997 was, in the aggregate, $46,690,000 bearing interest rates ranging from 8.37% to 13.0%.
On June 27, 1996, the Company's subsidiary received $83,565,000 when a senior note from SAC Holdings was sold to an outside party. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. RECEIVABLES, continued
During fiscal 1997, a subsidiary of the Company funded the purchase of thirty-seven properties by SAC Holdings for approximately $43,125,000. Seven of the properties were purchased from the Company at a purchase price equal to the Company's acquisition cost plus capitalized costs. In March 1997, SAC Holdings sold ten of the properties to an outside party and reduced the Company's receivable at the time by $18,082,000.
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 $1,632,000 during fiscal 1997. The management fee percentage is consistent with the fees received by the Company for other properties managed by the Company.
Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
3. INVENTORIES
A summary of inventory components follows:
March 31, -------------------- 1997 1996 -------------------- (in thousands) Truck and trailer parts and accessories $ 40,936 23,609 Moving aids and promotional items 10,508 9,488 Hitches and towing components 14,348 12,756 Other 2 38 --------------------
$ 65,794 45,891 ====================
Certain general and administrative expenses are allocated to ending inventories. Such costs remaining in inventory at fiscal years ended 1997, 1996 and 1995 are estimated at $7,568,000, $6,773,000 and $6,848,000, respectively. For the fiscal years ended March 31, 1997, 1996 and 1995, aggregate general and administrative costs were $511,473,000, $439,122,000 and $410,497,000, respectively.
LIFO inventories, which represent approximately 98% and 97% of total inventories at March 31, 1997 and 1996, respectively, would have been $4,611,000 and $4,166,000 greater at March 31, 1997 and 1996, respectively, if the consolidated group had used the FIFO method. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS
Major categories of net investment income consist of the following:
Year ended December 31, ---------------------------- 1996 1995 1994 ---------------------------- (in thousands)
Fixed maturities $ 65,680 59,992 53,236 Real estate 279 727 223 Policy loans 519 554 604 Mortgage loans 7,193 7,887 5,338 Short-term, amounts held by ceding reinsurers, net and other investments 1,499 1,601 2,064 ----------------------------
Investment income 75,170 70,761 61,465
Less investment expenses 25,749 24,772 19,380 ----------------------------
Net investment income $ 49,421 45,989 42,085 ============================
A comparison of amortized cost to estimated fair value for fixed maturities is as follows:
December 31, 1996 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 18,680 $ 18,571 1,239 (24) 19,786 U.S. government agency mortgage- backed securities $ 50,465 50,171 528 (1,914) 48,785 Obligations of states and political subdivisions $ 30,135 29,920 1,242 (21) 31,141 Corporate securities $ 170,180 174,469 3,795 (1,782) 176,482 Mortgage-backed securities $ 109,962 108,476 1,565 (1,783) 108,258 Redeemable preferred stocks 929 26,768 421 (257) 26,932 ----------------------------------------
408,375 8,790 (5,781) 411,384 ---------------------------------------- AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1996 - ----------------- 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 $ 11,685 $ 11,771 964 - 12,735 U.S. government agency mortgage- backed securities $ 26,085 25,575 331 (119) 25,787 Obligations of states and political subdivisions $ 11,900 12,085 558 (95) 12,548 Corporate securities $ 307,711 311,335 7,359 (2,633) 316,061 Mortgage-backed securities $ 72,371 72,208 1,542 (560) 73,190 Redeemable preferred stocks 436 10,815 202 (19) 10,998 ---------------------------------------- 443,789 10,956 (3,426) 451,319 ---------------------------------------- Total $ 852,164 19,746 (9,207) 862,703 ========================================
December 31, 1995 - ----------------- Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 18,355 $ 18,271 2,108 (1) 20,378 U.S. government agency mortgage- backed securities $ 60,376 59,912 1,348 (2,211) 59,049 Obligations of states and political subdivisions $ 34,300 33,983 1,742 (34) 35,691 Corporate securities $ 192,334 197,475 6,102 (675) 202,902 Mortgage-backed securities $ 110,561 108,827 2,884 (1,013) 110,698 Redeemable preferred stocks 170 5,210 470 (4) 5,676 ----------------------------------------
423,678 14,654 (3,938) 434,394 ---------------------------------------- AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1995 - ----------------- Gross Gross Estimated Consolidated Amortized unrealized unrealized market Available-for-Sale Par Value cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 11,685 $ 11,789 1,572 - 13,361 U.S. government agency mortgage- backed securities $ 20,711 20,713 637 (39) 21,311 Obligations of states and political subdivisions $ 10,400 10,581 660 (151) 11,090 Corporate securities $ 319,611 324,804 14,595 (610) 338,789 Mortgage-backed securities $ 68,857 68,289 3,465 (281) 71,473 ---------------------------------------- 436,176 20,929 (1,081) 456,024 ----------------------------------------
Total $ 859,854 35,583 (5,019) 890,418 ========================================
Fixed maturities estimated market values are based on publicly quoted market prices at the close of trading on December 31, 1996 or December 31, 1995, as appropriate.
The amortized cost and estimated market value of debt securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 1996 - ----------------- Amortized Estimated Consolidated cost fair value Held-to-Maturity ------------------------- (in thousands)
Due in one year or less $ 20,151 20,454 Due after one year through five years 79,000 80,899 Due after five years through ten years 117,915 119,517 After ten years 5,894 6,539 ------------------------- 222,960 227,409
Mortgage-backed securities 158,647 157,043 Redeemable preferred stock 26,768 26,932 -------------------------
408,375 411,384 ------------------------- AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
December 31, 1996 Amortized Estimated - ----------------- cost fair value Consolidated ------------------------- Available-for-sale (in thousands)
Due in one year or less 8,773 8,846 Due after one year through five years 87,678 88,893 Due after five years through ten years 188,378 191,841 After ten years 50,362 51,764 ------------------------- 335,191 341,344
Mortgage-backed securities 97,783 98,977 Redeemable preferred stock 10,815 10,998 -------------------------
443,789 451,319 -------------------------
Total $ 852,164 862,703 =========================
December 31, 1995 Amortized Estimated - ----------------- cost fair value Consolidated ------------------------- Held-to-Maturity (in thousands)
Due in one year or less $ 24,214 24,539 Due after one year through five years 90,889 93,853 Due after five years through ten years 120,876 124,950 After ten years 13,750 15,629 ------------------------- 249,729 258,971
Mortgage-backed securities 168,739 169,747 Redeemable preferred stock 5,210 5,676 -------------------------
423,678 434,394 -------------------------
December 31, 1995 - ----------------- Amortized Estimated Consolidated cost fair value Available-for-sale ------------------------- (in thousands)
Due in one year or less 14,692 14,812 Due after one year through five years 136,290 140,347 Due after five years through ten years 159,537 168,771 After ten years 36,655 39,310 347,174 363,240 -------------------------
Mortgage-backed securities 89,002 92,784 -------------------------
436,176 456,024 -------------------------
Total $ 859,854 890,418 =========================
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS, continued
Proceeds from sales of investments in debt securities during 1996 and 1995 were $115,886,000 and $101,565,000, respectively. Gross gains of $1,518,000 and $4,498,000 and gross losses of $654,000 and $419,000 were realized on those sales during 1996 and 1995, respectively.
At December 31, 1996 and 1995 fixed maturities include bonds with an amortized cost of $18,728,000 and $18,015,000, respectively, on deposit with insurance regulatory authorities to meet statutory requirements.
Investments, other consists of the following: March 31, ----------------------- 1997 1996 ----------------------- (in thousands) Short-term investments $ 10,925 17,671 Mortgage loans 79,353 73,152 Real estate, foreclosed properties 20,936 19,591 U.S. government security mutual fund 5,883 5,883 Policy loans 8,627 9,372 Other 1,582 886 ----------------------- $ 127,306 126,555 =======================
Short-term investments consist primarily of fixed maturities with a maturity of three months to one year from acquisition date. Mortgage loans, representing first lien mortgages held by the insurance subsidiaries, are carried at unpaid balances, less allowance for possible losses and any unamortized premium or discount. Real estate obtained through foreclosures and held for sale is carried at the lower of cost or fair value. U.S. government securities mutual fund is carried at cost which approximates market. Policy loans are carried at their unpaid balance.
At December 31, 1996 and 1995, mortgage loans held as investments with a book value of $79,353,000 and $73,152,000, respectively, were outstanding. The estimated fair value of the mortgage loans at December 31, 1996 and 1995 aggregated $84,564,000 and $81,924,000, respectively. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Investment in mortgage loans, included as a component of investments, are reported net of allowance for possible losses of $800,000 and $525,000 in 1996 and 1995, respectively. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following:
March 31, ------------------- 1997 1996 ------------------- (in thousands)
Short-term borrowings $ 4,000 73,000
Notes payable to banks under revolving lines of credit, unsecured, 5.74% to 5.80% interest rates 60,000 338,000
Medium-term notes payable, unsecured, 5.85% to 8.08% interest rates, due through 2027 387,000 95,050
Notes payable to insurance companies, unsecured, 6.43% to 10.27% interest rates, due through 2006 226,500 339,000
Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 -
Notes payable to banks, unsecured, 4.81% to 7.54% interest rates, due through 2001 62,500 84,100
Notes and Mortgages payable, secured, 5.00% to 10.00% interest rates, due through 2010 68,471 68,984
Other notes payable, unsecured, 9.50% interest rate, due through 2005 79 86 ------------------- $ 983,550 998,220 =================== Notes and mortgages payable are secured by land and buildings at various locations with a net book value of $78,927,000 at March 31, 1997.
Revolving credit loans (long-term) are available from participating banks under an agreement which provides for a total credit line of $365,000,000 through the expiration date of the revolving term of July 12, 1999. The Company may elect to borrow under the credit agreement in the form of Eurodollar borrowings, domestic dollar borrowings or issue letters of credit. Depending on the form of borrowing elected, interest will be based on the prime rate, the federal funds effective rate or the interbank offering rate and in addition, margin interest rates will be charged. Loans may also be at a fixed rate based upon the discretion of the borrower and lender. At March 31, 1997, the weighted average interest rate on the revolving credit loans outstanding was 5.78%. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE, continued
Facility fees, which are based upon the amount of credit line, aggregated $975,000 and $977,000 for 1997 and 1996, respectively. As of March 31, 1997, loans outstanding under the revolving credit line totaled $60,000,000. Management intends to refinance the borrowings on a long-term basis by either replacing them with long-term obligations, renewing or extending them.
Year ended ----------------------------- 1997 1996 1995 ----------------------------- (in thousands) A summary of revolving credit activity follows:
Weighted average interest rate during the year 5.76% 6.20% 5.62% at year end 5.78% 5.73% 6.48% Maximum amount outstanding during the year $ 338,000 343,000 293,000 Average amount outstanding during the year $ 128,000 281,750 191,146
A summary of notes payable follows:
Weighted average interest rate during the year 5.87% 6.26% 5.25% at year end 7.63% 5.93% 6.44% Maximum amount outstanding during the year $ 195,000 73,000 135,000 Average amount outstanding during the year $ 56,417 37,583 46,604
AMERCO has committed lines of credit with various banks totaling $550,000,000 and uncommitted lines of credit of $82,528,000 at March 31, 1997.
The Company has executed interest rate swap agreements (SWAPS) to potentially mitigate the impact of changes in interest rates on its floating rate debt. These agreements effectively change the Company's interest rate exposure on $168,000,000 of floating rate notes to a weighted average fixed rate of 7.64%. The SWAP's mature at the time the related notes mature. Incremental interest expense associated with SWAP activity was $3,481,000, $2,959,000 and $7,092,000 during 1997, 1996 and 1995, respectively.
At March 31, 1997, interest rate swap agreements with an aggregate notional amount of $168,000,000 were outstanding. Management estimates that at March 31, 1997 and 1996, the Company would be required to pay $5,000,000 and $9,000,000, respectively, to terminate the agreements. Such amounts were determined from current treasury rates combined with swap spreads on agreements outstanding.
On July 18, 1996, the Company extinguished debt of approximately $76,250,000 by irrevocably placing cash into a trust of U.S. Treasury securities to be used to satisfy scheduled payments of principal and interest. In August 1996, the Company extinguished $86,167,000 of its long-term notes originally due in fiscal 1997 through fiscal 1999. The above transactions resulted in an extraordinary loss of $2,319,000, net of tax of $1,391,000 ($0.09 per share).
Pursuant to a shelf-registration statement, from September 13, 1996 through March 31, 1997, the Company issued $362,000,000 of fixed rate medium-term notes ranging from 6.71% to 8.08% with maturity dates ranging from 1999 to 2028, and a $25,000,000 floating rate medium-term note with a maturity date of October 1997. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. NOTES AND LOANS PAYABLE, continued
Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At March 31, 1997, the Company was in compliance with these covenants.
The annual maturities of long-term debt for the next five years adjusted for subsequent activity (if the revolving credit lines are outstanding to maturity), are presented in the table below:
Year Ended ------------------------------------------------ 1998 1999 2000 2001 2002 ------------------------------------------------ (in thousands) Mortgages $ 487 420 183 261 278 Medium-Term and Other Notes 25,008 40,009 30,010 77,511 12 Insurance Placements 21,429 26,429 19,429 24,429 19,429 Bank Placements 1,600 40,900 24,818 24,818 4,818 Revolving Credit - - 60,000 - - ------------------------------------------------ $ 48,524 107,758 134,440 127,019 24,537 ================================================
Interest paid in cash amounted to $69,972,000, $71,561,000 and $67,191,000 for 1997, 1996 and 1995, respectively.
6. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock, 150,000,000 shares of Serial Common Stock and 50,000,000 shares of Preferred Stock. The Board of Directors (the Board) may authorize the Serial Common Stock to be issued in such series and on such terms as the Board shall determine. Preferred Stock issuance may be with or without par value.
In October 1993, the Company issued 6,100,000 shares of 8.5% cumulative, no par, non-voting preferred stock. The preferred stock is not convertible into, or exchangeable for, shares of any other class or classes of stock of the Company. Dividends are payable quarterly in arrears and have priority as to dividends over the Company's common stock. The preferred stock is not redeemable prior to December 1, 2000. On or after December 1, 2000, the Company, at its option, may redeem all or part of the preferred stock, for cash at $25.00 per share plus accrued and unpaid dividends to the redemption date.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6. STOCKHOLDERS' EQUITY, continued
On April 13, 1994, the Company and Edward J. Shoen entered into an Agreement in Principle pursuant to which the Company agreed to acquire all of the outstanding capital stock of EJOS, Inc., all of which stock was held by Edward J. Shoen and a certain irrevocable trust established by Edward J. Shoen, in exchange for the same number of shares of the Company's common stock as were held by EJOS, Inc. In exchange for EJOS, Inc.'s capital stock, Edward J. Shoen and the irrevocable trust established by Edward J. Shoen received 3,483,681 and 559,443 shares of the Company's common stock, respectively. The exchange described above was effected in accordance with the terms of an Agreement and Plan of Exchange of Shares of EJOS, Inc. and AMERCO, dated May 18, 1994, among EJOS, Inc., the Company, Edward J. Shoen, and the irrevocable trust established by Edward J. Shoen. Edward J. Shoen is a major stockholder, Chairman of the Board and President of the Company.
On August 24, 1994, the Company entered into an Exchange Agreement with Edward J. Shoen, the Company's Chairman of the Board and President. Pursuant to the exchange agreement, in exchange for 3,483,681 shares of common stock owned by Edward J. Shoen, Edward J. Shoen received 3,483,681 shares of Series A common stock. The common stock and the Series A common stock possess identical rights and privileges.
On November 28, 1994, the Company entered into an Exchange Agreement with Mark V. Shoen, a director and major stockholder of the Company. Pursuant to the exchange agreement, in exchange for 3,475,520 shares of Series A common stock owned by Mark V. Shoen, Mark V. Shoen received 3,475,520 shares of common stock. The common stock and the Series A common stock possess identical rights and privileges.
On May 31, 1995, the Company purchased 45,000 shares of the Company's Common Stock from Paul F. Shoen, a major stockholder of the Company, for $996,000 or $22.125 per share. The transaction was effected on Nasdaq. Paul F. Shoen is the brother of Edward J., Mark V. and James P. Shoen, who are major stockholders and directors of the Company.
On August 30, 1996, the Company issued 100,000 shares of its Series B Preferred Stock with no par value for gross proceeds of $100,000,000. Dividends are cumulative with the rate being reset quarterly and have priority as to dividends over the Company's common stock. The Series B Preferred Stock is convertible under certain circumstances into 4,000,000 shares, subject to the Company's prior right to redeem the Series B Preferred Stock, of AMERCO's Common Stock, $0.25 par value or all of the outstanding capital stock of Picacho Peak Investment Co., a subsidiary of AMERCO.
On October 14, 1996, the Company paid an additional $15,000,000 to L.S. Shoen in settlement of all outstanding disputes pursuant to a Settlement, Mutual Release of All Claims and Confidentiality Agreement (Settlement Agreement), dated October 15, 1996 with the Company resolving the lawsuit in the District Court of Clark County, Nevada. The settlement resolves a long-standing dispute between the Company and L.S. Shoen regarding L.S. Shoen's entitlement to compensation pursuant to an alleged lifetime employment contract.
On December 18, 1996, the Company sold 2,250,000 shares of Common Stock, $0.25 par value, to the public for $35.00 per share, receiving net proceeds of $74,228,000.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6. STOCKHOLDERS' EQUITY, continued
Pursuant to a judgment in the Shoen Litigation, the Company repurchased shares of Common Stock in exchange for cash, funded damages, paid statutory post-judgment interest and placed funds into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs to post-bankruptcy petition date interest. The following table reflects such transactions:
Statutory Post Shares Cash Damages Post-Judgment Petition Repurchased Paid Funded Interest Interest ---------------------------------------------------------- (in thousands except number of shares)
October 18, 1995 Maran, Inc. (Maran) 3,343,076 $22,733 - - - Mary Anna Shoen Eaton - - 41,350 - -
January 30, 1996 L.S.S., (L.S.S.) 833,420 5,667 - - - Leonard S. Shoen - - 15,433 2,018 -
February 7, 1996 Thermar, Inc. (Thermar) 1,651,644 11,231 30,554 4,110 -
July 19, 1996 CEMAR, Inc. (Cemar) 2,331,984 15,857 - - - Cecilia M. Hanlon - - 43,139 129 8,283
September 6, 1996 Katabasis International, Inc. (Katabasis) 4,041,924 27,485 - - - Samuel W. Shoen - - 74,771 224 15,726
September 20, 1996 Kattydid, Inc. (Kattydid) 1,282,248 8,719 - - - Katrina Carlson 734,376 4,994 37,305 112 8,041
October 1, 1996 Mickl, Inc. (Mickl) 4,035,924 27,444 - - - Michael L. Shoen 380 3 73,158 224 16,184
Mary Anna Shoen Eaton owns all the voting stock of Maran; L. S. Shoen owns all the voting stock of L.S.S.; Theresa M. Romero owns all the voting stock of Thermar; Cecilia M. Hanlon owns all the voting stock of Cemar; Samuel W. Shoen owns all the voting stock of Katabasis; Katrina Carlson owns all the voting stock of Kattydid and Michael L. Shoen owns all the voting stock of Mickl. L. S. Shoen is the father of Edward J., Mark V., and James P. Shoen. Mary Anna Shoen Eaton, Theresa M. Romero, Cecilia M. Hanlon and Katrina (Shoen) Carlson are the sisters of Edward J., Mark V., and James P. Shoen. Samuel W. Shoen and Michael L. Shoen are the brothers of Edward J., Mark V., and James P. Shoen. Edward J., Mark V., and James P. Shoen are major stockholders and directors of the Company.
The above treasury share transactions were recorded net of tax of $121,204,000 ($86,266,000 for fiscal 1997 transactions and $34,938,000 for fiscal 1996 transactions). AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
7. 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 for the year ended March 31, 1997 as if the treasury acquisitions disclosed in Note 6 of Notes to Consolidated Financial Statements had taken place as of the beginning of the year (in thousands except per share data):
Earnings per share calculation ------------------------------ Weighted As adjusted average for treasury per share acquisitions ----------- ------------ Earnings from operations before extraordinary loss on early extinguishment of debt $ 54,184 Less dividends on preferred shares 17,456 ---------
36,728 $ 1.44 1.80 Extraordinary loss on early extinguishment of debt (2,319) (.09) (.11) --------- ---------- ---------- Net earnings for per share calculation $ 34,409 $ 1.35 1.69 ========= ========== ========== Weighted average common shares outstanding 25,479,651 20,354,108 ========== ==========
8. INCOME TAXES
The components of the consolidated expense for income taxes applicable to operations are as follows:
Year ended ------------------------------- 1997 1996 1995 ------------------------------- (in thousands) Current: Federal $ 3,404 - 12,629 State 169 637 1,038
Deferred: Federal 24,218 33,790 19,678 State 1,553 1,405 79 -------------------------------
$ 29,344 35,832 33,424 =============================== AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. INCOME TAXES, continued
Actual tax expense reported on earnings from operations differs from the "expected" tax expense amount (computed by applying the United States federal corporate tax rate of 35% in 1997, 1996 and 1995) as follows:
Year ended ------------------------------ 1997 1996 1995 ------------------------------ (in thousands)
Computed "expected" tax expense $ 29,232 33,679 32,696 Increases (reductions) in taxes resulting from: Tax-exempt interest income (767) (714) (1,243) Dividends received deduction - - (62) Net reinsurance effect (920) - 120 Canadian subsidiary income tax benefit (645) (1,235) (1,078) True-up of prior year estimated current tax - 2,112 1,030 Federal tax benefit of state and local taxes (602) (714) (391) Other 1,324 662 1,235 ------------------------------ Actual federal tax expense 27,622 33,790 32,307 State and local income tax expense 1,722 2,042 1,117 ------------------------------
Actual tax expense of operations $ 29,344 35,832 33,424 ==============================
Deferred tax assets and liabilities are comprised as follows:
March 31, ------------------- 1997 1996 ------------------- (in thousands) Deferred tax assets Benefit of tax NOL and credit carryforwards $ 150,633 $ 89,798 Accrued liabilities 14,953 15,218 Deferred revenue from sale/leaseback 10,173 150 Policy benefits and losses, claims and loss expenses payable, net 26,137 26,600 Other - 2,344 ------------------- Total deferred tax assets $ 201,896 $ 134,110 -------------------
Deferred tax liabilities Property, plant and equipment $ 195,080 $ 185,712 Deferred acquisition costs 16,082 17,137 Other 409 - -------------------- Total deferred tax liabilities $ 211,571 $ 202,849 --------------------
Net deferred tax liability $ 9,675 68,739 ====================
In light of the Company's history of profitable operations, management has concluded that it is more likely than not that the Company will ultimately realize the full benefit of its deferred tax assets. Accordingly, the Company believes that a valuation allowance is not required at March 31, 1997 and 1996. See also Note 14 of Notes to Consolidated Financial Statements. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. INCOME TAXES, continued
Income taxes paid in cash amounted to $4,949,000, $540,000 and $9,465,000 for 1997, 1996 and 1995, respectively.
Under the provisions of the Tax Reform Act of 1984 (the Act), the balance in Oxford's account designated "Policyholders' Surplus Account" is frozen at its December 31, 1983 balance of $19,251,000. Federal income taxes (Phase III) will be payable thereon at applicable current rates if amounts in this account are distributed to the stockholder or to the extent the account exceeds a prescribed maximum. Oxford did not incur a Phase III liability for the years ended December 31, 1996, 1995 and 1994.
The Internal Revenue Service has examined AMERCO's income tax returns for the years ended 1992 and 1993. All agreed issues have been provided for in the financial statements. Tax returns for the years ended March 31, 1994 and 1995 are currently under review.
At March 31, 1997 AMERCO and RWIC have non-life net operating loss carryforwards available to offset taxable income in future years of $355,360,000 for tax purposes. These carryforwards expire in 2003 through 2012. AMERCO has alternative minimum tax credit carryforwards of $16,242,000 which do not have an expiration date, but may only be utilized in years in which regular tax exceeds alternative minimum tax. The use of certain carryforwards may be limited or prohibited if a reorganization or other change in corporate ownership were to occur.
During 1994, Oxford dividended their investment in RWIC common stock to its parent at its book value. As a result of such dividend, a deferred intercompany gain arose due to the difference between the book value and fair value of such common stock. However, such gain can only be triggered if certain events occur. To date, no events have occurred which would trigger such gain recognition. No deferred taxes have been provided in the accompanying consolidated financial statements as management believes that no events have occurred to trigger such gain.
9. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS
Independent rental equipment owners (fleet owners) own approximately 12% of all U-Haul rental trailers, 0.03% of all U-Haul rental trucks and certain other rental equipment. There are over 5,000 fleet owners, including certain officers, directors, employees and stockholders of the Company. All rental equipment is operated under contract with U-Haul whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. Based on the terms of various contracts, rental fees are distributed to the Company (for services as operators), to the fleet owners (including certain subsidiaries and related parties of the Company) and to Rental Dealers (including Company-operated U-Haul Centers).
Oxford reinsures short-term accidental death and medical insurance risks for customers who rent vehicles owned by the Company and fleet owners. Premiums earned were $318,000, $1,600,000 and $1,556,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Effective April 1996, the treaty was canceled for new business.
RWIC insures and reinsures certain risks of U-Haul customers and independent fleet owners. Premiums earned on these policies were $40,800,000, $43,400,000 and $39,300,000 during the years ended December 31, 1996, 1995 and 1994, respectively.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. EMPLOYEE BENEFIT PLANS
The Company participates in the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (the Plan) which is designed to provide all eligible employees with savings for their retirement and to acquire a proprietary interest in the Company.
The Plan has three separate features: a profit sharing feature (the Profit Sharing Plan) under which the Employer may make contributions on behalf of participants; a savings feature (the Savings Plan) which allows participants to defer income under Section 401(k) of the Internal Revenue Code of 1986; and an employee stock ownership feature (the ESOP) under which the Company may make contributions of AMERCO common stock or cash to acquire such stock on behalf of participants. Generally, employees of the Company are eligible to participate in the Plan upon completion of a one year service requirement.
The Company has arranged financing to fund the ESOP trust (ESOT) and to enable the ESOT to purchase shares. Below is a summary of the financing arrangements.
Amount outstanding Financing as of Interest Payments Date March 31, 1997 1997 1996 1995 -------------------------------------------------------------------- (in thousands) December 1989 $ 2,500 $ 162 $ 309 $313 May 1990 469 45 59 72 June 1991 17,771 1,472 1,131 745
Shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the plan year. Contributions to the ESOT charged to expense were $3,570,000, $2,904,000 and $2,571,000 for the years ended 1997, 1996 and 1995, respectively.
Effective April 1, 1994, the Company adopted Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans" for shares purchased subsequent to December 31, 1992. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the statement of financial position. As shares purchased after December 31, 1992 are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. EMPLOYEE BENEFIT PLANS, continued
Shares purchased prior to December 31, 1992 are not accounted for under the above guidance. Dividends are recorded as a reduction of retained earnings, shares are considered outstanding for earnings per share calculation, and compensation expense is based upon debt service.
The shares held by ESOP as of March 31 were as follows:
Shares issued Shares issued prior to subsequent to December 31, 1992 December 31, 1992 ------------------------------------------ 1997 1996 1997 1996 ------------------------------------------ (in thousands) (in thousands) Allocated shares 1,487 1,367 78 43 Shares committed to be released - - 11 11 Unreleased shares 749 980 742 783
Fair value of unreleased shares $ 7,574 9,499 18,926 18,988 ==========================================
For purposes of this schedule, fair value of unreleased shares issued prior to December 31, 1992 is defined as the historical cost of such shares. Fair value of unreleased shares issued subsequent to December 31, 1992 is defined as the March 31 trading value of such shares for 1997 and 1996.
Oxford insures various group life and group disability insurance plans covering employees of the consolidated group. Premiums earned were $2,370,000, $2,138,000 and $1,896,000 during the years ended December 31, 1996, 1995 and 1994, respectively, and were eliminated in consolidation.
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides medical and life insurance benefits to retired employees and eligible dependents over age 65 if the employee meets specified age and service requirements.
The Company uses the accrual method of accounting for postretirement benefits. The Company continues to fund medical and life insurance benefit costs as claims are incurred.
The components of net periodic postretirement benefit cost for 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---------------------- (in thousands) Service cost for benefits earned during the period $ 381 346 360 Interest cost on APBO 407 422 382 Other components (58) (81) - ----------------------
Net periodic postretirement benefit cost $ 730 687 742 ====================== AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued
The 1997 and 1996 postretirement benefit liability included the following components:
1997 1996 ----------------- (in thousands) Actuarial present value of postretirement benefit obligation: Retirees $ (1,360) (2,010) Eligible active plan participants (344) (344) Other active plan participants (2,408) (3,597) ----------------- Accumulated postretirement benefit obligation (4,112) (5,951) Unrecognized net gain (3,838) (1,366) ----------------- $ (7,950) (7,317) =================
The discount rate assumptions in computing the information above were as follows:
1997 1996 1995 ---------------------------- Accumulated postretirement benefit obligation 7.50% 7.00% 8.50%
The year-to-year fluctuations in the discount rate assumptions primarily reflect changes in U.S. interest rates. The discount rate represents the expected yield on a portfolio of high-grade (AA-AAA rated or equivalent) fixed-income investments with cash flow streams sufficient to satisfy benefit obligations under the plans when due.
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.50% in 1997, declining annually to an ultimate rate of 4.20% in 2011.
If the health care cost trend rate assumptions were increased by 1.0%, the APBO as of March 31, 1997 would be increased by approximately $635,000. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 1997 would be an increase of approximately $105,000.
Postemployment benefits provided by the Company are not material.
12. REINSURANCE
The Company's insurance subsidiaries assume and cede reinsurance on both a coinsurance and risk premium basis. RWIC and Oxford obtain reinsurance for that portion of risks exceeding retention limits. The maximum amount of life insurance retained on any one life is $100,000.
RWIC also reinsures a wide range of property-casualty risks with third parties and insures general and auto liability, multiple peril and workers' compensation coverage for the consolidated group, independent fleet owners and customers as a direct writer and as a reinsurer through third party companies.
To the extent that a reinsurer is unable to meet its obligation under the related reinsurance agreements, the Company would remain liable for the unpaid losses and loss expenses. Pursuant to certain of these agreements, the Company holds letters of credit of $15,100,000 from reinsurers. The Company has issued letters of credit of $1,900,000 in favor of certain ceding companies. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
12. REINSURANCE, continued
RWIC insures and reinsures general liability, auto liability and workers' compensation coverage for member companies of the consolidated group. Premiums earned by RWIC on these policies were $19,700,000, $12,700,000 and $20,600,000 during the years ended December 31, 1996, 1995 and 1994, respectively, and were eliminated in consolidation.
RWIC is a reinsurer of municipal bond insurance through an agreement with MBIA, Inc. Premiums generated through this agreement are recognized on a pro rata basis over the contract coverage period. Unearned premiums on this coverage were $5,000,000 and $4,800,000 as of December 31, 1996 and 1995, respectively. RWIC's share of case loss reserves related to this coverage was insignificant at December 31, 1996. RWIC's aggregate exposure for Class 1 municipal bond insurance was $876,900,000 as of December 31, 1996.
A summary of reinsurance transactions by business segment follows:
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1996 - --------------- Life insurance in force $ 35,298 463 2,392,339 2,427,174 99% ==========================================
Premiums earned: Life $ 1,869 18 8,016 9,867 81% Accident and health 4,740 171 1,469 6,038 24% Annuity 82 - 10,836 10,918 99% Property casualty 108,440 26,148 54,488 136,780 40% ------------------------------------------ Total $ 115,131 26,337 74,809 163,603 ==========================================
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1995 - --------------- Life insurance in force $ 35,257 481 2,586,485 2,621,261 99% ==========================================
Premiums earned: Life $ 2,078 17 8,414 10,475 80% Accident and health 4,877 183 2,574 7,268 35% Annuity - - 8,453 8,453 100% Property casualty 91,373 33,031 69,711 128,053 54% ------------------------------------------ Total $ 98,328 33,231 89,152 154,249 ==========================================
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
12. REINSURANCE, continued
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------------- (in thousands) Year ended 1994
Life insurance in force $ 32,046 500 2,729,372 2,760,918 99% ==========================================
Premiums earned: Life $ 1,601 16 8,149 9,734 84% Accident and health 3,980 198 1,513 5,295 29% Annuity 61 - 7,696 7,757 99% Property casualty 86,869 40,871 66,864 112,862 59% ------------------------------------------ Total $ 92,511 41,085 84,222 135,648 ==========================================
13. CONTINGENT LIABILITIES AND COMMITMENTS
The Company occupies certain facilities and uses certain equipment under operating lease commitments with terms expiring through 2079. Lease expense was $85,903,000, $69,097,000 and $66,487,000 for the years ended 1997, 1996 and 1995, respectively. During the year ended March 31, 1997, a subsidiary of U-Haul entered into twelve transactions, and has subsequently entered into nine additional transactions, whereby the Company sold rental trucks or trailers and subsequently leased back. The Company has guaranteed $54,001,000 of residual values and an additional $9,252,000 subsequent to March 31, 1997 for these assets at the end of the respective lease terms. U-Haul also entered into one transaction whereby the Company sold rental trailers, and also entered into six transactions, whereby the Company sold computer equipment and subsequently leased back. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions similar to covenants disclosed in Note 5 of Notes to Consolidated Financial Statements (Note 5) for notes payable and loan agreements.
Following are the lease commitments for leases having terms of more than one year (in thousands):
Year end 1997 --------------------------- Net activity Property, plant Rental subsequent to Year ended and other equipment fleet year end Total ------------------------------------------------------------------------
1998 $ 5,167 88,220 (5,298) 88,089 1999 4,741 88,220 (6,426) 86,535 2000 3,793 88,220 (6,426) 85,587 2001 2,344 72,300 (1,218) 73,426 2002 801 48,834 4,098 53,733 Thereafter 8,367 98,792 14,164 121,323 ---------------------------------------------------- $ 25,213 484,586 (1,106) 508,693 ====================================================
Subsequent to March 31, 1997, the Company has reduced future lease commitments by $47,265,000 through early termination of certain leases. Residual value guarantees were also reduced by $7,627,000 in connection with the terminations. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. CONTINGENT LIABILITIES AND COMMITMENTS, continued
In December 1996, the Company executed a $100 million Operating Lease Facility (the Facility) with a number of financial institutions. Under the Facility, the lessor acquires land to be developed for storage locations by the Company, as Construction Agent, or acquires existing storage locations with advances of funds (the Advances) made by certain parties to the Facility. The Company will separately lease land and improvements, including completed locations capitalized by the lessor, under the Facility and the respective lease supplements. Funding under the Facility totaled $20,498,000 at March 31, 1997.
The Facility contains certain restrictions similar to those contained in Note 5. Upon occurence of any event of default, the lessor may rescind or terminate any or all leases and, among other things, require the Company to repurchase any or all of the properties. The Facility has a three year term, subject to the Company's option, with the consent of other parties, to renew for successive one year terms.
Upon the expiration of the Facility, the Company will be required to either purchase all of the properties based on a purchase price equal to all amounts outstanding under the Advances, including the interest and yield thereon or, remarket all of the properties to a third party purchaser who may become a subsequent lessor to the Company.
In the normal course of business, the Company is a defendant in a number of suits and claims. The Company is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving the Company, individually or in the aggregate, are expected to result in a material loss. Also see Notes 12 and 14 of Notes to Consolidated Financial Statements.
14. LEGAL PROCEEDINGS
A judgment was entered on February 21, 1995, in the Shoen Litigation against Edward J. Shoen, James P. Shoen, Paul F. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty, who are current members of the Board of Directors of the Company. The Company was also a defendant in the action as originally filed, but was dismissed from the action on August 15, 1994. The plaintiffs alleged, among other things, that certain of the individual plaintiffs were wrongfully excluded from sitting on the Company's Board of Directors in 1988 through the sale of Common Stock to certain key employees. That sale allegedly prevented the plaintiffs from gaining a majority position in the Company's Common Stock and control of the Company's Board of Directors. The plaintiffs alleged various breaches of fiduciary duty and other unlawful conduct by the individual defendants and sought equitable relief, compensatory damages, punitive damages, and statutory post-judgment interest.
Based on the plaintiffs' theory of damages, the court ruled that the plaintiffs elected as their remedy in this lawsuit to transfer their shares of stock in the Company to the defendants upon the satisfaction of the judgment. The judgment was entered against the defendants in the amount of approximately $461.8 million plus interest and taxable costs. In addition, on February 21, 1995, judgment was entered against Edward J. Shoen in the amount of $7 million as punitive damages. On March 23, 1995, Edward J. Shoen filed a notice of appeal with respect to the award of punitive damages and the plaintiffs have subsequently cross appealed the judge's remittitur of the punitive damages from $70 million to $7 million. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
14. LEGAL PROCEEDINGS, continued
Pursuant to separate indemnification agreements, the Company agreed to indemnify the defendants to the fullest extent permitted by law or the Company's Articles or By-Laws, for all expenses and damages incurred by the defendants in this proceeding, subject to certain exceptions. In addition, the transfer of Common Stock from the plaintiffs to the defendants implicated rights held by the Company. For example, pursuant to the Company's By-Laws, the Company had certain rights of first refusal with respect to the transfer of the plaintiffs' stock. Furthermore, the defendants' rights to acquire the plaintiffs' stock may have presented a corporate opportunity which the Company would be entitled to exercise.
On February 21, 1995, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty (the Director-Defendants) filed for protection under Chapter 11 of the federal bankruptcy laws, resulting in the issuance of an order automatically staying the execution of the judgment against those defendants. In late April 1995, the Director-Defendants, in cooperation with the Company, filed plans of reorganization in the United States Bankruptcy Court for the District of Arizona, all of which proposed the same funding and treatment of the plaintiffs' claims resulting from the judgment in the Shoen Litigation. The plans of reorganization, as amended and restated on February 29, 1996, were confirmed by the bankruptcy court on March 15, 1996. The plans, as confirmed, shall collectively be referred to as the "Plan."
On October 17, 1995 the Company entered into an agreement (the Agreement) with the Director-Defendants whereby the Company agreed, among other things, to fund the Plan and to release the Director-Defendants from all claims the Company may have against them arising from the Shoen Litigation. In addition, the Director-Defendants agreed (i) to release, subject to certain exceptions, the Company from any claim they may have against it pursuant to any indemnification agreements, (ii) to assign all rights they have under the Shoen Litigation to the Company, (iii) to waive all appeal rights related to the Shoen Litigation (not including Edward J. Shoen's appeal of the punitive damage award), and (iv) not to oppose the Company should it elect to exercise its right of first refusal on any Common Stock to be transferred by the plaintiffs upon satisfaction of the judgment in the Shoen Litigation.
Pursuant to the Plan, the Company repurchased the plaintiffs' shares of Common Stock as described in Note 6 in Notes to Consolidated Financial Statements. As a result, the judgment in the Shoen Litigation was satisfied in full. On October 1, 1996, the Director-Defendants emerged from bankruptcy upon the filing of notice with the bankruptcy court that the effective date of the Plan had occurred and that the Plan had been performed and was substantially consummated.
As of the date hereof, an issue remains regarding whether or not the plaintiffs are entitled to statutory post-judgment interest at the rate of ten percent (10%) per year from February 21, 1995 (the date the Director-Defendants filed for protection under Chapter 11) until the judgment was satisfied. On July 19, 1996, the bankruptcy court ruled the plaintiffs are entitled to such interest. The Director-Defendants and the Company have appealed the court's decision, The Company has deposited approximately $48.2 million into an escrow account to secure payment of the disputed interest, pending final resolution of this issue (including all appeals by either side) which has been recorded as a component of other assets in the 1997 accompanying balance sheet. If the interest issue is decided adversely to the Company and the Director- Defendants, the amount deposited into the escrow account will be transferred to the plaintiffs. The ultimate outcome of this issue will not have the effect of increasing or decreasing the Company's net earnings, but could reduce stockholders' equity.
The Company has deducted for income tax purposes approximately $324.0 million of the payments made to the plaintiffs. While the Company believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. PREFERRED STOCK PURCHASE RIGHTS
In July 1988, the Company's Board of Directors adopted a stockholder-rights plan, and such rights were distributed as a dividend at the rate of one right for each outstanding share of the Company's common stock to the holders of record of common shares on July 29, 1988. As a result of the 400-for-1 common stock split that occurred on October 1, 1990, each outstanding share of common stock currently has one four-hundredth of a right associated with it. When exercisable, each right will entitle its holder to purchase from the Company one one-hundredth of a share of the new Series C Preferred Stock of the Company at a price of $15,000. AMERCO has reserved 5,000 shares of authorized but unissued preferred stock for the Series C Preferred Stock authorized in this stockholder-rights plan. The rights will become exercisable if a person or group of affiliated or associated persons acquire or obtain the right to acquire beneficial ownership of 50% or more of the common stock without approval of a majority of the Board of Directors of the Company. The majority approval must be made by members of the Board who were members as of July 25, 1988 (Disinterested Directors) or subsequent members elected to the Board if such persons are recommended or approved by a majority of the Disinterested Directors. The rights will expire on July 29, 1998 unless earlier redeemed by the Company pursuant to authorization by a majority of the Disinterested Directors.
In the event the Company is acquired in a merger or other business combination transaction after the rights become exercisable, provision shall be made so that each holder of a right shall have the right to receive, upon exercise thereof and payment of the exercise price, that number of common shares of such corporation which at the time of such transaction would have a market or book value of two times the exercise price of the right. If the Company is the surviving company, each holder would have the right to receive, upon payment of the exercise price, common shares with a market or book value of two times the exercise price.
16. STOCK OPTION PLAN
In October 1992, the stockholders approved a ten year incentive plan entitled the AMERCO Stock Option and Incentive Plan (the Plan) for officers and key employees of the Company.
Under the Plan, Incentive Stock Options (ISOs), Non-qualified Stock Options, Stock Appreciation Rights (SAR), Restricted Stock Dividend Equivalents and Performance Shares may be awarded. The aggregate numbers of shares of stock subject to award under the Plan may not exceed 3,000,000. The stock subject to the Plan is AMERCO Common Stock unless prior to the date the first award is made under the Plan, a Committee of at least two Board members determines, in its discretion, to utilize another class of the Company's stock.
The Plan provides for the granting of ISOs as defined under the Internal Revenue Code and Non-qualified Stock Options under such terms and conditions as the Committee determines in its discretion. The ISOs may be granted at prices not less than one-hundred percent of the fair market value at the date of grant with a term not exceeding ten years.
The Plan provides for the granting of SARs subject to certain conditions and limitations to holders of options under the Plan. SARs permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
16. STOCK OPTION PLAN, continued
Under the Restricted Stock feature of the Plan, a specified number of common shares may be granted subject to certain restrictions. Restriction violations during a specified period result in forfeiture of the stock. The Committee may, at its discretion, impose any restrictions on a Restricted Stock award.
The Plan authorizes the Committee to grant Dividend Equivalents in connection with options. Dividend Equivalents are rights to receive additional shares of Company stock at the time of exercise of the option to which such Dividend Equivalents apply.
Under the Plan, Performance Share units may be granted. Each unit is deemed to be the equivalent of one share of Company stock and such units are credited to a Performance Share account. The value of the units at the time of award or payment is the fair market value of an equivalent number of shares of stock. At the end of the award period, payment may be made subject to certain predetermined criteria and restrictions.
To date, no stock options or awards have been granted.
17. RELATED PARTY TRANSACTIONS
The Company has related party transactions with certain major stockholders, directors and officers of the consolidated group as disclosed in Notes 2, 6, 9 and 15 of Notes to Consolidated Financial Statements.
During the years ended 1997, 1996 and 1995, the Company purchased $3,281,000, $3,122,000 and $3,417,000, respectively, of printing from a company wherein an officer is a major stockholder, director and officer of the Company.
During the years ended 1997 and 1996, the Company purchased $11,164,000 and $1,558,000 of computer components from a company wherein a major stockholder was the family trust of a major stockholder, director and officer of the Company, until June 1, 1996. There were no purchases from the Company during the year ended 1995.
Pursuant to a Share Repurchase and Registration Rights Agreement, dated May 1, 1992, among Sophia M. Shoen, Sophmar, Inc., and the Company, Sophia M. Shoen had the right to require the Company to repurchase, with certain limitations, up to $3,000,000 of Common Stock owned by her. The Sophia Shoen Registration Rights Agreement provides that the Company's obligations to repurchase any shares from Sophia M. Shoen may be satisfied if such shares are purchased by the ESOP Trust. Pursuant to the Sophia Shoen Registration Rights Agreement, on June 30, 1994, Sophia M. Shoen sold 88,235 shares of Common Stock to the ESOP Trust at the then appraised value of $17.00 per share, for an aggregate sales price of approximately $1,500,000. In addition, Sophia M. Shoen, subject to certain limitations and restrictions, may also elect under the Sophia Shoen Registration Rights Agreement to cause the Company to effect a registration under the Securities Act of 1933, as amended, and applicable state securities laws of shares of Common Stock held by her. Sophia M. Shoen sold 575,000 shares of Common Stock to the public in late 1994 pursuant to her registration rights. Sophia Shoen has reached a tentative agreement with the Company, subject to execution of definitive agreements, whereby the Company will pay Sophia Shoen the sum of $1,250,000 to terminate the Share Repurchase and Registration Right Agreement. Sophia M. Shoen is a major stockholder and is the sister of Edward J., Mark V. and James P. Shoen, who are major stockholders and directors of the Company. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
17. RELATED PARTY TRANSACTIONS, continued
Pursuant to a Share Repurchase and Registration Rights Agreement, dated as of March 1, 1992, among Paul F. Shoen, Pafran, Inc. and the Company, Paul F. Shoen had the right to require the Company to repurchase, with certain limitations, up to $3,000,000 of Common Stock owned by him. The Paul Shoen Registration Rights Agreement provides that the Company's obligation to repurchase any shares from Paul F. Shoen shall be satisfied if such shares are purchased by the ESOP Trust. Pursuant to the Paul Shoen Registration Rights Agreement, (i) on June 30, 1994, Paul F. Shoen sold 58,825 shares of Common Stock to the ESOP Trust at the then appraised value of $17.00 per share for an aggregate sales price of approximately $1,000,000 and (ii) on January 17, 1995, Paul F. Shoen sold 50,632 shares of Common Stock to the ESOP Trust at the most recent closing price for the Common Stock trading on Nasdaq of $19.75 per share for an aggregate sales price of approximately $1,000,000. In addition, Paul F. Shoen, subject to certain limitations and restrictions, may also elect under the Paul Shoen Registration Rights Agreement to cause the Company to effect a registration under the Securities Act of 1933, as amended, and applicable state securities laws of shares of Common Stock held by him. Paul F. Shoen sold 500,000 shares of Common Stock to the public in March of 1995 pursuant to his registration rights. Paul F. Shoen is a major stockholder and director of the Company.
On February 9, 1995, Paul F. Shoen executed a settlement agreement with the Company whereby Paul F. Shoen agreed to the dismissal of certain claims he had asserted in an arbitration proceeding and in an action in the United States District Court for the District of Nevada. In exchange for Paul F. Shoen's agreement to dismiss such claims, the Company agreed, among other things, to work in good faith toward appointing independent trustees for the ESOP and to place Paul F. Shoen on the management's slate of directors for the 1994 Annual Meeting of Stockholders. In addition, the settlement agreement provided for the Company to pay Paul F. Shoen $925,000 and for the Company to receive a full release of all claims by Paul F. Shoen through the settlement date, including but not limited to, claims for reimbursement of attorneys fees related to all matters to which Paul F. Shoen is or was a party. The terms of the settlement will not result in a material adverse effect of the Company's financial position or results of operations.
On December 18, 1995, the Company reimbursed Paul F. Shoen $1,500,000 for a payment made to the plaintiffs in partial satisfaction of the judgment in the Shoen Litigation.
Management believes that these transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
18. SUPPLEMENTAL CASH FLOW INFORMATION
The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows:
Year ended --------------------------------------- 1997 1996 1995 --------------------------------------- (in thousands)
Receivables $ 75,150 (45,734) (57,645) =======================================
Inventories $ (19,903) 4,446 (1,325) =======================================
Accounts payable and accrued expenses $ (20,819) 24,137 3,549 ======================================= AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES
A summary consolidated balance sheet for RWIC is presented below:
December 31, ---------------------- 1996 1995 ---------------------- (in thousands)
Investments - fixed maturities $ 401,198 414,323 Other investments 13,609 16,730 Receivables 116,373 138,650 Deferred policy acquisition costs 8,622 9,858 Due from affiliate 24,223 15,107 Deferred federal income taxes 16,941 17,298 Other assets 28,721 7,488 ------------------- Total assets $ 609,687 619,454 ===================
Policy liabilities and accruals $ 338,047 345,984 Unearned premiums 50,699 64,379 Premium deposits - - Other policyholders' funds and liabilities 28,592 20,909 ------------------- Total liabilities 417,338 431,272
Stockholder's equity 192,349 188,182 -------------------
Total liabilities and stockholder's equity $ 609,687 619,454 =================== AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued
A summarized consolidated income statement for RWIC is presented below:
Year ended December 31, ----------------------------------- 1996 1995 1994 ----------------------------------- (in thousands)
Premiums $ 156,505 140,752 133,437 Net investment income 30,572 29,906 29,026 Other income 2,016 1,714 2,835 ----------------------------------- Total revenue 189,093 172,372 165,298 Benefits and losses 131,407 129,497 115,217 Amortization of deferred policy acquisition costs 9,858 8,973 6,644 Other expenses 29,566 12,466 20,281 ----------------------------------- Income from operations 18,262 21,436 23,156 Federal income tax expense (5,502) (6,722) (6,960) ----------------------------------- Net income $ 12,760 14,714 16,196 ===================================
A summary consolidated balance sheet for Oxford is presented below:
December 31, --------------------- 1996 1995 --------------------- (in thousands)
Investments - fixed maturities $ 458,496 465,379 Other investments 92,762 90,234 Receivables 13,553 16,734 Deferred policy acquisition costs 39,976 40,137 Due from affiliate 149 148 Deferred federal income taxes (9,908) (14,585) Other assets 2,142 1,668 ------------------- Total assets $ 597,170 599,715 ===================
Policy liabilities and accruals $ 80,589 73,203 Unearned premiums - - Premium deposits 433,397 410,787 Other policyholders' funds and liabilities 7,931 9,539 ------------------- Total liabilities 521,917 493,529
Stockholder's equity 75,253 106,186 -------------------
Total liabilities and stockholder's equity $ 597,170 599,715 ===================
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
19. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued
A summarized consolidated income statement for Oxford is presented below:
Year ended December 31, ----------------------------------- 1996 1995 1994 ----------------------------------- (in thousands)
Premiums $ 27,832 27,073 23,526 Net investment income 18,746 16,508 14,060 Other income 2,294 6,801 3,202 ----------------------------------- Total revenue 48,872 50,382 40,788 Benefits and losses 23,354 21,743 18,200 Amortization of deferred policy acquisition costs 6,635 8,158 4,252 Other expenses 8,309 7,871 8,598 ----------------------------------- Income from operations 10,574 12,610 9,738 Federal income tax expense (2,771) (4,233) (2,500) ----------------------------------- Net income $ 7,803 8,377 7,238 ===================================
Applicable laws and regulations of the State of Arizona require maintenance of minimum capital determined in accordance with statutory accounting practices in the amount of $400,000 for Oxford and $1,000,000 for RWIC. In addition, the amount of dividends which can be paid to shareholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends is $16,108,000 at December 31, 1996.
Audited statutory net income for RWIC for the years ended December 31, 1996, 1995 and 1994 was $16,807,000, $12,273,000 and $13,611,000, respectively; audited statutory capital and surplus was $161,085,000 and $152,156,000 at December 31, 1996 and 1995, respectively.
Audited statutory net income for Oxford for the years ended December 31, 1996, 1995 and 1994 was $12,815,000, $8,912,000 and $12,150,000, respectively; audited statutory capital and surplus was $49,576,000 and $73,580,000 at December 31, 1996 and 1995, respectively. AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
Industry Segment Data - AMERCO's three industry segments are Moving and Storage Operations, Property/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/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)
- ---- Revenues: Outside $1,208,588 169,322 47,193 - 1,425,103 Intersegment - 19,771 1,679 (21,450) - ---------------------------------------------------------- Total revenue $1,208,588 189,093 48,872 (21,450) 1,425,103 ========================================================== Pretax operating profit $ 128,215 18,262 10,574 - 157,051 ============================================ Interest expense 73,523 Pretax --------- earnings from operations $ 83,528 ========= Identifiable assets $1,811,145 609,687 597,170 (299,008) 2,718,994 ========================================================== Depreciation/ amortization $ 75,607 12,040 6,717 - 94,364 ========================================================== Capital expenditures $ 203,943 - - - 203,943 ========================================================== AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments and Storage Casualty Life and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------ (in thousands)
- ---- Revenues: Outside $1,141,568 159,609 49,101 - 1,350,278 Intersegment (656) 12,763 1,281 (13,388) - ---------------------------------------------------------- Total revenue $1,140,912 172,372 50,382 (13,388) 1,350,278 Pretax ========================================================== operating profit $ 129,082 21,436 12,610 656 163,784 ============================================ Interest expense 67,558 Pretax --------- earnings from operations $ 96,226 ========= Identifiable assets $1,916,534 619,454 599,715 (312,296) 2,823,407 ========================================================== Depreciation/ amortization $ 83,734 11,176 7,517 - 102,427 ========================================================== Capital expenditures $ 291,057 - - - 291,057 ==========================================================
Moving Property/ Adjustments and Storage Casualty Life and Operations Insurance Insurance Eliminations Consolidated ------------------------------------------------------------ (in thousands)
- ---- Revenues: Outside $1,097,111 144,642 39,347 - 1,281,100 Intersegment (42) 20,657 1,444 (22,059) - ---------------------------------------------------------- Total revenue $1,097,069 165,299 40,791 (22,059) 1,281,100 ========================================================== Pretax operating profit $ 128,278 23,074 9,824 42 161,218 ============================================ Interest expense 67,762 --------- Pretax earnings from operations $ 93,456 ========= Identifiable assets $1,825,683 579,821 479,778 (281,605) 2,603,677 ========================================================== Depreciation/ amortization $ 150,187 8,913 4,790 - 163,890 ========================================================== Capital expenditures $ 434,992 - - - 434,992 ========================================================== AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
20. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Geographic Area Data - United States Canada Consolidated (Canada is in U.S. $'s) --------------------------------------- (in thousands) - ---- Revenues $ 1,394,774 30,329 1,425,103 Pretax earnings from operations $ 81,686 1,842 83,528 Identifiable assets $ 2,674,603 44,391 2,718,994
- ---- Revenues $ 1,321,233 29,045 1,350,278 Pretax earnings from operations $ 92,699 3,527 96,226 Identifiable assets $ 2,777,146 46,261 2,823,407
- ---- Revenues $ 1,252,746 28,354 1,281,100 Pretax earnings from operations $ 90,378 3,078 93,456 Identifiable assets $ 2,550,252 53,425 2,603,677
21. SUBSEQUENT EVENTS
In February 1997, the Company, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self- storage corporation. RWIC invested $13,500,000 in exchange for a 27.3% limited partnership and Oxford invested $11,000,000 in exchange for a 22.2% limited partnership. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self-storage corporation. The Company has a $10,000,000 note receivable from the corporation.
On May 6, 1997, the Company declared a cash dividend of $3,241,000 ($.53125 per preferred share) to preferred stockholders of record as of May 16, 1997.
See Notes 13 and 17 of Notes to Consolidated Financial Statements for other subsequent event disclosures.
NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS
Additional Information
(A) The accompanying Summary of Earnings of Independent Trailer Fleets includes the operations of trailers under the brand name of "U-Haul" owned by Independent Fleet Owners. Earnings data represent the aggregate results of operations before depreciation and taxes. Investment data represent the cost of trailers and investments before accumulated depreciation.
Fleet Owner income is based on Independent Rental Dealer reports of rentals transacted through the day preceding the last Monday of each month and received by U-Haul International, Inc. by the end of the month and Company- Operated U-Haul Center reports of rentals transacted through the last day of each month. Payments to Fleet Owners for trailers lost or retired from rental service as a result of damage by accident have not been reflected in this summary because such payments do not relate to earnings before depreciation and income taxes but, rather, investment (depreciation).
The investment data is based upon the cost of trailers to the Fleet Owners as reflected by sales records of U-Haul's manufacturing facilities.
(B) The summary of earnings data stated in terms of amount per $100 of average investment represents the aggregate results of operations (earnings data) divided by the average amount of investment during the periods. The average amount of investment is based upon a simple average of the month-end investment during each period. Average earnings data is not necessarily representative of an individual Fleet Owner's earnings.
(C) A summary of operations expenses charged directly to Independent Fleet Owners follows:
Year ended March 31, --------------------------------------- 1997 1996 1995 1994 1993 --------------------------------------- (in thousands)
Licenses $ 434 436 503 520 593 Public liability insurance 198 264 320 392 510 Repairs and maintenance 1,007 1,482 1,304 1,492 1,997 --------------------------------------- $ 1,639 2,182 2,127 2,404 3,100 =======================================
(D) The Fleet Owners, Independent Rental Dealers, U-Haul International, Inc. and Subsidiary U-Haul Rental Companies forego normal commissions on a portion of gross rental fees designated for transfer to the Distribution Fee Fund, the Accident Fund, and the Canadian Duty Fund. Designated expenses, otherwise chargeable to Fleet Owners, are paid from these Funds to the extent of the financial resources of the Funds. The amounts designated "Distribution, Accident and Canadian Duty Funds credit" in the accompanying summary of earnings represent Operator Contribution expenses borne by the Funds, which exceed Independent Fleetowner commissions foregone. NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued
Additional Information
(E) Commissions foregone for transfer to the Distribution, Accident and Canadian Duty Funds (net of fees in excess of expenses incurred) follows:
Fleet Owners Subsidiary ---------------------- U-Haul Subsidiary Companies Companies Independent Total ----------------------------------------------- (in thousands) Year ended:
March 31, 1997 882 439 36 1,357 March 31, 1996 1,287 624 69 1,980 March 31, 1995 986 465 66 1,517 March 31, 1994 873 399 71 1,343 March 31, 1993 879 358 114 1,351
(F) A summary of Independent Fleet Owner expenses incurred by the Funds follows:
Schedule I
Condensed Financial Information of Registrant AMERCO Balance Sheets March 31,
1997 1996 ------------------------ (in thousands) Assets - ------
Cash $ 1,388 5,487 Investment in subsidiaries 629,415 613,606 Due from unconsolidated subsidiaries 881,700 1,073,819 Other assets 56,798 3,849 ------------------------
$ 1,569,301 1,696,761 ========================
Liabilities and Stockholders' Equity - ------------------------------------
Liabilities: Notes and loans $ 915,079 929,236 Other liabilities 34,131 99,334 ------------------------
Stockholders' equity: Preferred stock - - Common stock 10,563 10,000 Additional paid-in capital 337,933 165,756 Foreign currency translation (14,133) (11,877) Net unrealized gain on investments 4,411 11,097
Retained earnings: Beginning of year 609,019 561,589 Net earnings 51,865 60,394 Dividends paid (16,875) (12,964) ------------------------ 644,009 609,019
Less: Cost of common shares in treasury 359,723 111,118 Unearned employee stock ownership plan shares 2,969 4,686 ------------------------ Total stockholders' equity 620,091 668,191 ------------------------ $ 1,569,301 1,696,761 ========================
See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference.
Schedule I, continued
Condensed Financial Information of Registrant AMERCO Statements of Earnings Years Ended March 31,
1997 1996 1995 ------------------------------------ (in thousands except per share data)
Revenues - -------- Net interest income from subsidiaries $ 58,723 63,133 66,050 Other revenue 2,445 753 465 ------------------------------------
Total revenues 61,168 63,886 66,515 ------------------------------------ Expenses - -------- Interest expense 71,039 63,133 66,050 Other expenses 7,374 14,119 11,515 ------------------------------------
Total expenses 78,413 77,252 77,565 ------------------------------------
Operating loss (17,245) (13,366) (11,050)
Equity in earnings of unconsolidated subsidiaries 98,895 107,550 102,583
Income tax expense (27,466) (33,790) (31,501)
Extraordinary loss on early extinguishment of debt, net (2,319) - - ------------------------------------
Net earnings $ 51,865 60,394 60,032 ==================================== Earnings from operations before extraordinary loss on early extinguishment of debt $ 1.44 1.33 1.23 Extraordinary loss on early extinguishment of debt, net (0.09) - - ------------------------------------ Net earnings $ 1.35 1.33 1.23 ====================================
Weighted average common shares outstanding 25,479,651 35,736,335 38,190,552 ====================================
See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference.
Schedule I, continued
Condensed Financial Information of Registrant AMERCO Statements of Cash Flows Years Ended March 31,
1997 1996 1995 ----------------------------------- (in thousands)
Cash flows from operating activities: Net earnings $ 51,865 60,394 60,032 Amortization, net 1,954 34 545 Equity in earnings of subsidiaries 65,392 69,085 67,139 Increase (decrease) in amounts due from unconsolidated subsidiaries 192,119 3,195 (91,475) Net change in operating assets and liabilities (63,961) (121,490) (100,639) Other, net (8,641) 18,485 (8,194) ----------------------------------
Net cash provided (used) by operating activities 238,728 29,703 (72,592) ----------------------------------
Cash flows from financing activities: Net change in short term borrowings (347,000) 84,500 178,750 Proceeds from notes 562,000 140,000 - Repayments from Leveraged Employee Stock Ownership Plan loan 1,717 1,717 1,717 Principal payments on notes (229,157) (106,826) (89,706) Debt issuance costs (5,612) (1,027) (319) Issuance of common stock 73,709 - - Issuance of preferred stock 98,546 - - Preferred stock dividends paid (16,875) (12,964) (12,964) Treasury Stock purchase, net (248,605) (100,657) - Deferred tax-treasury stock (80,997) (34,938) - Escrow deposit (48,234) - - Extraordinary loss on early extinguishment of debt, net (2,319) - - ----------------------------------
Net cash provided (used) by financing activities (242,827) (30,195) 77,478 ----------------------------------
Increase (decrease) in cash (4,099) (492) 4,886 Cash and cash equivalents at beginning of year 5,487 5,979 1,093 ----------------------------------
Cash and cash equivalents at end of year $ 1,388 5,487 5,979 ==================================
Income taxes paid in cash amounted to $4,721,000, $285,000 and $8,794,000 for 1997, 1996 and 1995, respectively. Interest paid in cash amounted to $67,492,000, $67,150,000 and $65,840,000 for 1997, 1996 and 1995, respectively.
See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. Schedule I, continued
Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AMERCO, a Nevada corporation, was incorporated in April, 1969, and is the holding company for U-Haul International, Inc., Republic Western Insurance Company, Oxford Life Insurance Company and Amerco Real Estate Company. The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this Form 10-K.
The Company is included in a consolidated Federal income tax return with all of its U.S. subsidiaries. Accordingly, the provision for income taxes has been calculated for Federal income taxes of the Registrant and subsidiaries included in the consolidated return of the Registrant. State taxes for all subsidiaries are allocated to the respective subsidiaries.
The financial statements include only the accounts of the Registrant (a Nevada corporation), which include certain of the corporate operations of AMERCO. The debt and related interest expense of the Registrant have been allocated to the consolidated subsidiaries. The intercompany interest income and expenses are eliminated in the consolidated financial statements.
2. GUARANTEES
AMERCO has guaranteed performance of certain long-term leases. See Note 13 of Notes to Consolidated Financial Statements.
3. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following:
March 31, ---------------------- 1997 1996 ---------------------- (in thousands) Medium-term notes payable, unsecured, 5.85% to 8.08% interest rates, due through 2027 $ 387,000 95,050 Note payable to insurance companies, unsecured 6.43% to 10.27% interest rates, due through 2006 226,500 339,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2004 175,000 - Notes payable to banks, unsecured, 4.81% to 7.54% interest rates, due through 2001 62,500 84,100 Other notes payable, unsecured, 9.50% interest rate, due through 2005 79 86 Unsecured notes payable to banks under revolving lines of credit, 5.74% to 5.80% interest rates 60,000 338,000
Other short-term promissory notes 4,000 73,000 -------------------- $ 915,079 929,236 ====================
For additional information, see Note 5 of Notes to Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERCO
By: /S/ EDWARD J. SHOEN -------------------- Edward J. Shoen Chairman of the Board
Dated: June 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ EDWARD J. SHOEN Chairman of the Board June 26, 1997 - ---------------------- (Principal Executive Edward J. Shoen Officer)
/S/ GARY B. HORTON Principal Financial June 26, 1997 - ---------------------- and Accounting Officer Gary B. Horton
/S/ WILLIAM E. CARTY Director June 26, 1997 - ---------------------- William E. Carty
/S/ JAMES P. SHOEN Director June 26, 1997 - ---------------------- James P. Shoen
/S/ RICHARD J. HERRERA Director June 26, 1997 - ---------------------- Richard J. Herrera
/S/ CHARLES J. BAYER Director June 26, 1997 - ---------------------- Charles J. Bayer