UHAL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 1998, for AMERCO (the holding company) and its consolidated subsidiaries, primarily U-Haul International, Inc. (Moving and Storage), Republic Western Insurance Company (Property and Casualty), and Oxford Life Insurance Company (Life Insurance). The financial statements are unaudited.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 5.9% year-over-year. Rental revenue rose 6.1% to $281.4 million, driven by higher truck utilization and inventory levels. Net sales increased 1.5% due to higher sales of moving support items.
• Profitability: Net earnings increased 6.9% to $31.2 million. Pretax earnings rose to $47.4 million from $44.1 million.
• Operating Cash Flow Decline: Cash provided by operating activities dropped significantly to $22.0 million from $80.1 million in the prior year, primarily due to a $24.2 million increase in receivables and a $30.2 million decrease in accounts payable.
• Segment Performance:
  • Moving & Storage: Pretax earnings increased to $41.4 million from $37.0 million.
  • Property & Casualty (RWIC): Pretax earnings decreased to $2.2 million from $5.0 million due to a significant drop in net earned premiums ($22.7 million vs. $34.5 million) from U-Haul liability programs.
  • Life Insurance (Oxford): Pretax earnings increased to $3.8 million from $2.1 million, aided by the acquisition of North American Insurance Company and Safe Mate Life Insurance Company.
• Interest Expense: Net interest expense decreased to $15.0 million from $17.5 million, attributed to debt restructuring reducing the average cost of debt.

Outlook, Risks, and Unusual Items

• Capital Expenditures: Management estimates gross capital expenditures will average approximately $325 million annually for fiscal years 1999–2001, primarily for fleet rotation. These are expected to be funded 100% by internally generated funds and asset dispositions.
• Year 2000 Compliance: The Company is in the conversion and testing phase for Year 2000 compliance, with an estimated total cost of $2.0 million ($0.6 million incurred to date). Full compliance is targeted for March 1999. Risks include potential system failures or third-party vendor non-compliance.
• Contingent Liabilities: The Company has guaranteed residual values of $5.5 million on rental trucks sold and leased back, with an additional $4.2 million guaranteed subsequent to the quarter end. Management does not expect material losses from pending litigation or environmental proceedings.
• Subsequent Events: In July 1998, the Company redeemed 25,000 shares of Series B Preferred Stock for $25.0 million and declared a cash dividend of $3.2 million on preferred stock.
• Anti-Takeover Rights: On July 13, 1998, the Board declared a dividend of one preferred share purchase right for each outstanding share of common stock, effective August 17, 1998, as a poison pill defense mechanism.

Investor Verification Checklist

• Verify the sustainability of the $24.2 million increase in receivables and its impact on future working capital.
• Confirm the timeline and budget adherence for Year 2000 compliance, specifically regarding third-party vendor dependencies.
• Monitor the trend in Property & Casualty premiums, which declined significantly due to reduced U-Haul liability program volume.
• Review the terms of the newly issued Preferred Share Purchase Rights and their potential impact on future capital structure or acquisition scenarios.
• Assess the adequacy of the $175 million unutilized credit line given the projected $325 million annual capital expenditure needs.