March 31, 2006 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K for Annual and Transition Reports
 
Pursuant to Section 13 or 15(d)
 
of the Securities Exchange Act of 1934

(Mark One)
R ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended March 31, 2006
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________________ to __________________

Commission 
File Number
Registrant, State of Incorporation
Address and Telephone Number
I.R.S. Employer
Identification No.
 
 
1-11255
AMERCO
88-0106815
 
(A Nevada Corporation)
 
 
1325 Airmotive Way, Ste. 100
 
 
Reno, Nevada 89502-3239
 
 
Telephone (775) 688-6300
 
 
 
2-38498
U-Haul International, Inc.
86-0663060
 
(A Nevada Corporation)
 
 
2727 N. Central Avenue
 
 
Phoenix, Arizona 85004
 
 
Telephone (602) 263-6645
 
     
Securities registered pursuant to Section 12(b) of the Act:
 
Registrant
 
Title of Class
Name of Each Exchange on Which Registered
AMERCO
Series A 8 ½% Preferred Stock
New York Stock Exchange
U-Haul International, Inc.
None
 
     
Securities registered pursuant to Section 12(g) of the Act:
 
Registrant
 
Title of Class
Name of Each Exchange on Which Registered
AMERCO
Common
NASDAQ
U-Haul International, Inc.
None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes £ No R
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act Yes £ No R
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” Rule 12b-2 of Exchange Act. (Check one):
 
Large Accelerated filer £   Accelerated filer R   Non-accelerated filer £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
 
The aggregate market value of AMERCO common stock held by non-affiliates (i.e., stock held by person other than officers, directors and 5% shareholders of AMERCO) on September 30, 2005 was $459,792,882. The aggregate market value was computed using the closing price for the common stock trading on NASDAQ on such date. 
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R No £
 
21,284,604 shares of AMERCO Common Stock, $0.25 par value were outstanding at June 1, 2006.
 
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at June 1, 2006. None of these shares were held by non-affiliates.
 
Documents incorporated by reference: Portions of AMERCO’s definitive Proxy Statement for the 2006 Annual Meeting of Stockholders is incorporated by reference into Part III of this report.






TABLE OF CONTENTS
 
   
Page No.
 
PART I
 
     
Item 1.
Business
2 - 10
Item 1A.
Risk Factors
10 - 12
Item 1B.
Unresolved Staff Comments
12
Item 2.
Properties
12
Item 3.
Legal Proceedings
13 - 14
Item 4.
14
     
 
PART II
 
Item 5.
14 - 15
Item 6.
16 - 17
Item 7.
18 - 44
Item 7A.
45
Item 8.
45
Item 9.
45
Item 9A.
46 - 47
Item 9B.
Other information
47
     
 
PART III
 
Item 10.
50
Item 11.
50
Item 12.
 
50
Item 13.
50
Item 14.
50
     
 
PART IV
 
Item 15.
51 -58

 

 




 
PART I
 
 
Item 1. Business
 
 
  Company Overview
 
We are North America’s largest “do-it-yourself” moving and storage operator through our subsidiary U-Haul International, Inc. (“U-Haul”). U-Haul is synonymous with “do-it-yourself” moving and storage and is a leader in supplying products and services to help people move and store their household and commercial goods. Our primary service objective is to provide the best product and service to the most people at the lowest cost.
 
We rent our distinctive orange U-Haul trucks and trailers as well as offer self-storage rooms through a network of over 1,450 Company operated retail moving centers and 13,950 independent U-Haul dealers. In addition, we have an independent storage facility network with approximately 2,700 active affiliates. We also sell U-Haul brand boxes, tape and other moving and self-storage products and services to “do-it-yourself” moving and storage customers at all of our distribution outlets and through our eMove web site.
 
U-Haul is the most convenient supplier of products and services meeting the needs of North America’s “do-it-yourself” moving and storage market. Our broad geographic coverage throughout the United States and Canada and our extensive selection of U-Haul brand moving equipment rentals, self-storage rooms and related moving and storage products and services provide our customers with convenient “one-stop” shopping.
 
Through Republic Western Insurance Company (“RepWest”), our property and casualty insurance subsidiary, we manage the property, liability and related insurance claims processing for U-Haul. Oxford Life Insurance Company (“Oxford”), our life insurance subsidiary, sells Medicare supplement, life insurance, annuities and other related products to non U-Haul customers and also administers the self-insured employee health and dental plans for Arizona employees of the Company.
 
We were founded in 1945 under the name “U-Haul Trailer Rental Company.” Since 1945, we have rented trailers. Starting in 1959, we rented trucks on a one-way and in-town basis exclusively through independent U-Haul dealers. Since 1974, we have developed a network of U-Haul managed retail centers, through which we rent our trucks and trailers and sell moving and self-storage products and services to complement our independent dealer network.
 
AMERCO and U-Haul are each incorporated in Nevada. U-Haul’s Internet address is www.uhaul.com. On AMERCO’s investor relations web site, www.amerco.com, we post the following filings as soon as it is reasonably practical after they are electronically filed with or furnished to the United States Securities and Exchange Commission (“SEC”): our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement related to our annual meeting of stockholders, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our web site are available free of charge.
 
  Products and Rental Equipment
 
Our customers are primarily “do-it-yourself” household movers. U-Haul moving equipment is specifically designed, engineered and manufactured for the “do-it-yourself” household mover. These “do-it-yourself” movers include individuals and families moving their belongings from one home to another, college students moving their belongings, vacationers and sports enthusiasts needing extra space or having special towing needs, people trying to save on home furniture and home appliance delivery costs, and “do-it-yourself” home remodeling and gardening enthusiasts who need to transport materials.

2


 
As of March 31, 2006, our rental fleet consisted of approximately 93,000 trucks, 80,675 trailers and 33,500 tow devices. This equipment and our U-Haul brand of self-moving products and services are available through our network of managed retail moving centers and independent U-Haul dealers. Independent U-Haul dealers receive rental equipment from the Company, act as a rental agent and are paid a commission based on gross revenues generated from their U-Haul rentals.
 
Our rental truck chassis are manufactured by domestic and foreign truck manufacturers. These chassis are joined with the U-Haul designed and manufactured van boxes at U-Haul operated manufacturing and assembly facilities strategically located throughout the United States. U-Haul rental trucks feature our proprietary Lowest DeckSM, which provides our customers with extra ease of loading. The loading ramps on our trucks are the widest in the industry, which reduce the time needed to move belongings. Our Gentle Ride SuspensionSM helps our customers safely move delicate and prized possessions. Also, the engineers at our U-Haul Technical Center determined that the softest ride in our trucks was at the front of the van box. Consequently, they designed the part of the van box that hangs over the front cab of the truck to be the location for our customers to place their most fragile items during their move. We call this area Mom’s AtticSM.
 
Our distinctive orange trailers are also manufactured at these same U-Haul operated manufacturing and assembly facilities. These trailers are well suited to the low profile of many of today’s newly manufactured automobiles. Our engineering staff is committed to making our trailers easy to tow, aerodynamic and fuel efficient.
 
To provide our self-move customers with added value, our rental trucks and trailers are designed for fuel efficiency. To help make our rental equipment more trouble free, we perform extensive preventive maintenance and repairs.
 
We also provide customers with equipment to transport their vehicle. We provide three towing options, including: auto transport, in which all four wheels are off the ground, tow dolly, in which the front wheels of the towed vehicle are off the ground, and tow bar, where all four wheels are on the ground.
 
To help our customers load their boxes and larger household appliances and furniture, we offer several accessory rental items. Our utility dolly has a lightweight design and is easy to maneuver. Another rental accessory is our four wheel dolly, which provides a large, flat surface for moving dressers, wall units, pianos and other large household items. U-Haul appliance dollies provide the leverage needed to move refrigerators, freezers, washers and dryers easily and safely. These utility, furniture and appliance dollies, along with the low decks and the wide loading ramps on all U-Haul trucks and trailers, are designed for easy loading and unloading of our customers’ belongings.
 
The total package U-Haul offers the “do-it-yourself” household mover doesn’t end with trucks, trailers and accessory rental items. Our moving supplies include a wide array of affordably priced U-Haul brand boxes, tape and packing materials. We also provide specialty boxes for dishes, computers and sensitive electronic equipment, carton sealing tape, security locks, and packing supplies, like wrapping paper and cushioning foam. U-Haul brand boxes are specifically sized to make stacking and tiering easier.
 
Also, U-Haul is North America’s largest seller and installer of hitches and towing systems. In addition to towing U-Haul equipment these hitching and towing systems can tow jet skis, motorcycles, boats, campers and horse trailers. Our hitches, ball mounts, and balls undergo stringent testing requirements. Each year, more than one million customers visit our locations for expertise on complete towing systems, trailer rentals and the latest in towing accessories.
 
U-Haul is also North America’s largest retail propane distributor, with more than 980 retail centers offering propane. We employ trained, certified personnel to refill all propane cylinders, and our network of propane dispensing locations is the largest automobile alternative refueling network in North America.

3


 
Self-storage is a natural outgrowth of the self-moving industry. Conveniently located U-Haul self-storage rental facilities provide clean, dry and secure space for storage of household and commercial goods, with storage units ranging in size from 6 square feet to 845 square feet. We operate nearly 1,045 self-storage locations in North America, with more than 377,750 rentable rooms comprising approximately 33.2 million square feet of rentable storage space. Our self-storage centers feature a wide array of security measures, ranging from electronic property access control gates to individually alarmed storage units. At many centers, we offer climate controlled storage rooms to protect temperature sensitive goods such as video tapes, albums, photographs and precious wood furniture.
 
Additionally, we offer moving and storage protection packages such as Safemove and Safetow, protecting moving and towing customers with a damage waiver, cargo protection and medical and life coverage, and Safestor, protecting storage customers from loss on their goods in storage.
 
Our eMove web site, www.emove.com, is the largest network of customers and businesses in the self-moving and self-storage industry. The eMove network consists of channels where customers, businesses and service providers transact business. The eMove Moving Help marketplace connects “do-it-yourself” movers with independent service providers to assist movers pack, load, unload, clean, drive and other services. Thousands of independent service providers already participate in the eMove network.
 
Through the eMove Storage Affiliate Program, independent storage businesses can join the world’s largest storage reservation system. Self-storage customers making a reservation through eMove can access all of the U-Haul self-storage centers and all of our independent storage affiliate partners for even greater convenience to meet their self-storage needs.
 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage Operations (AMERCO, U-Haul and Real Estate), Property and Casualty Insurance, Life Insurance and SAC Holding II Corporation and its subsidiaries (“SAC Holding II”) for fiscal 2006 and fiscal 2005 and SAC Holdings for fiscal 2004 (see Note 2 to the Notes to Consolidated Financial Statements, Principles of Consolidation).
 
Financial information for each of our Operating Segments is included in the Notes to Consolidated Financial Statements as part of Item 8 of this report.
 
Moving and Storage Operating Segment
 
 
Our “do-it-yourself” moving business consists of U-Haul truck and trailer rentals and U-Haul moving supply and service sales. Our storage business consists of U-Haul self-storage room rentals, self-storage related products and service sales and management of non-owned self-storage facilities.
 
Net revenue from our Moving and Storage operating segment were approximately 90.2%, 89.2% and 81.3% of consolidated net revenue in fiscal 2006, 2005 and 2004, respectively.
 
During fiscal 2006, the Company added over 15,500 new trucks and over 3,000 new trailers to our existing rental fleet. These additions were a combination of U-Haul manufactured vehicles and purchases. As new trucks were added to the fleet, the Company rotated out of the fleet older trucks keeping the overall fleet size constant. The continued expansion and upgrading of our rental fleet will allow us to enter new markets and to achieve better utilization in existing markets.
 
Within our truck and trailer rental operation we are focused on expanding our independent dealer network to provide added convenience for our customers. U-Haul has approximately 13,950 dealers which are independent contractors, and are exclusive to U-Haul International, Inc. An independent dealer must maintain a singular fleet of U-Haul vehicles. U-Haul maximizes vehicle utilization by effective distribution of the truck and trailer fleets among the Company’s centers and independent dealers. Utilizing its sophisticated reservations management system, the Company’s centers and dealers electronically report their inventory in real-time, which facilitates matching equipment to customer demand.

4


 
At our owned and operated retail centers we have implemented several customer service initiatives. These initiatives include improving management of our rental equipment to provide our retail centers with the right type of rental equipment, at the right time and at the most convenient location for our customers, effective marketing of our broad line of self-moving related products and services, maintaining longer hours of operation to provide more convenience to our customers, and increasing staff by attracting and retaining “moonlighters” (part-time U-Haul employees with full-time jobs elsewhere) during our peak hours of operation.
 
Effective marketing of our self-moving related products and services, such as boxes, pads and insurance, helps our customers have a better moving experience and helps them protect their belongings from potential damage during the moving process. We are committed to providing a complete line of products selected with the “do-it-yourself” moving and storage customer in mind.
 
These actions are leveraged by over 1,450 Company operated retail centers and enable the Company to provide better customer service, which we believe has led to increased sales and increased productivity.
 
Our self-storage business consists of U-Haul self-storage room rentals, self-storage related products and service sales and management of self-storage facilities not owned by the Company.
 
U-Haul is one of the largest North American operators of self-storage and has been a leader in the self-storage industry since 1974. U-Haul operates over 377,750 storage rooms, approximately 33.2 million square feet of storage space with locations in 49 states and 10 Canadian provinces. U-Haul’s owned and managed self-storage facility locations range in size up to 171,500 square feet of storage space, with individual storage units in sizes ranging from 6 square feet to 845 square feet.
 
The primary market for storage rooms is the storage of household goods. We believe that our self-storage services provide a competitive advantage through such things as Maximum Security (“MAX”), an electronic system that monitors the storage facility 24 hours a day; climate control; individually alarmed rooms; extended hour access; and an internet - based customer reservation and account management system.
 
eMove is an online marketplace that connects consumers to over 2,880 independent sellers of Moving Help® and Self-Storage services. Our network of customer-rated Affiliates provides pack and load help, cleaning help, self-storage and similar services, all over North America.
 
An individual or a company can connect to the eMove network by becoming an eMove Moving Help® Affiliate or an eMove Storage Affiliate™. Moving Helpers assist customers with packing, loading, cleaning and unloading their truck or storage unit. The Storage Affiliate program enables independent self-storage facilities to expand their reach by connecting into a centralized 1-800 and internet reservation system and for a fee, receive an array of services including web-based management software, Secured Online Affiliated Rentals (S.O.A.R®), co-branded rental trucks, savings on insurance, credit card processing and more. Approximately 2,700 facilities are now registered on the eMove network.
 
With over 69,000 unedited reviews of independent vendors, the marketplace has facilitated Moving Help® and Self-Storage transactions all over North America. We believe that acting as an intermediary, with little added investment, serves the customer in a cost effective manner. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.

5


 
Property and Casualty Insurance Operating Segment
 
 
RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. Through the Company’s affiliation with RepWest, U-Haul offers its customers moving and storage contents insurance products, branded Safemove and Safestor, respectively. The Safemove policy provides moving customers with a damage waiver, cargo protection and medical and life coverage. Management believes that its Safemove product is highly competitive, as competing policies contain deductibles, higher premiums and more confusing layers of coverage. We continue to focus on increasing the penetration of these products. The business plan for RepWest includes offering property and casualty products for other U-Haul related programs.
 
Net revenue from our Property and Casualty Insurance operating segment were approximately 1.8%, 2.1% and 5.2% of consolidated net revenue in fiscal 2006, 2005 and 2004, respectively.
 
Life Insurance Operating Segment
 
 
Oxford originates and reinsures annuities, ordinary life, group life and disability coverage, and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for Arizona employees of the Company.
 
Net revenue from our Life Insurance operating segment was approximately 6.7%, 7.6% and 7.8% of consolidated net revenue in fiscal 2006, 2005 and 2004, respectively.
 
SAC Holdings Operating Segment
 
 
SAC Holding Corporation and its subsidiaries, and SAC Holding II Corporation and its subsidiaries, collectively referred to as “SAC Holdings”, own self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain of SAC Holdings’ properties entitling AMERCO to potential future income based on the financial performance of these properties. With respect to SAC Holding II, AMERCO is considered the primary beneficiary of these contractual interests. Consequently, we include the results of SAC Holding II in the consolidated financial statements of AMERCO, as required by FIN 46(R).
 
Net revenue from our SAC Holdings operating segment was approximately 1.3%, 1.1% and 5.7% of consolidated net revenue in fiscal 2006, 2005 and 2004, respectively.
 
Employees
 
As of March 31, 2006, we employed approximately 17,500 people throughout North America with approximately 98% of these employees working within our Moving and Storage operating segment.
 
Sales and Marketing
 
We promote U-Haul brand awareness through direct and co-marketing arrangements. Our direct marketing activities consist of yellow pages, print and web based advertising as well as trade events, movie cameos of our rental fleet and boxes, and industry and consumer communications. Our rental equipment is our best form of advertisement. We support our independent U-Haul dealers through advertising of U-Haul moving and self-storage rentals, products and services.
 
Our marketing plan includes maintaining our leadership position with U-Haul being synonymous with “do-it-yourself” moving and storage. We accomplish this by continually improving the ease of use and efficiency of our rental equipment, by providing added convenience to our retail centers through independent U-Haul dealers, and by expanding the capabilities of our eMove web site.
 
A significant driver of U-Haul’s rental transaction volume is our utilization of an online reservation and sales system, through www.uhaul.com, www.eMove.com and our 24-hour 1-800-GO-U-HAUL telephone reservations system. The Company’s 1-800-GO-U-HAUL telephone reservation line is prominently featured on nationwide yellow page advertising, its websites and on the outside of its vehicles, and is a major driver of customer lead sources.
 
6

Competition
 
Moving and Storage Operating Segment
 
 
The moving truck and trailer rental industry is large and highly competitive. There are two distinct users of rental trucks: commercial and “do-it-yourself” residential users. We focus primarily on the “do-it-yourself” residential user. Within this segment, we believe the principal competitive factors are convenience of rental locations, availability of quality rental moving equipment, breadth of essential products and services, and price. Our major competitors in the moving equipment rental market are Budget Car and Truck Rental Company and Penske Truck Leasing.
 
The self-storage market is large and highly fragmented. We believe the principal competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Our primary competitors in the self-storage market are Public Storage Inc., Extra Space Storage, Inc., and Sovran Self-Storage Inc.
 
Insurance Operating Segments
 
 
The highly competitive insurance industry includes a large number of life insurance companies and property and casualty insurance companies. In addition, the marketplace now includes financial services firms offering both insurance and financial products. Some of the insurance companies are owned by stockholders and others are owned by policyholders. Many competitors have been in business for a longer period of time or possess substantially greater financial resources and broader product portfolios than our insurance companies. We compete in the insurance business based upon price, product design, and services rendered to agents and policyholders.
 
Corporate Governance
 
Corporate governance is typically defined as the system that allocates duties and authority among a Company’s stockholders, board of directors and management. The stockholders elect the board and vote on extraordinary matters; the board is the Company’s governing body; and management runs the day-to-day operations of the Company.
 
Our current AMERCO Board members are William E. Carty, John M. Dodds, Charles J. Bayer, John P. Brogan, Daniel R. Mullen, M. Frank Lyons, James P. Shoen and Edward J. Shoen.
 
Board Responsibilities and Structure
 
 
The primary responsibilities of the Board of Directors (the “Board”) are oversight, counseling and providing direction to the management of the Company in the long-term interests of the Company and its stockholders.
 
The Board and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as needed. The Board has delegated various responsibilities and authority to different Board committees as generally described below. Committees regularly report on their activities and actions to the full Board.

7


 
Board Committees
 
 
The Board currently has an Audit, Executive Finance, Compensation, and Independent Governance Committees, as well as an Advisory Board.
 
Audit Committee. The Audit Committee assists the Board in fulfilling its oversight responsibilities as to financial reporting, audit functions and risk management. The Audit Committee monitors the financial information that is provided to stockholders and others, the independence and performance of the Company’s independent registered public accounting firm and internal audit department and the systems of internal control established by management and the Board.
 
The Audit Committee operates pursuant to a written charter approved by the Board. The Audit Committee is comprised of Charles J. Bayer, John M. Dodds, Daniel R. Mullen, and John P. Brogan, each qualifying as “independent” under special standards developed by the SEC and NASDAQ for members of audit committees, and each member has been determined by the Board to meet the qualifications of an “audit committee financial expert.” Mr. John P. Brogan is designated the audit committee financial expert. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Brogan’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on Mr. Brogan any duties, obligations or liability that are greater than are generally imposed on him as a member of the Audit Committee and the Board, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or Board.
 
Executive Finance Committee. The Executive Finance Committee is authorized to act on behalf of the Board in approving any transaction involving the finances of the Company. The committee has the authority to give final approval for the borrowing of funds on behalf of the Company without further action or approval of the Board. The Executive Finance Committee is comprised of Edward J. Shoen, John P. Brogan and Charles J. Bayer.
 
Compensation Committee. The Compensation Committee reviews the Company’s executive compensation plans and policies, including benefits and incentives, to ensure that they are consistent with the goals and objectives of the Company. The committee reviews and makes recommendations to the Board regarding management recommendations for changes in executive compensation and monitors management plans and programs for the retention, motivation and development of senior management. The Compensation Committee is composed of John P. Brogan and John M. Dodds, independent directors of the Company.
 
Independent Governance Committee. The Independent Governance Committee is chaired by John P. Brogan, an independent member of the Board. Thomas W. Hayes, the former State Treasurer of California, and Paul A. Bible, a partner in the Reno-based law firm of Bible, Hoy & Trachok, are also members of this committee. Neither Mr. Hayes nor Mr. Bible are members of the Company’s Board. The Independent Governance Committee evaluates the Company’s corporate governance principles and standards and proposes to the Board any modifications which are deemed appropriate for sound corporate governance. The committee may review potential candidates for Board membership. The committee may review other matters as referred to it by the Board. The committee has the authority to and a budget from which to retain professionals. The committee membership term is one year and each member is determined by the Board to be free of any relationship that would interfere with his ability to exercise independent judgment as a member of this committee.
 
Advisory Board Members. In addition to the four committees described above, the Board authorized up to two Advisory Board Members. On June 4, 2003, the Board appointed Michael L. Gallagher as a member of the Advisory Board. Mr. Gallagher is a senior partner in the law firm Gallagher & Kennedy. Mr. Gallagher is also a director of Pinnacle West Capital Corporation, Action Performance Companies, Inc. and the Omaha World Herald Company. On October 5, 2005 the Board appointed Barbara Smith Campbell as a second Advisory Board Member. Ms. Campbell is President of Consensus, LLC. and is also a trustee for the Donald W. Reynolds Foundation.
 
8

Recent Developments
 
Preferred Stock Dividends
 
 
On May 3, 2006, the Board of Directors of AMERCO declared a regular quarterly cash dividend of $0.53125 per share on the Company’s Series A 8½ % Preferred Stock. The dividend was paid on June 1, 2006 to holders of record on May 15, 2006.
 
Life Insurance Acquisition
 
 
On March 6, 2006, Christian Fidelity Life Insurance Company (“CFLIC”), a wholly-owned subsidiary of Oxford acquired Dallas General Life Insurance Company, a Texas-based insurer that primarily distributes Medicare supplement insurance. The purchase price was $4.5 million and was effective February 28, 2006.
 
Mezzanine Loan
 
Various subsidiaries of Amerco Real Estate Company and U-Haul International, Inc. are borrowers under the CMBS Mezzanine Loan. The loan was originated by Morgan Stanley Mortgage Capital, Inc. and is in the amount of $19.4 million. The loan was entered into on August 12, 2005. On June 2, 2006, we have notified the lender of our intent to prepay the entire loan in full on August 30, 2006. There are no prepayment fees or penalties associated with the planned prepayment of this loan.

 
New Financings
 
On June 7, 2006, U-Haul International, Inc. and certain subsidiaries entered into a $150.0 million term loan facility with BTMU Capital Corporation that is expected to be drawn down over the next several months to fund the acquisition of new rental trucks. The credit facility is secured by a portion of the Company’s new truck rental fleet. The above discussion of select terms of the agreements and is qualified in its entirety by reference to our agreements with BTMU Capital Corporation filed as Exhibits 10.85, 10.86 and 10.87 hereto.
 
    On June 7, 2006, U-Haul International, Inc. and certain subsidiaries entered into a $50.0 million term loan facility with Bayerische Hypo-und Vereinsbank that is expected to be drawn down over the next several months to fund the acquisition of new rental trucks. The credit facility is secured by a portion of the Company’s new truck rental fleet. The above discussion of select terms of the agreements and is qualified in its entirety by reference to our agreements with Bayerische Hypo-und Vereinsbank filed as Exhibits 10.91 and 10.92 hereto.
 
    The existing Merrill Lynch Rental Truck Amortizing Loan and Revolving Credit Agreement were amended to clarify their security interests in only those trucks serving as collateral for those loans. The above discussion is merely a description of select terms of the amendments and is qualified in its entirety by reference to such amendments with Merrill Lynch Commercial Finance Corporation filed as Exhibits 10.88 and 10.89 hereto.
 
 
   
9


 
Cautionary Statement Regarding Forward-Looking Statements
 
 
This Annual Report on Form 10-K, including the documents incorporated by reference, contains “forward-looking statements” regarding future events and our future results. We may make additional written or oral forward-looking statements from time to time in filings with the Securities and Exchange Commission (the “SEC”) or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, earnings or loss; estimates of capital expenditures, plans for future operations, products or services; financing needs and plans; our perceptions of our legal positions and anticipated outcomes of government investigations and pending litigation against us; liquidity; goals and strategies; plans for new business; growth rate assumptions, pricing, costs, and access to capital and leasing markets 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. Factors that could significantly affect results include, without limitation, the risk factors enumerated at the end of this section, as well as the following: the Company’s ability to operate pursuant to the terms of its credit facilities; the Company’s ability to maintain contracts that are critical to its operations; the costs and availability of financing; the Company’s ability to execute its business plan; the Company’s ability to attract, motivate and retain key employees; general economic conditions; fluctuations in our costs to maintain and update our fleet and facilities; our ability to refinance our debt; changes in government regulations, particularly environmental regulations; our credit ratings; the availability of credit; changes in demand for our products; changes in the general domestic economy; the degree and nature of our competition; the resolution of pending litigation against the Company; changes in accounting standards and other factors described in this report or the other documents we file with the SEC. The above factors, the following disclosures, as well as other statements in this report and in the Notes to our Consolidated Financial Statements, could contribute to or cause such differences, or could cause our stock price to fluctuate dramatically. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.
 
Item 1A. Risk Factors
 
 
The following discussion of risk factors should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), the consolidated financial statements and related notes. These risk factors may be important in understanding this Annual Report on Form 10-K or elsewhere.
 
We operate in a highly competitive industry.
 
 
The truck rental industry is highly competitive and includes a number of significant national, regional and local competitors. Competition is generally based on convenience of rental locations, availability of quality rental moving equipment, breadth of essential services and price. In our truck rental business, our primary competitors are Budget Car and Truck Rental Company and Penske Truck Leasing. Some of our competitors may have greater financial resources than we have. We can not assure you that we will be able to maintain existing rental prices or implement price increases.
 
The self-storage industry is large and highly fragmented. We believe the principle competitive factors in this industry are convenience of storage rental locations, cleanliness, security and price. Some of our primary competitors in the self-storage market are Public Storage, Inc., Extra Space Storage, Inc., and Sovran Self-Storage Inc. Competition in the market areas in which we operate is significant and affects the occupancy levels, rental sales and operating expenses of our facilities. Competition might cause us to experience a decrease in occupancy levels, limit our ability to raise rental sales and require us to offer discounted rates that would have a material affect on operating results.
 
Entry into the self-storage business through acquisition of existing facilities is possible for persons or institutions with the required initial capital. Development of new self-storage facilities is more difficult however, due to zoning, environmental and other regulatory requirements. The self-storage industry has in the past experienced overbuilding in response to perceived increases in demand. We cannot assure you that we will be able to successfully compete in existing markets or expand into new markets.

10


 
Control of AMERCO remains in the hands of a small contingent.
 
 
As of March 31, 2006, Edward J. Shoen, Chairman of the Board of Directors and President of AMERCO, James P. Shoen, a director of AMERCO, and Mark V. Shoen, an executive officer of AMERCO, collectively are beneficial owners of 8,967,632 shares (approximately 42.1%) of the outstanding common shares of AMERCO. Accordingly, Edward J. Shoen, Mark V. Shoen and James P. Shoen will be in a position to continue to influence the election of the members of the Board of Directors and approval of significant transactions. In addition, 2,031,070 shares (approximately 9.5%) of the outstanding common shares of AMERCO are held by our Employee Savings and Employee Stock Ownership Trust.
 
Our operations subject us to numerous environmental regulations and the possibility that environmental liability in the future could adversely affect our operations.
 
 
Compliance with environmental requirements of federal, state and local governments significantly affects our business. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Under environmental laws or common law principles, we can be held strictly liable for hazardous substances that are found on real property we have owned or operated. We are aware of issues regarding hazardous substances on some of our real estate and we have put in place a remedial plan at each site where we believe such a plan is necessary (see Note 17 of our Consolidated Financial Statements). We regularly make capital and operating expenditures to stay in compliance with environmental laws. In particular, we have managed a testing and removal program since 1988 for our underground storage tanks. Despite these compliance efforts, risk of environmental liability is part of the nature of our business.
 
Environmental laws and regulations are complex, change frequently and could become more stringent in the future. We cannot assure you that future compliance with these regulations, future environmental liabilities, the cost of defending environmental claims, conducting any environmental remediation or generally resolving liabilities caused by us or related third parties will not have a material adverse effect on our business, financial condition or results of operations.
 
Our quarterly results of operations fluctuate due to seasonality and other factors associated with our industry.
 
 
Our business is seasonal and our results of operations and cash flows fluctuate significantly from quarter to quarter. Historically, revenues have been stronger in the first and second fiscal quarters due to the overall increase in moving activity during the spring and summer months. The fourth fiscal quarter is generally weakest, due to a greater potential for adverse weather conditions and other factors that are not necessarily seasonal. As a result, our operating results for a quarterly period are not necessarily indicative of operating results for an entire year.
 
We obtain our rental trucks from a limited number of manufacturers.
 
 
In the last ten years, we purchased most of our rental trucks from Ford Motor Company and General Motors Corporation. Although we believe that we could obtain alternative sources of supply for our rental trucks, termination of one or both of our relationships with these suppliers could have a material adverse effect on our business, financial condition or results of operations for an indefinite period of time or we may not be able to obtain rental trucks under similar terms, if at all.
 
Our property and casualty insurance business has suffered extensive losses.
 
 
Between January 1, 2000 and December 31, 2004, RepWest, reported pretax losses totaling approximately $164.0 million. These losses are primarily attributable to business lines that were unprofitable as underwritten. To restore profitability in RepWest, we have exited all non U-Haul related lines of business. RepWest’s pretax earnings for fiscal 2006 were $1.1 million primarily due to its exit from all non U-Haul lines of business. Although we believe the terminated lines are adequately reserved, we cannot assure that there will not be future adverse loss development.

11


 
Our life insurance business was downgraded by A.M. Best due to events surrounding the restructuring.
 
 
A.M. Best downgraded Oxford and its subsidiaries during AMERCO's restructuring to C+. Upon AMERCO's emergence from bankruptcy in March 2004, Oxford and its subsidiaries were upgraded to B-. The ratings were again upgraded in October 2004 to B. In October 2005, A.M. Best upgraded Oxford and its subsidiaries to B+ with a stable outlook. Prior to AMERCO’s restructuring, Oxford was rated B++. Financial strength ratings are important external factors that can affect the success of Oxford’s business plans. Accordingly, if Oxford’s ratings, relative to its competitors, do not continue to improve, Oxford may not be able to retain and attract business as currently planned.
 
Our notes receivable from SAC Holdings.
 
 
At March 31, 2006, we held approximately $203.7 million of notes receivable from SAC Holdings, of which $75.1 million are related to SAC Holding II and have been eliminated in the consolidating financial statements. SAC Holdings is highly leveraged with significant indebtedness to others. We hold various junior unsecured notes of SAC Holdings. If SAC Holdings is unable to meet its obligations to its senior lenders, it could trigger a default of its obligations to us. In such an event of default, we could suffer a loss to the extent the value of the underlying collateral of SAC Holdings is inadequate to repay SAC Holding’s senior lenders and our junior unsecured notes. We cannot assure you that SAC Holdings will not default on its loans to its senior lenders or that the value of SAC Holdings assets upon liquidation would be sufficient to repay us in full.
 
We face risks related to an SEC investigation and securities litigation.
 
 
The SEC has issued a formal order of investigation to determine whether we have violated Federal Securities laws. Although we have cooperated with the SEC in this matter and intend to continue to cooperate, the SEC may determine that we have violated Federal Securities laws. We cannot predict when this investigation will be completed or its outcome. If the SEC makes a determination that we have violated Federal Securities laws, we may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.
 
In addition, the Company has been named a defendant in a number of class action and related lawsuits. The findings and outcome of the SEC investigation may affect the class-action lawsuits that are pending. We are generally obligated, to the extent permitted by law, to indemnify our directors and officers who are named defendants in some of these lawsuits. We are unable to estimate what our liability in these matters may be, and we may be required to pay judgments or settlements and incur expenses in aggregate amounts that could have a material adverse effect on our financial condition or results of operations. Please refer to Item 3. Legal Proceedings.
 
Item 1B. Unresolved Staff Comments
 
 
There were no unresolved staff comments at March 31, 2006.
 
Item 2. Properties
 
 
The Company, through its legal subsidiaries, owns property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and storage space as well as providing office space for the Company. Such facilities exist throughout the United States and Canada. The Company also manages storage facilities owned by others. The Company operates over 1,450 U-Haul retail centers, and operates 13 manufacturing and assembly facilities. We also operate over 245 fixed site-repair facilities located throughout the United States and Canada.
 
SAC Holdings owns property, plant and equipment that are utilized in the sale of moving supplies, rental of self-storage rooms and U-Haul equipment. Such facilities exist throughout the United States and Canada. We manage the storage facilities under property management agreements whereby the management fees are consistent with management fees received by U-Haul for other properties owned by unrelated parties and previously managed by us.
 
 

12


 
Item 3. Legal Proceedings
 
 
Shoen
 
 
On September 24, 2002, Paul F. Shoen filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al., CV02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as defendants. AMERCO is named a nominal defendant for purposes of the derivative action. The complaint alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC Holdings over the last several years. The complaint seeks a declaration that such transfers are void as well as unspecified damages. On October 28, 2002, AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed Motions to Dismiss the complaint. In addition, on October 28, 2002, Ron Belec filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al., CV 02-06331 and on January 16, 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et al., CV 03-00386. Two additional derivative suits were also filed against these parties. These additional suits are substantially similar to the Paul F. Shoen derivative action. The five suits assert virtually identical claims. In fact, three of the five plaintiffs are parties who are working closely together and chose to file the same claims multiple times. These lawsuits alleged that the AMERCO Board lacked independence. In reaching its decision to dismiss these claims, the court determined that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Board. The court consolidated all five complaints before dismissing them on May 28, 2003. Plaintiffs appealed and, on September 12, 2005 the Nevada Supreme Court heard oral arguments. The parties are awaiting a ruling.
 
Securities Litigation
 
 
AMERCO is a defendant in a consolidated putative class action lawsuit entitled “In Re AMERCO Securities Litigation”, United States District Court, Case No. CV-N-03-0050-ECR (RAM). The action alleges claims for violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, section 20(a) of the Securities Exchange Act of 1934 and sections 11, 12, and 15 of the Securities Act of 1933. The action alleges, among other things, that AMERCO engaged in transactions with the SAC entities that falsely improved AMERCO’s financial statements and that AMERCO failed to disclose the transactions properly. The action has been transferred to the United States District Court, District of Arizona and assigned to Judge Bryan. Motions to Dismiss are fully briefed and are before the court. Prior to the ruling on the Motions to Dismiss, the parties have agreed to a settlement in principle, subject to final documentation and approval by the Court. The settlement in the amount of $5.0 million, will be covered by AMERCO’s D&O insurance carrier.
 
Securities and Exchange Commission
 
 
The SEC has issued a formal order of investigation to determine whether the Company has violated the Federal Securities laws. The Company has produced and delivered all requested documents and information and provided testimony from all requested witnesses to the SEC. The Company continues to cooperate with the SEC. We cannot predict the outcome of the investigation.

13


 
Environmental
 
 
In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management, that none of these suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss.
 
Compliance with environmental requirements of federal, state and local governments significantly affects Real Estate’s business operations. Among other things, these requirements regulate the discharge of materials into the water, air and land and govern the use and disposal of hazardous substances. Real Estate is aware of issues regarding hazardous substances on some of its properties. Real Estate regularly makes capital and operating expenditures to stay in compliance with environmental laws and has put in place a remedial plan at each site where it believes such a plan is necessary. Since 1988, Real Estate has managed a testing and removal program for underground storage tanks.
 
Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO’s financial position or operating results. Real Estate expects to spend approximately $7.6 million through 2011 to remediate these properties.
 
Other
 
 
The Company is named as a defendant in various other litigation and claims arising out of the normal course of business. In managements’ opinion none of these other matters will have a material effect on the Company’s financial position and results of operations.
 
Item 4. Submission of Matters to a Vote of Security Holders
 
 
No matter was submitted to a vote of the security holders of AMERCO or U-Haul during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise.
 

 
 
PART II
 
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
As of April 30, 2006 there were approximately 3,200 holders of record of the common stock. AMERCO’s common stock is listed on NASDAQ (its principal market) under the trading symbol “UHAL”. The number of shareholders’ is derived using internal stock ledgers and utilizing Mellon Investor Services Stockholder listings.
 
The following table sets forth the high and the low sales price of the common stock of AMERCO for the periods indicated:
 

   
Year Ended March 31,
 
       
2006
 
2005
 
 
         
High 
   
Low
   
High
   
Low
 
First quarter 
       
$
56.10
 
$
42.75
 
$
29.50
 
$
19.76
 
Second quarter 
       
$
63.61
 
$
52.80
 
$
38.03
 
$
21.00
 
Third quarter 
       
$
73.68
 
$
54.60
 
$
46.54
 
$
36.89
 
Fourth quarter 
       
$
101.24
 
$
65.45
 
$
48.23
 
$
41.50
 
 
The common stock of U-Haul is wholly-owned by AMERCO. As a result, no active trading market exists for the purchase and sale of such common stock.
 
14

  Dividends
 
AMERCO does not have a formal dividend policy. The Board of Directors of AMERCO periodically considers the advisability of declaring and paying dividends in light of existing circumstances
 
U-Haul has not declared cash dividends to AMERCO during the three most recent fiscal years. On January 1, 2006, U-Haul paid a non-cash dividend to AMERCO in the form of a reduction in an intercompany payable.
 
See Note 20 of Notes to Consolidated Financial Statements for a discussion of certain statutory restrictions on the ability of the insurance subsidiaries to pay dividends to AMERCO.
 
See Note 11 of Notes to Consolidated Financial Statements for a discussion of AMERCO’s preferred stock.
 
During the fourth quarter of fiscal 2006 we did not repurchase any shares of our equity securities.
 

 
 

15


 
Item 6. Selected Financial Data
 
 
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and the consolidated financial statements and related notes in the Annual Report on Form 10-K.
 
Listed below is selected financial data for AMERCO and consolidated entities for the five years ended March 31:
   
Year Ended March 31,
 
   
2006
 
2005
 
2004
 
2003
 
2002
 
   
(In thousands, except share and per share data)
 
Summary of Operations:
                     
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
$
1,381,208
 
$
1,293,732
 
$
1,253,887
 
Self-storage revenues
   
122,119
   
114,155
   
247,640
   
238,938
   
223,135
 
Self-moving and self-storage products and service sales
   
223,721
   
206,098
   
232,965
   
223,677
   
225,510
 
Property management fees
   
21,195
   
11,839
   
259
   
89
   
88
 
Life insurance premiums
   
118,833
   
126,236
   
145,082
   
158,719
   
157,371
 
Property and casualty insurance premiums
   
26,001
   
24,987
   
92,036
   
149,206
   
253,799
 
Net investment and interest income
   
53,094
   
56,739
   
38,281
   
40,731
   
47,343
 
Other revenue
   
38,094
   
30,172
   
38,523
   
36,252
   
38,283
 
Total revenues
   
2,106,626
   
2,008,121
   
2,175,994
   
2,141,344
   
2,199,416
 
                                 
Operating expenses
   
1,080,990
   
1,122,197
   
1,179,996
   
1,182,222
   
1,212,403
 
Commission expenses
   
180,101
   
172,307
   
147,010
   
138,652
   
137,806
 
Cost of sales
   
113,135
   
105,309
   
111,906
   
115,115
   
122,694
 
Benefits and losses
   
117,160
   
140,343
   
217,447
   
248,349
   
376,673
 
Amortization of deferred policy acquisition costs
   
24,261
   
28,512
   
39,083
   
37,681
   
40,674
 
Lease expense
   
142,781
   
151,354
   
160,727
   
166,101
   
164,075
 
Depreciation, net of (gains) losses on disposal
   
142,817
   
121,103
   
148,813
   
137,446
   
102,957
 
Restructuring expense
   
-
   
-
   
44,097
   
6,568
   
-
 
Total costs and expenses
   
1,801,245
   
1,841,125
   
2,049,079
   
2,032,134
   
2,157,282
 
                                 
Earnings from operations
   
305,381
   
166,996
   
126,915
   
109,210
   
42,134
 
Interest expense
   
(69,481
)
 
(73,205
)
 
(121,690
)
 
(148,131
)
 
(109,465
)
Fees on early extinguishment of debt (b)
   
(35,627
)
 
-
   
-
   
-
   
-
 
Litigation settlement, net of costs, fees and expenses
   
-
   
51,341
   
-
   
-
   
-
 
Pretax earnings (loss)
   
200,273
   
145,132
   
5,225
   
(38,921
)
 
(67,331
)
Income tax benefit (expense)
   
(79,119
)
 
(55,708
)
 
(8,077
)
 
13,935
   
19,891
 
Net earnings (loss)
   
121,154
   
89,424
   
(2,852
)
 
(24,986
)
 
(47,440
)
Less: Preferred stock dividends
   
(12,963
)
 
(12,963
)
 
(12,963
)
 
(12,963
)
 
(12,963
)
Earnings (loss) available to common shareholders
 
$
108,191
 
$
76,461
 
$
(15,815
)
$
(37,949
)
$
(60,403
)
Net earnings (loss) per common share basic and diluted
 
$
5.19
 
$
3.68
 
$
$(0.76
)
$
(1.82
)
$
(2.87
)
Weighted average common shares outstanding: Basic and diluted
   
20,857,108
   
20,804,773
   
20,749,998
   
20,824,618
   
21,063,720
 
Cash dividends declared and accrued
                               
Preferred stock
 
$
12,963
 
$
12,963
 
$
12,963
 
$
12,963
 
$
12,963
 
Balance Sheet Data:
                               
Property, plant and equipment, net
   
1,535,165
   
1,354,468
   
1,451,805
   
1,946,317
   
1,936,076
 
Total assets
   
3,367,218
   
3,116,173
   
3,394,748
   
3,832,372
   
3,732,317
 
Capital leases
   
-
   
-
   
99,607
   
137,031
   
-
 
AMERCO's notes and loans payable
   
965,634
   
780,008
   
862,703
   
940,063
   
1,045,801
 
SAC Holdings' notes and loans payable non-recourse to AMERCO (a)
   
76,232
   
77,474
   
78,637
   
466,781
   
561,887
 
Stockholders' equity
   
695,604
   
572,839
   
503,846
   
327,448
   
381,524
 
                                 
(a) The amounts for fiscal 2006, 2005 and 2004, respectively are for SAC Holding II; 2003 and 2002 include SAC Holdings.
     
(b) Includes the write off of debt issuance costs of $14.4 million.
                       

16


Listed below is selected financial data for U-Haul International, Inc. for the five years ended March 31:


   
Year Ended March 31,
 
   
2006
 
2005
 
2004
 
2003
 
2002
 
   
(In thousands)
 
Summary of Operations:
                     
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
$
1,380,991
 
$
1,293,686
 
$
1,253,695
 
Self-storage revenues
   
101,437
   
94,431
   
118,335
   
109,985
   
130,691
 
Self-moving and self-storage products and service sales
   
207,119
   
191,078
   
182,327
   
174,853
   
201,006
 
Property management fees
   
23,988
   
14,434
   
12,974
   
12,431
   
8,036
 
Net investment and interest income
   
24,894
   
22,030
   
21,504
   
29,358
   
22,686
 
Other revenue
   
36,926
   
27,489
   
35,580
   
18,378
   
27,795
 
Total revenues
   
1,897,933
   
1,787,357
   
1,751,711
   
1,638,691
   
1,643,909
 
                                 
Operating expenses
   
1,085,602
   
1,100,737
   
1,062,695
   
1,029,774
   
1,088,390
 
Commission expenses
   
189,599
   
181,315
   
176,165
   
166,334
   
150,691
 
Cost of sales
   
105,872
   
98,877
   
87,430
   
93,735
   
110,449
 
Lease expense
   
143,344
   
151,937
   
159,869
   
165,020
   
171,656
 
Depreciation, net of (gains) losses on disposal
   
131,803
   
114,038
   
125,093
   
112,815
   
92,351
 
Total costs and expenses
   
1,656,220
   
1,646,904
   
1,611,252
   
1,567,678
   
1,613,537
 
                                 
Earnings from operations
   
241,713
   
140,453
   
140,459
   
71,013
   
30,372
 
Interest income (expense)
   
(14,383
)
 
15,687
   
8,560
   
(9,991
)
 
(11,675
)
Pretax earnings
   
227,330
   
156,140
   
149,019
   
61,022
   
18,697
 
Income tax expense
   
(87,910
)
 
(59,160
)
 
(52,992
)
 
(21,211
)
 
(6,117
)
Net earnings
 
$
139,420
 
$
96,980
 
$
96,027
 
$
39,811
 
$
12,580
 
Balance Sheet Data:
                               
Property, plant and equipment, net
 
$
913,871
 
$
796,361
 
$
875,729
 
$
736,499
 
$
750,779
 
Total assets
   
1,505,813
   
1,516,286
   
1,452,361
   
1,235,497
   
1,099,195
 
Capital leases
   
-
   
-
   
99,607
   
14,793
   
14,793
 
Notes and loans payable
   
212,133
   
-
   
-
   
-
   
-
 
Stockholders' equity (deficit) (a)
   
(354,481
)
 
701,198
   
601,514
   
499,380
   
458,639
 
                                 
(a) Fiscal 2006 include’s a non-cash dividend to AMERCO in the amount of $1,200,000,000.
                 

 
 
 

17


 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 
General
 
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with the overall strategy of AMERCO, followed by a description of our operating segments and the strategy of our operating segments to give the reader an overview of the goals of our business and the direction in which our businesses and products are moving. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our Results of Operations for fiscal 2006 compared with fiscal 2005, and for fiscal 2005 compared with fiscal 2004 beginning with an overview. We then provide an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the sections entitled “Liquidity and Capital Resources” and “Disclosures about Contractual Obligations and Commercial Commitments.” We conclude this MD&A by discussing our outlook for fiscal 2007.
 
This MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”, “Item 6: Selected Financial Data” and “Item 8: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward looking statements, as discussed under the caption “Cautionary Statements Regarding Forward Looking Statements”, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly under the section “Item 1A. Risk Factors”. Our actual results may differ materially from these forward looking statements.
 
AMERCO has a fiscal year that ends on the 31st of March for each year that is referenced. Our insurance company subsidiaries have fiscal years that end on the 31st of December for each year that is referenced. They have been consolidated on that basis. Consequently, all references to our insurance subsidiaries’ years 2005, 2004 and 2003 correspond to fiscal 2006, 2005 and 2004 for AMERCO. The operating results and financial position of AMERCO’s consolidated insurance operations are determined as of December 31st of each year.
 
Overall Strategy
 
Our overall strategy is to maintain our leadership position in the North American “do-it-yourself” moving and storage industry. We accomplish this by providing a seamless and integrated supply chain to the “do-it-yourself” moving and storage market. As part of executing this strategy, we leverage the brand recognition of U-Haul with our full line of moving and self-storage related products and services and the convenience of our broad geographic presence.
 
Our primary focus is to provide our customers with a wide selection of moving rental equipment, convenient self-storage rental facilities and related moving and self-storage products and services. We are able to expand our distribution and improve customer service by increasing the amount of moving equipment and storage rooms available for rent, expanding the number of independent dealers in our network and expanding and taking advantage of our growing eMove capabilities.
 
RepWest is focused on providing and administering property and casualty insurance to U-Haul, its customers, its independent dealers and affiliates. By exiting its non U-Haul lines of business we believe that RepWest will be able to focus its core competencies and financial resources to better support our overall strategy.
 
Oxford is focused on long-term capital growth through direct writing and reinsuring of annuity, life and Medicare supplement products primarily in the senior marketplace. Oxford is pursuing increased direct writing via acquisitions of insurance companies, expanded distribution channels and product development. In 2005, Oxford determined that it would no longer pursue growth in the credit life and disability market and is exploring options to divest its current business through reinsurance. We believe this will enable Oxford to focus more on its core senior population demographic.
 
Description of Operating Segments
 
AMERCO has four reportable segments. They are Moving and Storage Operations (AMERCO, U-Haul and Real Estate), Property and Casualty Insurance, Life Insurance and SAC Holding II for fiscal 2006 and fiscal 2005 and SAC Holdings for fiscal 2004. (See Notes 1, 21 and 21A to the Consolidated Financial Statements included in this Form 10-K.)

18


 
Moving and Storage Operating Segment
 
 
Our Moving and Storage Operating Segment consists of the rental of trucks, trailers and self-storage spaces primarily to the household mover as well as sales of moving supplies, towing accessories and propane. Operations are conducted under the registered trade name U-Haul® throughout the United States and Canada.
 
With respect to our truck, trailer and self-storage rental business, we are focused on expanding our dealer network, which provides added convenience for our customers and expanding the selection and availability of rental equipment to satisfy the needs of our customers.
 
With respect to our retail sales, U-Haul has developed a number of specialty packing boxes, Mover’s Wrap and Smart Move tape. Mover’s Wrap is a sticks-to-itself plastic stretch wrap used to bind, bundle, and fasten items when moving or storing. Additionally, U-Haul has added a full line of Smart Move tape products. Smart Move tape is a color coded packing tape that has the room printed right on it allowing customers to tape and label their belongings in one quick step.
 
eMove is an online marketplace that connects consumers to over 2,880 independent sellers of Moving Help® as well as 2,700 suppliers of Self-Storage services. Our network of customer-rated affiliates provides pack and load help, cleaning help, self-storage and similar services, all over North America.
 
An individual or a company can connect to the eMove network by becoming an eMove Moving Help® Affiliate or an eMove Storage Affiliate™. Moving Helpers assist customers with packing, loading, cleaning and unloading their truck or storage unit. The Storage Affiliate program enables independent self-storage facilities to expand their reach by connecting into a centralized 1-800 and internet reservation system, and for a fee receive an array of services including web-based management software, Secured Online Affiliated Rentals (S.O.A.R®), co-branded rental trucks, savings on insurance, credit card processing and more. Approximately 2,700 independent self-storage facilities are now registered on the eMove network.
 
With over 69,000 unedited reviews of independent vendors, the marketplace has facilitated Moving Help® and Self-Storage transactions all over North America. We believe that acting as an intermediary, with little added investment, serves the customer in a cost effective manner. Our goal is to further utilize our web-based technology platform to increase service to consumers and businesses in the moving and storage market.
 
Property and Casualty Insurance Operating Segment
 
 
RepWest provides loss adjusting and claims handling for U-Haul through regional offices across North America. RepWest also underwrites components of the Safemove, Safetow and Safestor protection packages to U-Haul customers. We continue to focus on increasing the penetration of these products. The business plan for RepWest includes offering property and casualty products in other U-Haul related programs.
 
Life Insurance Operating Segment
 
 
Oxford provides life and health insurance products primarily to the senior market through the direct writing or reinsuring of annuities, life insurance, and Medicare supplement policies. Additionally, Oxford administers the self-insured employee health and dental plans for Arizona employees of the Company and provides insurance for the employee group life and disability coverage.
 
SAC Holdings Operating Segment
 
 
SAC Holding Corporation and its subsidiaries, and SAC Holding II Corporation and its subsidiaries, collectively referred to as “SAC Holdings”, own self-storage properties that are managed by U-Haul under property management agreements and act as independent U-Haul rental equipment dealers. AMERCO, through its subsidiaries, has contractual interests in certain SAC Holdings’ properties entitling AMERCO to potential future income based on the financial performance of these properties. With respect to SAC Holding II, AMERCO is considered the primary beneficiary of these contractual interests. Consequently, we include the results of SAC Holding II in the consolidated financial statements of AMERCO, as required by FIN 46(R).
 
19

Critical Accounting Policies and Estimates
 
The Company’s financial statements have been prepared in accordance with the United States generally accepted accounting principles. The methods, estimates and judgments we use in applying our accounting policies can have a significant impact on the results we report in our financial statements. Note 3 to our Consolidated Financial Statements in Item 8 of this Form 10-K summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements and related disclosures. Certain accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.
 
The accounting policies that we deem most critical to us and that require management’s most difficult and subjective judgments includes our principles of consolidation, the recoverability of property, plant and equipment, the adequacy of insurance reserves, the recognition and measurement of impairment for investments, and the recognition and measurement of income tax assets and liabilities. These estimates are based on historical experience, observance of trends in particular areas, information and valuations available from outside sources and on various other assumptions that are believed to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions; such differences may be material.
 
We also have other policies that we consider key accounting policies, such as revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective. The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments include the following:
 
Principles of Consolidation
 
The Company applies FIN 46(R), “Consolidation of Variable Interest Entities” and ARB 51 in its principles of consolidation. ARB 51 addresses the policy when the company owns a majority of the voting or similar rights and exercises effective control. FIN 46(R) addresses arrangements where the company does not hold a majority of the voting or similar interests or a variable interest entity (VIE). The company is required to consolidate a VIE if it is determined it is the primary beneficiary.
 
As promulgated by FIN 46(R), a VIE is not self-supportive by having one or both of the following conditions: a) it has an insufficient amount of equity for it to finance its activities without receiving additional subordinated financial support or b) its owners do not hold the typical risks and rights of equity owners. This determination is made upon the creation of a variable interest and can be re-assessed should certain changes in the operations of a VIE, or its relationship with the primary beneficiary trigger a reconsideration under the provisions of FIN 46(R). After a triggering event occurs the most recent facts and circumstances are utilized in determining whether or not a company is a variable interest entity, which other company(s) have a variable interest in the entity, and whether or not the company’s interest is such that it is the primary beneficiary.
 
The fiscal 2006 and fiscal 2005 consolidated financial statements include the accounts of AMERCO, its wholly-owned subsidiaries, and SAC Holding II. The 2004 statements of operations, comprehensive income, and cash flows include all of those entities plus SAC Holding Corporation and its subsidiaries.
 
In fiscal 2003 and fiscal 2002, SAC Holding Corporation and SAC Holding II (together, “SAC Holdings”) were considered special purpose entities and were consolidated based on the provisions of Emerging Issues Task Force (EITF) Issue No. 90-15. In fiscal 2004, the Company applied FIN 46(R) to its interests in SAC Holdings. Initially, the Company concluded that SAC Holdings were variable interest entities (VIE’s) and that the Company was the primary beneficiary. Accordingly, the Company continued to include SAC Holdings in its consolidated financial statements.
 
In February, 2004, SAC Holding Corporation restructured the indebtedness of three subsidiaries and then distributed its interest in those subsidiaries to its sole shareholder. This triggered a requirement to reassess AMERCO’s involvement with those subsidiaries, which led to the conclusion that based on current contractual and ownership interests between AMERCO and this entity, AMERCO ceased to have a variable interest in those three subsidiaries at that date.

20


 
Separately, in March 2004, SAC Holding Corporation restructured its indebtedness, triggering a similar reassessment of SAC Holding Corporation that led to the conclusion that SAC Holding Corporation was not a VIE and that AMERCO ceased to be the primary beneficiary of SAC Holding Corporation and its remaining subsidiaries. This conclusion was based on SAC Holding Corporation’s ability to fund its own operations and execute its business plan without any future subordinated financial support.
 
Accordingly, at the dates AMERCO ceased to have a variable interest and ceased to be the primary beneficiary of SAC Holding Corporation and its current or former subsidiaries, it deconsolidated those entities. The deconsolidation was accounted for as a distribution of SAC Holding Corporations interests to the sole shareholder of the SAC entities. Because of AMERCO’s continuing involvement with SAC Holding Corporation and its current and former subsidiaries, the distributions do not qualify as discontinued operations as defined by SFAS No. 144.
 
It is possible that SAC Holding Corporation could take actions that would require us to re-determine whether SAC Holding Corporation has become a VIE or whether we have become the primary beneficiary of SAC Holding Corporation. Should this occur, we could be required to consolidate some or all of SAC Holding Corporation with our financial statements.
 
Similarly, SAC Holding II could take actions that would require us to re-determine whether it is a VIE or whether we continue to be the primary beneficiary of our variable interest in SAC Holding II. Should we cease to be the primary beneficiary, we would be required to deconsolidate some or all of our variable interest in SAC Holding II from our financial statements.
 
Recoverability of Property, Plant and Equipment
 
 
Property, plant and equipment are stated at cost. Interest cost incurred during the initial construction of buildings and rental equipment is considered part of cost. Depreciation is computed for financial reporting purposes using the straight-line or an accelerated method based on a declining balance formula over the following estimated useful lives: rental equipment 2-20 years and buildings and non-rental equipment 3-55 years. Major overhauls to rental equipment are capitalized and are amortized over the estimated period benefited. Routine maintenance costs are charged to operating expense as they are incurred. Gains and losses on dispositions of property, plant and equipment are netted against depreciation expense when realized. Depreciation is recognized in amounts expected to result in the recovery of estimated residual values upon disposal, i.e., no gains or losses. During the first quarter of fiscal 2005, the Company lowered its estimates for residual values on new rental trucks and rental trucks purchased off TRAC leases from 25% of the original cost to 20%. In determining the depreciation rate, historical disposal experience, holding periods and trends in the market for vehicles are reviewed.
 
We regularly perform reviews to determine whether facts and circumstances exist which indicate that the carrying amount of assets, including estimates of residual value, may not be recoverable or that the useful life of assets is shorter or longer than originally estimated. Reductions in residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the life of the equipment. Reviews are performed based on vehicle class, generally subcategories of trucks and trailers. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining lives against their respective carrying amounts. We consider factors such as current and expected future market price trends on used vehicles and the expected life of vehicles included in the fleet. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter or longer than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.
 
Fiscal 2006 marked the first time in ten years that the Company has acquired a significant number of new trucks via purchase rather than lease. Management performed an analysis of the expected economic value of new rental trucks and determined that additions to the fleet resulting from purchase should be depreciated on an accelerated method based upon a declining formula. The salvage value and useful life assumptions of the rental truck fleet remain unchanged.

21


 

 
The Company had previously used the straight-line method for new truck purchases. Under the new declining balances method (2.4 times declining balance) the book value of a rental truck is reduced 16% at the end of its first year, 70% by the end of its seventh year, and 80% at the end of year fifteen. Under the straight-line method the book value of a rental truck is reduced 5% at the end of its first year, 37% by the end of its seventh year, and 80% at the end of year fifteen.
 
For trucks purchased in fiscal 2006, the depreciation recorded under the declining balance method was approximately $4.0 million greater that what would have been recorded under the straight-line method.
 
We typically sell our used vehicles at one of our sales centers throughout North America, on our web site at trucksales.uhaul.com or by calling 1-866-404-0355. Although we attempt to sell our used vehicles for prices approximating book value, the extent to which we are able to realize a gain on the sale of used vehicles is dependent upon various factors including the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and depreciation rates with respect to the vehicle.
 
Insurance Reserves
 
 
Liabilities for life insurance and certain annuity policies are established to meet the estimated future obligations of policies in force, and are based on mortality and withdrawal assumptions from recognized actuarial tables which contain margins for adverse deviation. Liabilities for deferred annuity contracts consist of contract account balances that accrue to the benefit of the policyholders, excluding surrender charges. Liabilities for health, disability and other policies represent estimates of payments to be made on insurance claims for reported losses and estimates of losses incurred, but not yet reported.
 
Insurance reserves for RepWest and U-Haul are based upon actuarial estimates of losses expected to be incurred. These estimates are based on past claims experience and current claim trends as well as social and economic conditions such as changes in legal theories and inflation. Due to the nature of underlying risks and the high degree of uncertainty associated with the determination of the liability for future policy benefits and claims, the amounts to be ultimately paid to settle liabilities cannot be precisely determined and may vary significantly from the estimated liability.
 
A consequence of the long tail nature of the assumed reinsurance and the excess workers compensation lines of insurance that were written by RepWest is that it takes a number of years for claims to be fully reported and finally settled. Also, the severity of the commercial transportation and the commercial multiple peril programs can fluctuate unexpectedly.
 
Investments
 
 
For investments accounted for under SFAS No. 115, in determining if and when a decline in market value below amortized cost is other than temporary, management makes certain assumptions or judgments in its assessment including but not limited to: ability and intent to hold the security, quoted market prices, dealer quotes or discounted cash flows, industry factors, financial factors, and issuer specific information. Other-than-temporary impairment in value is recognized in the current period operating results.
 
Income Taxes
 
 
The Company records deferred tax assets and liabilities based upon the differences between the tax basis of assets and liabilities and the financial statement carrying amounts. Management reviews any deferred tax assets for realization and establishes a valuation allowance in relation to such assets should we believe they may not be ultimately realized. As part of this assessment, management makes certain assumptions regarding future taxable income, timing of the reversals of timing differences, and implementation of tax planning strategies. A change in any of these assumptions can alter our valuation allowance and cause an increase or decrease in our effective tax rate that could materially impact our financial results.
 
The Company’s tax returns are periodically reviewed by various taxing authorities. Despite our belief that all of our tax treatments are supportable, the final outcome of these audits may cause changes in our valuation allowance should we not prevail. These changes could materially impact our financial results. Our current tax rate is approximately 39.5 %.

22


 
AMERCO files a consolidated tax return with all of its legal subsidiaries, except for CFLIC which still files on a stand alone basis. SAC Holding Corporation and its legal subsidiaries and SAC Holding II Corporation and its legal subsidiaries file consolidated tax returns, which are in no way associated with AMERCO’s consolidated returns.
 
Recent Accounting Pronouncements
 
 
On November 3, 2005, the Financial Accounting Standards Board (“FASB”) issued FSP SFAS 115-1 and SFAS 124-1: The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP nullifies certain requirements of EITF 03-1 and supersedes EITF Topic No. D-44 “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” This FSP addresses (1) the determination of when an investment is considered impaired, (2) whether such impairment is other than temporary, and (3) the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP SFAS 115-1 and SFAS 124-1 is effective for periods beginning after December 15, 2005, with earlier application permitted. We do not believe that the application of FSP SFAS 115-1 and SFAS 124-1 will have a material effect on our results of operations or financial position.
 
The AICPA issued Statement of Position SOP 05-1, on September 29, 2005, to provide guidance on accounting by insurance enterprises for internal policy replacements other than the replacement of traditional life contracts with universal-life contracts specifically addressed in FASB Statement of Financial Accounting Standards (SFAS) 97. The guidance applies to both short-duration and long-duration insurance contracts under SFAS 60 and to investment contracts defined in SFAS 97. SOP 05-1 is effective for internal replacement transactions occurring in fiscal years beginning after December 15, 2006, with earlier application encouraged. Retroactive application to previously issued financial statements is not permitted. Initial application should be as of the start of the entity's fiscal year. We do not believe that the application of SOP 05-1 will have a material effect on our results of operations or financial position.
 
23

Results of Operations
 
AMERCO and Consolidated Entities
 
 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below on a consolidated basis are revenues for our major product lines for fiscal 2006 and fiscal 2005:
 

   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
122,119
   
114,155
 
Self-moving and self-storage product and service sales
   
223,721
   
206,098
 
Property management fees
   
21,195
   
11,839
 
Life insurance premiums
   
118,833
   
126,236
 
Property and casualty insurance premiums
   
26,001
   
24,987
 
Net investment and interest income
   
53,094
   
56,739
 
Other revenue
   
38,094
   
30,172
 
Consolidated revenue
 
$
2,106,626
 
$
2,008,121
 
               

 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks removed from the fleet.
 
Self-storage revenues increased $8.0 million for fiscal 2006, compared to fiscal 2005 as occupancy rates increased period over period.
 
Sales of self-moving and self-storage products and service sales increased $17.6 million for fiscal 2006, compared to fiscal 2005 generally following the growth in self-moving equipment rentals. Support sales items, hitches, and propane all had increases for the year.
 
RepWest continued to exit from non U-Haul related lines of business. However, premium revenues increased $1.0 million for fiscal 2006, compared to fiscal 2005 due to increases in retrospective premiums related to U-Haul business in fiscal 2006. Additionally, fiscal 2005 included the commutation of a non U-Haul related reinsurance contract reducing premium revenues.
 
Oxford’s premium revenues declined $7.4 million primarily as a result of decreased credit and Medicare supplement business, offset by growth in life insurance premiums.
 
Net investment and interest income decreased $3.6 million for fiscal 2006, compared to fiscal 2005 due primarily to declining invested asset balances at the insurance companies.
 
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,106.6 million for fiscal 2006, compared with $2,008.1 million for fiscal 2005.

24


 
Listed below are revenues and earnings (loss) from operations at each of our four operating segments for fiscal 2006 and fiscal 2005, the insurance companies years ended are December 31, 2005 and 2004.
 

   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Moving and storage
             
Revenues
 
$
1,900,468
 
$
1,791,667
 
Earnings (loss) from operations
   
292,774
   
165,985
 
Property and casualty insurance
           
Revenues
   
37,358
   
41,417
 
Earnings (loss) from operations
   
1,144
   
(14,814
)
Life insurance
             
Revenues
   
148,080
   
159,484
 
Earnings (loss) from operations
   
13,933
   
2,065
 
SAC Holding II
             
Revenues
   
46,239
   
43,172
 
Earnings (loss) from operations
   
13,643
   
10,466
 
Eliminations
             
Revenues
   
(25,519
)
 
(27,619
)
Earnings (loss) from operations
   
(16,113
)
 
3,294
 
Consolidated Results
             
Revenues
   
2,106,626
   
2,008,121
 
Earnings (loss) from operations
   
305,381
   
166,996
 
 

 
Total costs and expenses decreased $39.9 million for fiscal 2006, compared to fiscal 2005. Total costs and expenses for both insurance companies decreased $43.3 million due primarily to reductions in benefits and losses. Fiscal 2005 included a $10.6 million charge for litigation at Oxford not present in fiscal 2006. Increases in operating costs associated with the improved business volume at Moving and Storage were offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs.
 
In our second quarter of fiscal 2006, hurricanes Katrina and Rita struck the Gulf Coast of the United States causing business interruption to a number of our operating facilities. We identified customers impacted by the hurricanes and our rapid response teams provided a variety of solutions to divert operations to alternate facilities and restore operations where possible. We have been able to redeploy assets and employees to service our customers in cases where the facilities remain inoperable or have not returned to full operating capacity. We lost approximately 150 trucks and 150 trailers during and after the devastation caused by these hurricanes. We maintain property and business interruption insurance coverage to mitigate the financial impact of these types of catastrophic events. Our insurance deductible is $500,000 and was recorded in our second quarter.
 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are fully restored and claims are filed.
 
As a result of the aforementioned changes in revenues and expenses, earnings from operations improved to $305.4 million for fiscal 2006, compared with $167.0 million for fiscal 2005.

25


 
Interest expense for fiscal 2006 was $105.1 million, compared with $73.2 million in fiscal 2005. Fiscal 2006 results included a one-time, non-recurring charge of $35.6 million before taxes which includes fees for early extinguishment of debt of $21.2 million and the write-off of $14.4 million of debt issuance costs. The expense related to the increase in average borrowings was partially offset by a reduction in the average borrowing rate resulting from the refinancing activities in fiscal 2006. The refinancing costs had the effect of decreasing, on a nonrecurring basis, earnings for the year ended March 31, 2006 by $1.71 per share before taxes, in which the tax effect was approximately $0.63 per share.
 
During the third quarter of fiscal 2005, the Company settled our litigation against our former auditor and received a settlement (net of attorneys’ fees and costs) of $51.3 million before taxes. The settlement had the effect of increasing, on a nonrecurring basis, earnings for the year ended March 31, 2005 by $2.47 per share before taxes, in which the tax effect was approximately $0.91 per share.
 
Income tax expense was $79.1 million in fiscal 2006, compared with $55.7 million in fiscal 2005.
 
Dividends accrued on our Series A preferred stock were $13.0 million in both fiscal 2006 and 2005, respectively.
 
As a result of the above mentioned items, net earnings available to common shareholders were $108.2 million in fiscal 2006, compared with $76.5 million in fiscal 2005.
 
The weighted average common shares outstanding: basic and diluted were 20,857,108 in fiscal 2006 and 20,804,773 in fiscal 2005.
 
Basic and diluted earnings per share in fiscal 2006 were $5.19, compared with $3.68 in fiscal 2005.

26


 
Fiscal 2005 Compared with Fiscal 2004
 
 
Listed below on a consolidated basis are revenues for our major product lines for fiscal 2005 and fiscal 2004:
 

   
Year Ended March 31,
 
   
2005
 
2004
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,437,895
 
$
1,381,208
 
Self-storage revenues
   
114,155
   
247,640
 
Self-moving and self-storage product and service sales
   
206,098
   
232,965
 
Property management fees
   
11,839
   
259
 
Life insurance premiums
   
126,236
   
145,082
 
Property and casualty insurance premiums
   
24,987
   
92,036
 
Net investment and interest income
   
56,739
   
38,281
 
Other revenue
   
30,172
   
38,523
 
Consolidated revenue
 
$
2,008,121
 
$
2,175,994
 
               

 
During fiscal 2005, self-moving equipment rentals increased $56.7 million through steady transaction volume, modest price increases and improved product mix.
 
Self-storage revenues decreased $133.5 million for fiscal 2005, compared to fiscal 2004. Reported storage revenues were reduced by $109.2 million due to the deconsolidation of SAC Holding Corporation in fiscal 2004, and were reduced by $29.7 million as a result of the W.P. Carey Transactions (see footnote 9 for a more detailed discussion of the W.P. Carey Transactions). Storage revenues from remaining properties grew as a result of an increase in the number of rooms available for rent, higher occupancy rates and modest price increases.
 
Sales of self-moving and self-storage products and service sales decreased $26.9 million for fiscal 2005, compared to fiscal 2004. Sales for the Moving and Storage segment increased $8.7 million, while the deconsolidation of SAC Holding Corporation caused a decrease of $36.0 million. Support sales items, hitches, and propane all had increases for the year.
 
RepWest continued to exit from non U-Haul related lines of business as a result premium revenues decreased $67.0 million for fiscal 2005, compared to fiscal 2004.
 
Oxford’s premium revenues declined $18.8 million primarily as a result of the lingering effects of its rating downgrade by A.M. Best in 2003.
 
Net investment and interest income increased $18.5 million for fiscal 2005, compared to fiscal 2004 due primarily to the deconsolidation of SAC Holding Corporation.
 
As a result of the items mentioned above, revenues for AMERCO and its consolidated entities were $2,008.1 million for fiscal 2005, compared with $2,176.0 million for fiscal 2004.

27


 
Listed below are revenues and earnings (loss) from operations at each of our four operating segments for fiscal 2005 and fiscal 2004; for the insurance companies years ended are December 31, 2004 and 2003:

   
Year Ended March 31,
 
   
2005
 
2004
 
   
(In thousands)
 
Moving and storage
             
Revenues
 
$
1,791,667
 
$
1,768,872
 
Earnings (loss) from operations
   
165,985
   
93,593
 
Property and casualty insurance
             
Revenues
   
41,417
   
114,941
 
Earnings (loss) from operations
   
(14,814
)
 
(35,950
)
Life insurance
             
Revenues
   
159,484
   
177,812
 
Earnings (loss) from operations
   
2,065
   
11,253
 
SAC Holdings
             
Revenues
   
43,172
   
218,955
 
Earnings (loss) from operations
   
10,466
   
64,693
 
Eliminations
             
Revenues
   
(27,619
)
 
(104,586
)
Earnings (loss) from operations
   
3,294
   
(6,674
)
Consolidated Results
             
Revenues
   
2,008,121
   
2,175,994
 
Earnings (loss) from operations
   
166,996
   
126,915
 
               

 
Total costs and expenses decreased $208.0 million for fiscal 2005, compared to fiscal 2004 as a result of the productivity initiatives of U-Haul, the effect of the W.P. Carey Transaction and the deconsolidation of SAC Holding Corporation. The decrease in total costs and expenses was partially offset by payroll and benefit inflation, self-moving equipment impairment charges related to lease buy-outs, additional depreciation expense related to lower residual value assumptions, and litigation settlement costs of $10.6 million at Oxford, net of insurance recoveries. Benefits and losses fell as a result of lower premium revenues at RepWest and Oxford. Benefits and losses included approximately $8.5 million as a result of hurricane related losses at RepWest. The absence of restructuring costs in fiscal 2005 contributed to lower costs and expenses compared with fiscal 2004.
 
As a result of the aforementioned changes in revenues and expenses, earnings from operations improved to $167.0 million for fiscal 2005, compared with $126.9 million for fiscal 2004.
 
Interest expense for fiscal 2005 was $73.2 million, compared with $121.7 million in fiscal 2004. Lower interest expense in fiscal 2005 reflects the deconsolidation of SAC Holding Corporation, lower borrowings and a lower cost of borrowing.
 
During fiscal 2005, the Company settled its litigation against its former auditor and received a settlement (net of attorneys’ fees and costs) of $51.3 million before taxes. The settlement had the effect of increasing, on a nonrecurring basis, earnings for the year ended March 31, 2005 by $2.47 per share before taxes, in which the tax effect was approximately $0.91 per share.
 
Income tax expense was $55.7 million in fiscal 2005, compared with $8.1 million in fiscal 2004 and reflects our higher pretax earnings for fiscal 2005, net of an increase in tax in fiscal 2004 of $4.8 million resulting from our settlement with the IRS for tax audits related to 1996 and 1997.
 
Dividends accrued on our Series A preferred stock were $13.0 million in both fiscal 2005 and 2004.
 
As a result of the above mentioned items, net earnings (loss) available to common shareholders were $76.5 million in fiscal 2005, compared with ($15.8) million in fiscal 2004.

28


 
The weighted average common shares outstanding: basic and diluted were 20,804,773 in fiscal 2005 and 20,749,998 in fiscal 2004.
 
Basic and diluted earnings (loss) per share in fiscal 2005 were $3.68, compared with ($0.76) in fiscal 2004.
 
Moving and Storage
 
 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below are revenues for the major product lines at our Moving and Storage operating segment for fiscal 2006 and fiscal 2005:
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
103,250
   
96,202
 
Self-moving and self-storage product and service sales
   
207,119
   
191,078
 
Property management fees
   
23,988
   
14,434
 
Net investment and interest income
   
30,025
   
29,902
 
Other revenue
   
32,517
   
22,156
 
Moving and Storage revenue
 
$
1,900,468
 
$
1,791,667
 
               
 

 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks removed from the fleet.
 
Self-storage revenues increased $7.0 million for fiscal 2006, compared to fiscal 2005 generally in line with the increases in occupancy rates. Average occupancy based on room count has increased 5.5% in fiscal 2006, compared to fiscal 2005.
 
Sales of self-moving and self-storage products and service increased $16.0 million for fiscal 2006, compared to fiscal 2005. Retail sales generally increase in line with moving equipment rentals. In fiscal 2006 we have seen increases beyond this trend due to improved customer demand for towing accessories and propane. U-Haul is the largest single retail provider of propane and towing accessories in the United States through our Company owned and managed locations. The Company continues to improve its visibility as a provider of propane and towing accessories. Self-moving and storage related retail products continue to improve as we have increased our product offerings.
 
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidated financial statements for Moving and Storage represent Company-owned locations only. Self-storage data for our owned storage locations is as follows:
 
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands, except occupancy rate)
 
Room count as of March 31
   
123
   
127
 
Square footage as of March 31
   
9,592
   
10,003
 
Average number of rooms occupied
   
107
   
108
 
Average occupancy rate based on room count
   
87.9
%
 
82.4
%
Average square footage occupied
   
8,516
   
8,514
 
               
 


29


 
Total costs and expenses increased $2.7 million for fiscal 2006, compared to fiscal 2005. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Operating expenses decreased $26.1 million for fiscal 2006, compared to fiscal 2005. Increases in operating costs associated with the improved business volume were more than offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs. Overall total cost and expense increases were less than revenue increases for fiscal 2006.
 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are restored and claims are filed.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $292.8 million in fiscal 2006, compared with $166.0 million for fiscal 2005.
 
Fiscal 2005 Compared with Fiscal 2004
 
 
Listed below are revenues for our major product lines at our Moving and Storage operating segment for fiscal 2005 and fiscal 2004:
   
Year Ended March 31,
 
   
2005
 
2004
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,437,895
 
$
1,381,208
 
Self-storage revenues
   
96,202
   
121,204
 
Self-moving and self-storage product and service sales
   
191,078
   
182,388
 
Property management fees
   
14,434
   
12,974
 
Net investment and interest income
   
29,902
   
38,459
 
Other revenue
   
22,156
   
32,639
 
Moving and Storage revenue
 
$
1,791,667
 
$
1,768,872
 
               
 
During fiscal 2005, self-moving equipment rentals increased $56.7 million primarily due to increased transaction volume, modest price increases and improved product mix.
 
Self-storage revenues decreased $25.0 million for fiscal 2005, compared to fiscal 2004. The W.P Carey transaction accounted for a $29.7 million decrease (see footnote 9 for a more detailed discussion of the W.P. Carey Transaction), while storage revenues at remaining properties grew as a result of an increase in the number of rooms available for rent, higher occupancy rates and modest price increases.
 
Sales of self-moving and self-storage products and service sales increased $8.7 million for fiscal 2005, compared to fiscal 2004 generally following the growth in self-moving equipment rentals. Support sales items, hitches, and propane all had increases for the year.
 
The Company owns and manages self-storage facilities. Self-storage revenues reported in the consolidating financial statements for Moving and Storage represent Company-owned locations only. Self-storage data for our owned storage locations is as follows:
   
Year Ended March 31,
 
   
2005
 
2004
 
   
(In thousands, except occupancy rate)
 
Room count as of March 31
   
127
   
175
 
Square footage as of March 31
   
10,003
   
14,206
 
Average number of rooms occupied
   
108
   
130
 
Average occupancy rate based on room count
   
82.4
%
 
75.3
%
Average square footage occupied
   
8,514
   
10,463
 
               

30


 
Total costs and expenses decreased $32.1 million for fiscal 2005, compared to fiscal 2004. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Expense decreased in fiscal 2005, due primarily to the absence of restructuring expenses of $44.1 million.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $166.0 million in fiscal 2005, compared with $93.6 million for fiscal 2004.
 
U-Haul International, Inc.
 
 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below are revenues for the major product lines at U-Haul International, Inc. for fiscal 2006 and fiscal 2005:
   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,503,569
 
$
1,437,895
 
Self-storage revenues
   
101,437
   
94,431
 
Self-moving and self-storage product and service sales
   
207,119
   
191,078
 
Property management fees
   
23,988
   
14,434
 
Net investment and interest income
   
24,894
   
22,030
 
Other revenue
   
36,926
   
27,489
 
U-Haul International, Inc. revenue
 
$
1,897,933
 
$
1,787,357
 
               
 
During fiscal 2006, self-moving equipment rentals increased $65.7 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix that included the introduction of approximately 15,500 new trucks in fiscal 2006. In most cases, these trucks replaced older trucks removed from the fleet.
 
Self-storage revenues increased $7.0 million for fiscal 2006, compared to fiscal 2005 generally in line with the increases in occupancy rates. Average occupancy based on room count has increased 5.5% in fiscal 2006, compared to fiscal 2005.
 
Sales of self-moving and self-storage products and service sales increased $16.0 million for fiscal 2006, compared to fiscal 2005. Retail sales generally increase in line with moving equipment rentals. In fiscal 2006 we have seen increases beyond this trend due to improved customer demand for towing accessories and propane. U-Haul is the largest single retail provider of propane and towing accessories in the United States through our Company owned and managed locations. The Company continues to improve its visibility as a provider of propane and towing accessories. Self-moving and storage related retail products continue to improve as we have increased our product offerings.
 
Total costs and expenses increased $9.3 million for fiscal 2006, compared to fiscal 2005. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Operating expenses decreased $15.1 million for fiscal 2006, compared to fiscal 2005. Increases in operating costs associated with the improved business volume were more than offset by reductions in repair and maintenance expenses related to rotating the fleet. Trucks with higher maintenance costs are being replaced by new trucks with lower initial maintenance costs. Depreciation expense increased $17.8 million for fiscal 2006, compared to fiscal 2005 primarily due to buy-outs of leases, new truck purchases and certain residual value adjustments on the rental trucks. The buy-outs of the leases are the primary reason for the $8.6 million decrease in lease expense for fiscal 2006, compared to fiscal 2005. Overall total cost and expense increases were less than revenue increases for fiscal 2006.
 
During fiscal 2006, the Company received insurance proceeds of $4.8 million, of this amount $4.5 million was applied to the losses incurred on trucks and trailers and $0.3 million was applied to the losses sustained at operating facilities. The net book value of the trucks and trailers lost during the 2005 hurricanes approximates $1.1 million. Additional insurance recoveries are expected as facilities are fully restored as claims are filed.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations increased to $241.7 million in fiscal 2006, compared with $140.5 million for fiscal 2005.

31


 
Fiscal 2005 Compared with Fiscal 2004
 
 
Listed below are revenues for the major product lines at U-Haul International, Inc. for fiscal 2005 and fiscal 2004:
   
Year Ended March 31,
 
   
2005
 
2004
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
1,437,895
 
$
1,380,991
 
Self-storage revenues
   
94,431
   
118,335
 
Self-moving and self-storage product and service sales
   
191,078
   
182,327
 
Property management fees
   
14,434
   
12,974
 
Net investment and interest income
   
22,030
   
21,504
 
Other revenue
   
27,489
   
35,580
 
U-Haul International, Inc. revenue
 
$
1,787,357
 
$
1,751,711
 
               
 
During fiscal 2005, self-moving equipment rentals increased $56.9 million with increases in truck, trailer, and support rental items. The increases are due to improved equipment utilization, pricing, and product mix.
 
Self-storage revenues decreased $23.9 million for fiscal 2005, compared to fiscal 2004 due to the W.P Carey transaction (see footnote 9 for a more detailed discussion of the W.P. Carey Transaction), while storage revenues at remaining properties grew as a result of an increase in the number of rooms available for rent, higher occupancy rates and modest price increases.
 
Sales of self-moving and self-storage products and service sales increased $8.8 million for fiscal 2005, compared to fiscal 2004 generally following the growth in self-moving equipment rentals. Support sales items, hitches, and propane all had increases for the year.
 
Total costs and expenses increased $35.7 million for fiscal 2005, compared to fiscal 2004. Commissions on self-moving equipment rentals and cost of sales increased in proportion to the related revenues. Operating expenses increased $38.0 million for fiscal 2005, compared to fiscal 2004, due primarily to increased repair and maintenance costs and personnel and benefit expense.
 
As a result of the above mentioned changes in revenues and expenses, earnings from operations remained constant at $140.5 million for fiscal 2005 and 2004, respectively.
 
Republic Western Insurance Company
 
 
2005 Compared with 2004
 
 
Premium revenues were $26.0 million and $25.0 million for the years ended December 31, 2005 and 2004, respectively. U-Haul related premiums were $20.2 million and $18.9 million for the years ended December 31, 2005 and 2004, respectively. Other non U-Haul lines of business were $5.8 million and $6.1 million for the years ended December 31, 2005 and 2004, respectively.
 
Net investment income was $11.4 million and $16.4 million for 2005 and 2004, respectively. The reduction was due to a decrease in RepWest’s invested asset base and gains on capital assets sold in 2004.
 
Benefits and losses incurred were $22.6 million and $39.7 million for 2005 and 2004, respectively. The decrease resulted from reduced exposure to non U-Haul policies combined with the absence of approximately $8.5 million of incurred losses in 2004 due to hurricane claims.

32


 
Amortization of deferred acquisition costs were $2.9 million and $4.7 million for 2005 and 2004, respectively. The decreases are due to a reduction of in-force business related to the exit of non U-Haul lines of business.
 
Operating expenses were $10.8 million and $11.8 million for 2005 and 2004, respectively. The decrease was due to a reduction of general administrative expenses resulting from the exit of the non U-Haul lines of business.
 
Earnings (loss) from operations were $1.1 million and ($14.8) million for 2005 and 2004, respectively.
 
2004 Compared with 2003
 
 
Premium revenues were $25.0 million and $93.2 million for the years ended December 31, 2004 and 2003, respectively. The overall decrease is due to RepWest exiting non U-Haul lines of business. U-Haul related premiums were $18.9 million and $23.6 million for 2004 and 2003, respectively. The decrease was a result of RepWest being under DOI supervision and the “C” rating by A.M. Best. Premium revenues on non U-Haul lines of business were $6.1 million and $69.6 million for 2004 and 2003, respectively.
 
Net investment income was $16.4 million and $21.7 million for 2004 and 2003, respectively. The reduction was due to a decrease in the RepWest’s invested asset base.
 
Benefits and losses incurred were $39.7 million and $109.4 million for 2004 and 2003, respectively. The decreases resulted from reduced exposure resulting from RepWest’s decision to exit its non U-Haul lines of business, which was offset by the losses from the Florida hurricanes and additional reserves added to the long-tailed programs.
 
Amortization of deferred acquisition costs was $4.7 million and $14.1 million for 2004 and 2003, respectively. The decrease is due to decreased premium writings.
 
Operating expenses were $11.8 million and $27.4 million for 2004 and 2003, respectively. The decrease was due to decreased commissions, as well as, a reduction of general administrative expenses due to the exit of the non U-Haul lines of business.
 
Losses from operations were $14.8 million and $36.0 million for 2004 and 2003, respectively. The loss in 2004 was the result of approximately $8.5 million in incurred losses and related expenses resulting from the hurricanes that hit the Southeastern United States in the summer and fall of 2004, as well as additional reserves recorded for RepWest’s cancelled lines of business.

33


 
The following table illustrates the change in unpaid loss and loss adjustment expenses. The first line represents reserves as originally reported at the end of the stated year. The second section, reading down, represents cumulative amounts paid as of the end of successive years with respect to that reserve. The third section, reading down, represents 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.
   
Unpaid Loss and Loss Adjustment Expenses
 
                                               
   
December 31,
 
   
1995
 
1996
 
1997
 
1998
 
1999
 
2000
 
2001
 
2002
 
2003
 
2004
 
2005
 
   
(In thousands)
 
Unpaid Loss and Loss Adjustment Expenses
 
$
341,981
 
$
332,674
 
$
384,816
 
$
344,748
 
$
334,858
 
$
382,651
 
$
448,987
 
$
399,447
 
$
416,259
 
$
380,875
 
$
346,928
 
Paid (Cumulative) as of:
                                                                   
One year later
   
89,041
   
89,336
   
103,752
   
82,936
   
117,025
   
130,471
   
130,070
   
100,851
   
73,384
   
44,679
   
-
 
Two years later
   
150,001
   
161,613
   
174,867
   
164,318
   
186,193
   
203,605
   
209,525
   
164,255
   
114,426
   
-
   
-
 
Three years later
   
195,855
   
208,168
   
216,966
   
218,819
   
232,883
   
255,996
   
266,483
   
201,346
   
-
   
-
   
-
 
Four years later
   
226,815
   
232,726
   
246,819
   
255,134
   
264,517
   
299,681
   
295,268
   
-
   
-
   
-
   
-
 
Five years later
   
243,855
   
250,312
   
269,425
   
274,819
   
295,997
   
320,629
   
-
   
-
   
-
   
-
   
-
 
Six years later
   
254,204
   
263,645
   
282,598
   
297,354
   
314,281
   
-
   
-
   
-
   
-
   
-
   
-
 
Seven years later
   
264,120
   
274,249
   
300,814
   
311,963
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Eight years later
   
273,205
   
289,614
   
314,322
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Nine years later
   
286,708
   
298,449
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Ten years later
   
294,806
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                                                                     
Reserved Re-estimated as of:
                                                                   
One year later
   
353,508
   
354,776
   
357,733
   
339,602
   
383,264
   
433,222
   
454,510
   
471,029
   
447,524
   
388,859
       
Two years later
   
369,852
   
342,164
   
361,306
   
371,431
   
432,714
   
454,926
   
523,624
   
480,713
   
456,171
   
-
       
Three years later
   
328,445
   
346,578
   
369,598
   
429,598
   
437,712
   
517,361
   
500,566
   
521,319
   
-
   
-
       
Four years later
   
331,897
   
349,810
   
398,899
   
413,476
   
480,200
   
543,554
   
571,045
   
-
   
-
   
-
       
Five years later
   
339,665
   
376,142
   
398,184
   
443,696
   
524,548
   
558,765
   
-
   
-
   
-
   
-
       
Six years later
   
347,664
   
369,320
   
428,031
   
477,975
   
520,675
   
-
   
-
   
-
   
-
   
-
       
Seven years later
   
344,451
   
396,197
   
450,728
   
485,228
   
-
   
-
   
-
   
-
   
-
   
-
       
Eight years later
   
360,149
   
423,928
   
461,082
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Nine years later
   
378,778
   
418,177
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Ten years later
   
364,992
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
       
Cumulative Redundancy (Deficiency)
 
$
(23,011
)
$
(85,503
)
$
(76,266
)
$
(140,480
)
$
(185,817
)
$
(176,114
)
$
(122,058
)
$
(121,872
)
$
(39,912
)
$
(7,984
)
     
Retro Premium Recoverable
   
623
   
1,582
   
3,037
   
(1,879
)
 
6,797
   
5,613
   
21,756
   
7,036
   
374
   
2,233
       
Re-estimated Reserve: Amount (Cumulative)
 
$
(22,388
)
$
(83,921
)
 
(73,229
)
$
(142,359
)
$
(179,020
)
$
(170,501
)
$
(100,302
)
$
(114,836
)
$
(39,538
)
$
(5,751
)
     
                                                                     
 


34


 
Activity in the liability for unpaid losses and loss adjustment expenses for RepWest is summarized as follows:
   
Year Ended December 31,
 
   
2005
 
2004
 
2003
 
   
(In thousands)
 
Balance at January 1
 
$
380,875
 
$
416,259
 
$
399,447
 
Less: reinsurance recoverable
   
189,472
   
177,635
   
146,622
 
Net balance at January 1
   
191,403
   
238,624
   
252,825
 
Incurred related to:
                   
Current year
   
6,429
   
17,960
   
56,454
 
Prior years
   
16,161
   
21,773
   
53,127
 
Total incurred
   
22,590
   
39,733
   
109,581
 
Paid related to:
                   
Current year
   
3,774
   
13,570
   
22,931
 
Prior years
   
44,679
   
73,384
   
100,851
 
Total paid
   
48,453
   
86,954
   
123,782
 
Net balance at December 31
   
165,540
   
191,403
   
238,624
 
Plus: reinsurance recoverable
   
181,388
   
189,472
   
177,635
 
Balance at December 31
 
$
346,928
 
$
380,875
 
$
416,259
 
                     
 
The liability for incurred losses and loss adjustment expenses (net of reinsurance recoverable of $181.4 million) decreased by $25.9 million in 2005. The decrease is a result of eliminating unprofitable programs.

35


 
Oxford Life Insurance Company
 
 
2005 Compared with 2004
 
 
Premium revenues were $120.4 million and $127.7 million for the years ended December 31, 2005 and 2004, respectively. Medicare supplement premiums decreased by $5.7 million due to lapses on closed lines being greater than new business written on active lines. Credit insurance premiums decreased $3.8 million. Oxford is no longer writing credit insurance. Oxford expects the majority of the existing credit policies to earn out over the next three years. Life premiums increased $1.6 million primarily due to increased sales from the final expense product. Annuitizations increased $0.4 million, while other health premiums increased slightly. Other income decreased $2.5 million in the current year, compared to the prior year primarily due to decreased surrender charge income.
 
Net investment income was $22.0 million and $23.5 million for 2005 and 2004, respectively. The decrease was primarily due to realized losses on the sale of investments in the current year. Investment yields were consistent between the two years.
 
Benefits and losses incurred were $85.7 million and $91.5 million for 2005 and 2004, respectively. This decrease was primarily a result of a $5.4 million decrease in Medicare supplement benefits due to reduced exposure and a slightly improved loss ratio. All other lines combined for a $0.4 million decrease.
 
Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $21.4 million and $23.8 million for 2005 and 2004, respectively. These costs are amortized for life and health policies as the premium is earned over the term of the policy; and for deferred annuities in relation to interest spreads. Annuity amortization decreased $1.9 million from 2004 primarily due to reduced surrender activity. Other segments combined for a $0.5 million decrease primarily due to a decline in new business volume.
 
Operating expenses were $27.0 million and $42.2 million for 2005 and 2004, respectively. The decrease is primarily due to a $10.6 million accrual in the prior year for the Kocher settlement as well as reduced legal and overhead expenses in the current year. Included in operating expenses for the current year is $0.7 million of expense related to the write-off of goodwill associated with a subsidiary engaged in selling credit insurance. Non-deferrable commissions decreased $2.3 million due to decreased sales of Medicare supplement and credit products.
 
Earnings from operations were $13.9 million and $2.1 million for 2005 and 2004, respectively. The increase is due primarily to the prior year accrual of $10.6 million related to the Kocher settlement as well as improved loss ratios in the Medicare supplement and other health lines of business.
 
2004 Compared with 2003
 
 
Premiums revenues were $127.7 million, $147.8 million for the years ended December 31, 2004 and 2003, respectively. Medicare supplement premiums decreased by $8.2 million from 2003 due to lapses on closed lines being greater than new business written on active lines. Credit insurance premiums decreased $6.9 million from 2003 due to fewer accounts resulting from the rating downgrade by A.M. Best. Life, other health, and annuity premiums decreased $5.0 million from 2003 primarily from reduced life insurance sales and fewer annuitizations.
 
Net investment income was $23.5 million and $19.0 million for 2004 and 2003, respectively.
 
Benefits and losses incurred were $91.5 million and $103.5 million for 2004 and 2003, respectively. Medicare supplement benefits decreased $5.8 million from 2003 due primarily to reduced exposure. Credit insurance benefits decreased $2.8 million from 2003 due to reduced exposure and improved disability experience. Life insurance benefits decreased $3.6 million from 2003 as new business declined and existing exposure decreased. All other lines had increases of $0.2 million from 2003.

36


 
Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $23.8 million and $25.0 million for 2004 and 2003, respectively. Annuity amortization increased $0.8 million from 2003 primarily due to increased surrender activity. Other segments, primarily credit, had decreases of $2.0 million from 2003 due to decreased new business volume.
 
Operating expenses were $42.2 million and $38.1 million for 2004 and 2003, respectively. The $10.6 million accrual related to the Kocher settlement, net of insurance recoveries, accounted for the majority of the variance. Non-deferrable commissions have decreased $5.5 million from 2003 primarily due to decreased sales of Medicare supplement and life products.
 
Earnings from operations were $2.1 million and $11.3 million for 2004 and 2003, respectively. The decrease in 2004 from 2003 is due primarily to the $10.6 million accrual for the Kocher settlement offset by improved investment income, and positive loss experience in the Medicare supplement and credit insurance segments.
 
SAC Holding II
 
 
Fiscal 2006 Compared with Fiscal 2005
 
 
Listed below are revenues for the major product lines at SAC Holding II for fiscal 2006 and fiscal 2005:
 

   
Year Ended March 31,
 
   
2006
 
2005
 
   
(In thousands)
 
Self-moving equipment rentals
 
$
9,498
 
$
9,008