UHAL

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended March 31, 1998, for AMERCO (the holding company) and its primary subsidiary, U-Haul International, Inc. The Company operates in three primary segments: Moving and Storage Operations (U-Haul), Property and Casualty Insurance (Republic Western Insurance Company - RWIC), and Life Insurance (Oxford Life Insurance Company). The Company's fiscal year ends March 31, while its insurance subsidiaries report on a calendar year basis (ending December 31).

Key Financial Metrics

Segment Performance: Moving and Storage Operations generated $1,196.2 million in revenue. Property and Casualty Insurance (RWIC) reported net income of $1.3 million for the calendar year 1997, a significant decline from $12.8 million in 1996 due to increased underwriting expenses. Life Insurance (Oxford) reported net income of $7.4 million for calendar year 1997.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 3.7% to $1.41 billion. Rental revenue grew 4.6% to $1.02 billion, driven by transactional growth and higher average revenue per transaction. Net sales increased 2.3%.
• Profitability Decline: Net earnings decreased 32.6% to $35.0 million. This decline was primarily driven by an extraordinary loss of $13.7 million (net of tax) related to the early extinguishment of debt.
• Insurance Segment Deterioration: RWIC's income before tax dropped 96.2% to $0.7 million due to a $31.6 million increase in losses and loss adjustment expenses, including a $23.2 million provision for unpaid losses on prior years' business.
• Capital Expenditures: Gross capital expenditures surged to $392.3 million (up from $203.9 million in 1997) to fund the expansion of the rental truck fleet and real property acquisitions.
• Debt Restructuring: The Company extinguished $331 million of debt during fiscal 1998, resulting in the aforementioned extraordinary loss.

Guidance, Outlook, Risks, and Unusual Items

• Debt Extinguishment: The Company incurred a $13.7 million extraordinary loss from retiring $76 million of 10.27% notes and $255 million of notes ranging from 6.43% to 8.13%. This was a strategic move to reduce interest costs.
• Environmental Liabilities: The Company faces potential substantial costs regarding hazardous waste sites, specifically the "Yakima Valley Spray Site" and "Yakima Railroad Area" in Washington. While management does not expect a material adverse effect on financial position, future remediation costs cannot be reasonably assessed.
• Legal Proceedings: An issue remains regarding statutory post-judgment interest in the "Shoen Litigation." The Company has deposited $48.2 million in escrow. An adverse ruling would reduce stockholders' equity but not net earnings.
• Year 2000 Compliance: The Company estimates a $2.0 million cost to achieve Year 2000 compliance by March 1999. Failure to comply or vendor failures could have a material adverse effect.
• Outlook: Management estimates annual funding needs of $375-$415 million for capital expenditures and debt maturities through 2001, intending to fund 100% of these requirements with internally generated funds.

Investor Verification Checklist

• Debt Structure: Verify the impact of the $13.7 million debt extinguishment loss on future interest expense and the remaining debt maturity schedule.
• Insurance Reserves: Scrutinize the $23.2 million increase in RWIC's unpaid loss reserves and the sustainability of the property and casualty underwriting margin.
• Environmental Exposure: Monitor the status of the Yakima Valley remediation and potential cost allocations, as current estimates are uncertain.
• Capital Allocation: Assess the return on the $392 million capital expenditure program, particularly regarding fleet rotation and real estate acquisitions.
• Legal Escrow: Track the resolution of the Shoen Litigation interest dispute to determine if the $48.2 million escrow will be returned or transferred to plaintiffs.