1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission Registrant, State of Incorporation I.R.S. Employer
File Number Address and Telephone Number Identification No.
_______________________________________________________________________
0-7862 AMERCO 88-0106815
(A Nevada Corporation)
1325 Airmotive Way, Ste. 100
Reno, Nevada 89502-3239
Telephone (702) 688-6300
2-38498 U-Haul International, Inc. 86-0663060
(A Nevada Corporation)
2727 N. Central Avenue
Phoenix, Arizona 85004
Telephone (602) 263-6645
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
29,426,048 shares of AMERCO Common Stock, $0.25 par value and 9,238,015 shares
of AMERCO Series A common stock, $0.25 par value were outstanding at November
10, 1994.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were
outstanding at November 10, 1994.
2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
a) Consolidated Balance Sheets as of September 30, 1994,
March 31, 1994 and September 30, 1993.............. 4
b) Consolidated Statements of Earnings for the Six
Months ended September 30, 1994 and 1993........... 6
c) Consolidated Statements of Changes in Stockholders'
Equity for the Six Months ended September 30, 1994
and 1993........................................... 7
d) Consolidated Statements of Earnings for the
Quarters ended September 30, 1994 and 1993......... 8
e) Consolidated Statements of Cash Flows for the
Six Months ended September 30, 1994 and 1993....... 9
f) Notes to Consolidated Financial Statements -
September 30, 1994, March 31, 1994 and
September 30, 1993................................. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 29
3
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INTENTIONALLY BLANK
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
September 30, March 31, September 30,
ASSETS 1994 1994 1993
------ ------------- --------- -------------
(unaudited) (audited) (unaudited)
(in thousands)
Cash $ 41,882 18,442 13,973
Receivables 260,727 204,814 113,401
Inventories 47,691 49,012 52,469
Prepaid expenses 21,029 24,503 21,477
Investments, fixed maturities 701,220 719,605 679,826
Investments, other 97,727 84,738 106,202
Deferred policy acquisition costs 49,940 47,846 49,829
Other assets 18,192 21,246 26,592
--------- --------- ---------
Property, plant and equipment, at
cost:
Land 202,987 186,210 179,382
Buildings and improvements 710,680 676,297 637,253
Furniture and equipment 174,139 163,495 161,043
Rental trailers and other rental
equipment 225,498 212,187 208,043
Rental trucks 905,669 820,395 764,706
General rental items 54,131 57,421 59,902
--------- --------- ---------
2,273,104 2,116,005 2,010,329
Less accumulated depreciation 1,005,433 941,769 884,266
--------- --------- ---------
Total property, plant and
equipment 1,267,671 1,174,236 1,126,063
--------- --------- ---------
$ 2,506,079 2,344,442 2,189,832
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
5
September 30, March 31, September 0,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994 1993
------------------------------------ ------------- --------- -------------
(unaudited) (audited) (unaudited)
(in thousands)
Liabilities:
Accounts payable and accrued
liabilities $ 149,940 124,062 118,546
Notes and loans 752,529 723,764 793,871
Policy liabilities and accruals 464,883 439,266 338,899
Liabilities from premium deposits 300,069 312,708 320,421
Cash overdraft 27,013 26,559 27,116
Other policyholders' funds and
liabilities 8,805 9,592 10,107
Deferred income 8,652 5,913 5,027
Deferred income taxes 85,404 50,791 57,268
--------- --------- ---------
Stockholders' equity:
Serial preferred stock, with or
without par value, 50,000,000
shares authorized; 6,100,000
issued without par value and
outstanding as of September 30, 1994
and March 31, 1994, none issued or
outstanding as of September, 30, 1993 - - -
Serial common stock, with or with-
out par value, 150,000,000 shares
authorized - - -
Series A common stock of $.25 par
value, authorized 10,000,000 shares,
issued 9,238,015 shares as of
September 30, 1994 and 5,754,334
shares as of March 31, 1994,
none as of September 30, 1993 2,309 1,438 -
Common stock of $.25 par value,
authorized 150,000,000 shares,
issued 30,761,985 shares as of
September 30, 1994 and 34,245,666
shares as of March 31, 1994 and
40,000,000 as of September 30, 1993 7,691 8,562 10,000
Additional paid-in capital 165,651 165,651 19,331
Foreign currency translation (10,027) (11,152) (9,202)
Retained earnings 573,908 515,200 527,050
--------- --------- ---------
739,532 679,699 547,179
Less:
Cost of common shares in treasury,
(1,335,937 shares as of September
30, 1994 and March 31, 1994 and
September 30, 1993) 10,461 10,461 10,461
Loan to leveraged employee stock
ownership plan 20,287 17,451 18,141
--------- --------- ---------
Total stockholders' equity 708,784 651,787 518,577
Contingent liabilities and commitments
--------- --------- ---------
$ 2,506,079 2,344,442 2,189,832
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Six Months ended September 30,
(Unaudited)
1994 1993
---------- ----------
(in thousands except
per share data)
Revenues
Rental and other revenue $ 496,985 447,226
Net sales 97,688 92,779
Premiums 67,597 56,661
Net investment income 22,423 19,650
---------- ----------
Total revenues 684,693 616,316
Costs and expenses
Operating expense 342,560 323,866
Cost of sales 53,288 55,098
Benefits and losses 66,279 59,910
Amortization of deferred acquisition
costs 5,676 4,332
Depreciation 74,755 62,266
Interest expense 33,297 35,268
---------- ----------
Total costs and expenses 575,855 540,740
Pretax earnings from operations 108,838 75,576
Income tax expense (39,354) (24,344)
---------- ----------
Earnings from operations before
cumulative effect of change in
accounting principle 69,484 51,232
Cumulative effect of a change in
accounting principle - (3,272)
---------- ----------
Net earnings $ 69,484 47,960
========== ==========
Earnings per common share:
Earnings from operations before
cumulative effect of change in
accounting principle $ 1.70 1.38
Cumulative effect of a change in
accounting principle - (.09)
---------- ----------
Net earnings $ 1.70 1.29
========== ==========
Weighted average common shares outstanding 37,053,707 37,119,233
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
7
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Six Months ended September 30,
(Unaudited)
1994 1993
------- -------
(in thousands)
Series A common stock of $.25 par
value: Authorized 10,000,000 shares,
issued 9,238,015 as of September 30, 1994
and 5,754,334 as of March 31, 1994 and
none in 1993
Beginning of period $ 1,438 -
Exchange for common stock 871 -
------- -------
End of period 2,309 -
------- -------
Common stock of $.25 par value:
Authorized 150,000,000 shares in 1994
and 1993, 30,761,985 issued in 1994,
40,000,000 issued in 1993
Beginning of period 8,562 10,000
Exchange of Series A common stock (871) -
------- -------
End of period 7,691 10,000
------- -------
Additional paid-in capital:
Beginning and end of period 165,651 19,331
------- -------
Foreign currency translation:
Beginning of period (11,152) (6,122)
Change during period 1,125 (3,080)
------- -------
End of period (10,027) (9,202)
------- -------
Retained earnings:
Beginning of period 515,200 482,163
Net earnings 69,484 47,960
Dividends paid to stockholders:
Preferred stock: ($1.06 per share 1994) (6,482) -
Common stock: ($.08 per share 1993) - (3,147)
Tax benefits related to ESOP dividends - 74
Change in net unrealized gain
on investments (4,294) -
------- -------
End of period 573,908 527,050
------- -------
Treasury stock:
Beginning and end of period 10,461 10,461
------- -------
Loan to leveraged employee stock ownership plan:
Beginning of period 17,451 14,953
Increase in loan 2,955 3,309
Proceeds from loan (119) (121)
End of period 20,287 18,141
------- -------
Total stockholders' equity $ 708,784 518,577
======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
8
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended September 30,
(Unaudited)
1994 1993
---------- ----------
(in thousands except
per share data)
Revenues
Rental and other revenue $ 266,778 239,184
Net sales 46,386 45,137
Premiums 36,038 32,021
Net investment income 11,913 8,626
---------- ----------
Total revenues 361,115 324,968
Costs and expenses
Operating expense 175,774 165,001
Cost of sales 25,738 25,825
Benefits and losses 39,867 35,969
Amortization of deferred acquisition
costs 2,592 2,179
Depreciation 37,473 32,126
Interest expense 16,659 17,930
---------- ----------
Total costs and expenses 298,103 279,030
Pretax earnings from operations 63,012 45,938
Income tax expense (22,941) (15,569)
---------- ----------
Earnings from operations before
cumulative effect of change in
accounting principle 40,071 30,369
Cumulative effect of a change in
accounting principle - 232
---------- ----------
Net earnings $ 40,071 30,601
========== ==========
Earnings per common share:
Earnings from operations before
cumulative effect of change in
accounting principle $ 1.00 .82
Cumulative effect of a change in
accounting principle - .01
---------- ----------
Net earnings $ 1.00 .83
========== ==========
Weighted average common shares outstanding 36,999,879 37,080,255
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
9
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months ended September 30,
(Unaudited)
1994 1993
-------- --------
(in thousands)
Cash flows from operating activities:
Net earnings $ 69,484 47,960
Depreciation and amortization 82,684 68,463
Provision for losses on accounts
receivable 1,868 526
Net gain on sale of real and personal
property 132 (2,396)
Gain on sale of investments (1,066) (870)
Cumulative effect of a change in
accounting principle - 3,272
Changes in policy liabilities and
accruals 26,568 1,643
Additions to deferred policy
acquisition costs (7,770) (4,413)
Net change in other operating assets
and liabilities 27,705 21,312
-------- --------
Net cash provided by operating activities 199,605 135,497
-------- --------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (255,231) (330,302)
Fixed maturities (86,291) (128,602)
Real estate (8) (176)
Mortgage loans (36,087) (22,002)
Proceeds from sale of investments:
Property, plant and equipment 88,669 136,049
Fixed maturities 100,522 96,868
Real estate 459 1,116
Mortgage loans 5,374 4,804
Changes in other investments (834) 7,290
-------- --------
Net cash used by investing activities (183,427) (234,955)
-------- --------
Cash flows from financing activities:
Net change in short-term borrowings 16,250 (48,000)
Proceeds from notes 66,000 186,000
Loan to leveraged employee stock
ownership plan (2,955) (3,309)
Proceeds from leveraged employee stock
ownership plan 119 121
Principal payments on notes (53,485) (41,250)
Net change in cash overdraft 454 2,265
Dividends paid (6,482) (3,147)
Investment contract deposits 13,661 17,089
Investment contract withdrawals (26,300) (17,629)
-------- --------
Net cash provided by financing activities 7,262 92,140
-------- --------
Increase (decrease) in cash 23,440 (7,318)
Cash at beginning of quarter 18,442 21,291
-------- --------
Cash at end of quarter $ 41,882 13,973
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
10
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994, March 31, 1994 and September 30, 1993
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
corporation, AMERCO, and its subsidiaries, all of which are wholly-owned.
All material intercompany accounts and transactions of AMERCO and its
subsidiaries (herein called the "Company" or the "consolidated group") have
been eliminated. The consolidated balance sheets as of September 30, 1994
and 1993, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the quarters ended September 30,
1994 and 1993 are unaudited; in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain information included in the Company's annual financial
statements and notes.
Earnings per share are computed based on the weighted average number of
shares outstanding, not including ESOP shares that have not been committed
to release. Net income is reduced for preferred dividends.
Certain reclassifications have been made to the financial statements for the
quarter ended September 30, 1993 to conform with the current year's
presentation.
2. INVESTMENTS
A comparison of amortized cost to market for fixed maturities is as follows
(in thousands):
Gross Gross Estimated
Carrying Unrealized Unrealized Market
June 30, 1994 Par Value Value Gains Losses Value
------------- --------- ----- ----- ----------- ---------
U.S. Treasury
securities and
government
obligations 146,430,239 171,608 2,952 (8,942) 165,618
States, municipal-
ities and political
subdivisions 41,232,000 41,121 2,868 (197) 43,792
Corporate
Securities 409,444,901 432,200 6,172 (14,324) 424,048
Mortgage-backed
securities 53,698,684 54,129 389 (3,616) 50,902
Redeemable pre-
ferred stock 36,054 2,162 382 - 2,544
------- ------ -------- -------
701,220 12,763 (27,079) 686,904
======= ======= ======== =======
11
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC.
AND ITS SUBSIDIARIES
A summary consolidated balance sheet (unaudited) for Ponderosa Holdings, Inc.
and its subsidiaries is presented below:
September 30,
1994 1993
--------- ---------
(in thousands)
Investments - fixed maturities $ 701,220 679,826
Other investments 97,727 106,202
Receivables 150,841 45,128
Deferred policy acquisition costs 49,940 49,829
Due from affiliate (1,531) 9,468
Deferred federal income taxes 7,957 7,478
Other assets 18,600 8,861
--------- ---------
Total assets $ 1,024,754 906,792
========= =========
Policy liabilities and accruals $ 398,602 297,730
Unearned premiums 66,111 41,169
Premium deposits 300,069 320,421
Other policyholders' funds and
liabilities 14,613 12,317
--------- ---------
Total liabilities 779,395 671,637
Stockholder's equity 245,359 235,155
--------- ---------
Total liabilities and
stockholder's equity $ 1,024,754 906,792
========= =========
12
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC.
AND ITS SUBSIDIARIES, continued
A summarized consolidated income statement (unaudited) for Ponderosa
Holdings, Inc. and its subsidiaries is presented below:
Six Months ended September 30,
1994 1993
--------- ---------
(in thousands)
Premiums $ 76,865 66,286
Net investment income 22,498 19,945
Other income 3,245 3,039
--------- ---------
Total revenue 102,608 89,270
Benefits and losses 66,279 59,910
Amortization of deferred policy
acquisition costs 5,676 4,332
Other expenses 12,756 11,945
--------- ---------
Income from operations 17,897 13,083
Federal income tax expense (5,675) (3,039)
--------- ---------
Earnings from operations before
change in accounting principle 12,222 10,044
Cumulative effect of a change in
accounting principle - (101)
--------- ---------
Net income $ 12,222 9,943
========= =========
Effective June 30, 1994, the Board of Directors of Oxford declared a dividend
of its stock in Republic Western Insurance Company to Ponderosa.
During the quarter, the Board of Directors of Ponderosa Holdings, Inc.
declared and paid a dividend of $14,603,000 to AMERCO.
4. CONTINGENT LIABILITIES AND COMMITMENTS
During the six months ended September 30, 1994, U-Haul Leasing & Sales Co., a
wholly-owned subsidiary of U-Haul International, Inc., entered into seven
transactions, whereby they sold rental trucks and subsequently leased them
back. AMERCO has guaranteed $6,313,000 of residual values at September 30,
1994 on these assets at the end of the lease terms. Following are the
lease commitments for those leases executed during the six months ended
September 30, 1994, which have a term of more than one year (in thousands):
Year ended Lease
March 31, Commitments
---------- -----------
1995 $ 8,457
1996 12 044
1997 12,044
1998 12,044
1999 12,044
Thereafter 27,607
------
$ 84,240
======
13
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
4. CONTINGENT LIABILITIES AND COMMITMENTS, continued
The Company is a defendant in a number of suits and claims incident to the
type of business conducted and several administrative proceedings arising
from state and local provisions that regulate the removal and/or clean-up
of underground fuel storage tanks. The Company owns property within two
state hazardous waste sites in the State of Washington. At this time, the
remedial clean-up cost or range of costs for such sites cannot be
estimated. Management's opinion is that none of these suits or claims
involving AMERCO and/or its subsidiaries is expected to result in any
material loss.
Certain of the Company's credit agreements contain provisions that could
result in a required prepayment upon a "change in control" of the Company.
A "change in control" is deemed to occur if (a) any transfer of any shares
of any class of capital stock results in the Company's ESOP and members of
the Shoen family owning in the aggregate less than the amount of capital
stock as may be necessary to enable them to cast in excess of 50% of the
votes for the election of directors of the Company, or (b) during any
period for two consecutive years, persons who at the beginning of such
period constituted the Board of Directors of the Company (including any
director approved by a vote of not less than 66 2/3% of such board)
cease for any reason to constitute greater than 50% of the then acting
Board.
The Company does not currently have available sources of financing to fund
such prepayments if they become payable in full. In addition, upon such a
"change in control," the Company might lose the ability to draw on certain
unutilized lines of credit otherwise available.
As disclosed in the Form 10-K for the year ended March 31, 1994, certain
members of the Company's Board of Directors are defendants in an action
whereby the plaintiffs, certain shareholders of the Company, have alleged
that certain of the individual plaintiffs were wrongfully excluded from
sitting on the Company's Board of Directors in 1988 through the sale of the
Company's common stock to certain key employees, various breaches of
fiduciary duty and other unlawful conduct by the individual defendants.
The plaintiffs seek equitable relief, compensatory damages, and punitive
damages. All claims for various breaches of fiduciary duty and other
unlawful conduct by the individual defendants that would have allowed the
plaintiffs to sit on the Board of Directors have been dismissed, subject
only to the right of the plaintiffs to appeal such dismissal. The Company
was also a defendant in the action as originally filed, but was dismissed
from the action on August 15, 1994, subject only to the right, to the
extent that any exists, of the plaintiffs to appeal such dismissal. See
also Note 8 to Consolidated Financial Statements (Unaudited).
14
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
5. SUPPLEMENTAL CASH FLOWS INFORMATION
The (increase) decrease in receivables, inventories and accounts payable and
accrued liabilities net of other operating and investing activities
follows:
Six Months ended September 30,
1994 1993
------- -------
(in thousands)
Receivables $ (41,291) (1,796)
======= =======
Inventories $ 1,321 (1,032)
======= =======
Accounts payable and
accrued liabilities $ 23,758 5,074
======= =======
Income tax paid in cash amounted to $5,566,000 and $2,142,000 for 1994 and
1993, respectively.
Interest paid in cash amounted to $30,878,000 and $33,325,000 for 1994 and
1993, respectively.
6. RELATED PARTIES
On August 24, 1994, the Company entered into an Exchange Agreement with
Edward J. Shoen, the Company's Chairman of the Board and President. In
exchange for 3,483,681 shares of Common Stock owned by Edward J. Shoen, the
Company issued 3,483,681 shares of Series A Common Stock to him.
Through the second quarter of fiscal 1995, a subsidiary of the Company loaned
SAC Self-Storage Corporation(SAC)a total of $32,164,000 for the purchase of
21 self-storage properties by SAC. Such properties are presently being
operated by the Company pursuant to management agreements. SAC is owned by
Edward J. Shoen, Mark V. Shoen and James P. Shoen, who are all shareholders
and directors of the Company. The underlying notes bear interest at a rate
of 9%, due quarterly and are secured by real property and operating cash
flows. The notes mature in 2004. All of the notes are cross-collaterized
with other notes issued by SAC.
7. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 112 - Employers' Accounting
for Postemployment Benefits.
Issued in November 1992, this statement applies to employers who provide
certain benefits to former or inactive employees after employment but
before retirement. It requires that the cost of such benefits be
recognized over the service period of employees as these benefits vest or
accumulate. The provisions of this statement must be adopted for fiscal
years beginning after December 15, 1993. The impact of adoption of this
statement will not be material.
15
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
7. NEW ACCOUNTING STANDARDS, continued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan", was issued by the Financial Accounting Standards
Board in May 1993. This standard is effective for years beginning after
December 15, 1994. The standard requires that an impaired loan's fair
value be measured and compared to the recorded investment in the loan. If
the fair value of the loan is less than the recorded investment in the
loan, a valuation allowance is established. The Company has not completed
an evaluation of the effect of this standard.
Statement of Financial Accounting Standards No. 115 - Accounting for Certain
Investments in Debt and Equity Securities.
Effective December 31, 1993, RWIC adopted SFAS 115. This statement requires
classification of debt securities into one of the following three
categories based on management's intention with regard to such securities:
held-to-maturity, available-for-sale and trading. Securities classified
as held-to-maturity are recorded at cost adjusted for the amortization of
premiums or accretion of discounts while those classified as available-for-
sale are recorded at fair value with unrealized gains or losses reported
on a net basis as a separate component of stockholders' equity.
Securities classified as trading, if any, are recorded at fair value with
unrealized gains or losses reported on a net basis in income. RWIC does
not currently maintain a trading portfolio. U-Haul and Oxford will adopt
this statement in fiscal 1995. The effect of adopting this statement on
the Company's financial statements is immaterial.
Statement of Position 93-7, "Reporting on Advertising Costs", was issued by
the Accounting Standards Executive Committee in December 1993. This
statement of position provides guidance on financial reporting on
advertising costs in annual financial statements. The statement of
position requires reporting advertising costs as expenses when incurred or
when the advertising takes place, reporting the costs of direct-response
advertising, and amortizing the amount of direct-response advertising
reported as assets. This statement of position is effective for financial
statements for years beginning after June 15, 1994. The Company currently
matches certain advertising costs with revenue generated in future periods,
and at September 30, 1994, $9.3 million in advertising costs are deferred
and included in prepaid expenses. The Company has completed an evaluation
of the effect of this statement of position but has not determined the
timing of adoption. However, the Company must adopt this statement of
position in fiscal 1996.
16
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
8. SUBSEQUENT EVENTS
On October 13, 1994, the Company declared a cash dividend of $3,241,000 ($.53
per preferred share) to preferred stockholders of record as of November 8,
1994.
As disclosed in Note 4, certain of the Company's current and former directors
are defendants in an action initiated by certain of the Company's
shareholders. Based upon the preliminary rulings by the Court and the fact
that the plaintiffs alleged that their stock is virtually worthless, the
Company believes that the plaintiffs elected that their remedy in the
litigation would be the sale of their stock to the defendants at a price
determined by the Court based on the value of their stock in 1988. On
October 7, 1994, the jury determined that such value was $81.12 per share
or approximately $1.48 billion. The defendants have filed post-trial
motions to (i) request a new trial and/or (ii) reduce the amount of
consideration to be paid to the plaintiffs for their stock to not more than
$394 million or (iii) to obtain judgment in favor of the defendants.
The Company is unable to predict the outcome of the post-trial motions and
the likelihood of appeal by any party or the consequences of any appeal.
However, based upon the advice of Snell & Wilmer, counsel to the defendants
other than Paul F. Shoen, the Company believes that even if the Court does
not render judgment in favor of the defendants or order a new trial, a
substantial reduction in the jury verdict is probable.
The Company has agreed to indemnify the defendants to the fullest extent
permitted by law or the Company's Articles of Incorporation or Bylaws, for
all expenses and damages, if any, incurred by the defendants in this
proceeding, subject to certain exceptions. At this time, the extent of the
Company's indemnification obligations, if any, cannot be reasonably
estimated. The Company believes that there is a substantial likelihood
that if the jury verdict is substantially reduced, the resulting amount to
be paid to the plaintiffs for their shares will not exceed the fair market
value of the shares to be acquired by the defendants. In such event, the
defendants may choose to acquire the shares without making indemnification
claims against the Company. No provision has been made in the Company's
financial statements for any possible indemnification claims. If the jury
verdict in this case is significantly reduced, the Company believes that it
can satisfy its indemnification obligations, if any. Before the Company
will have any indemnification obligations, a final judgment must be entered
against the defendants, the defendants must request indemnification from
the Company, and a determination must be
made under Nevada law as to the validity of the indemnification claims. If
valid indemnification claims are made, the Company believes that it has
various means of financing any such indemnification obligations consistent
with its existing credit agreements. In the alternative, the Company may
17
seek the waiver or amendment of certain of the provisions of one or more of
its credit agreements when the indemnification obligations are determined.
The Company believes, but no assurances can be given, that it can obtain
any necessary waivers or amendments. If the jury verdict is significantly
reduced, the Company does not believe that there would be a material
adverse effect on its earnings, financial position, or cash flows. If the
jury verdict is not significantly reduced and any resulting judgment is not
stayed by appeal or other proceedings, the Company may be unable to satisfy
its indemnification obligations if valid indemnification claims are made.
There can be no assurance that the jury verdict will be significantly
reduced.
The Company, certain officers of the Company, certain members of the
Company's Board of Directors, and others are defendants in an action
currently pending in United States District Court for the District of
Nevada entitled Sidney Wisotzky and Dorothy Wisotzky, et al. v. Edward J.
---------------------------------------------------------
Shoen. et al., No. CV-N-94-771-HDM (filed October 28, 1994 and served on
-------------
the Company on November 7, 1994). The plaintiffs, who claim to have
purchased the Company's Series A 8 1/2% Preferred Stock, are seeking class
action certification and are defining the class as all persons who
purchased or otherwise acquired the Series A 8 1/2% Preferred Stock of
AMERCO from October 14, 1993 through October 18, 1994, inclusive, and who
sustained damage as a result of such purchases. The plaintiffs allege
among other things, that the defendants violated the federal securities
laws by inflating the price of the Series A 8 1/2% Preferred Stock via
false and misleading statements, the concealment of material adverse
information and other manipulative actions, and that the Prospectus for the
Series A 8 1/2% Preferred Stock, certain Form 10-K and Form 10-Q filings
made by the Company, and the Company's Notice and Proxy Statement dated
July 8, 1994 contained false and misleading statements and omissions
regarding the action currently pending in the Superior Court of the State
of Arizona in and for the County of Maricopa entitled Samuel W. Shoen,
----------------
M.D., et al. v. Edward J. Shoen, et al., No. CV88-20139, instituted August
---------------------------------------
2, 1988 (the "Shoen Litigation"). On October 7, 1994, the jury in the
Shoen Litigation awarded the plaintiffs in that case approximately $1.48
billion to be paid by the defendants in exchange for the plaintiffs' stock.
The jury in that case also awarded the plaintiffs $70 million in punitive
damages against Edward J. Shoen. The plaintiffs are requesting unspecified
compensatory damages as well as attorneys' fees and costs. The Company and
the individual defendants deny plaintiffs' allegations of wrongdoing and
intend to vigorously defend themselves in this action.
On November 10, 1994, the public sale of 500,000 shares of the Company's
Common Stock pursuant to a Share Repurchase and Registration Rights
Agreement with Sophia M. Shoen was consummated at an initial public
offering price of $17 per share. The Common Stock sold by Sophia M. Shoen
is traded on NASDAQ - National Market under the ticker symbol "AMOO". The
Company did not receive any proceeds from the sale.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:
The following table shows industry segment data from the Company's three
industry segments, rental operations, life insurance, and property and
casualty insurance, for the six months ended September 30, 1994 and 1993.
Rental operations is composed of the operations of U-Haul and AMERCO Real
Estate Company. Life insurance is composed of the operations of Oxford.
Property and casualty insurance is composed of the operations of Republic
Western Insurance Company (RWIC). The Company's results of operations have
historically fluctuated from quarter to quarter. In particular, the
Company's U-Haul rental operations are seasonal and a majority of the
Company's revenues and substantially all of it's earnings from its U-Haul
rental operations are generated in the first and second quarters each
fiscal year (April through September).
Property/ Adjustments
Rental Life Casualty And
Operations Insurance Insurance Eliminations Consolidated
---------- --------- --------- ------------ ------------
(in thousands)
Six months ended September 30, 1994
Revenues:
Outside $ 591,737 19,682 73,274 - 684,693
Intersegment (41) 744 8,939 (9,642) -
---------- -------- -------- --------- ---------
Total Revenue 591,696 20,426 82,213 (9,642) 684,693
========== ======== ======== ========= =========
Operating profit 124,197 6,295 11,602 41 142,135
========== ======== ======== =========
Interest expense 33,297
---------
Pretax earnings
from operations 108,838
=========
Identifiable Assets
at September 30 1,733,767 462,229 577,127 (267,044) 2,506,079
========== ======== ======== ========= =========
Six months ended September 30, 1993
Revenues:
Outside $ 537,284 16,161 62,871 - 616,316
Intersegment 936 464 9,798 (11,198) -
---------- -------- -------- --------- ---------
Total Revenue 538,220 16,625 72,669 (11,198) 616,316
========== ======== ======== ========= =========
Operating profit 98,905 4,734 8,349 (1,144) 110,844
========== ======== ======== ========= =========
Interest expense 35,268
---------
Pretax earnings
from operations 75,576
=========
Identifiable Assets
at September 30 1,528,430 463,294 448,661 (250,553) 2,189,832
========== ======== ======== ========= =========
19
SIX MONTHS ENDED SEPTEMBER 30, 1994 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1993
U-Haul
U-Haul revenues consist of (i) total rental and other revenue and (ii)
net sales. Total rental and other revenue increased by $48.6 million,
approximately 10.9%, to $494.0 million in the first six months of fiscal 1995.
The increase in the first six months of fiscal 1995 is primarily attributable to
a $46.2 million increase in net revenues from the rental of moving related
equipment, which rose to $459.4 million as compared to $413.2 million in the
first six months of fiscal 1994. Moving related revenues benefited from
transactional (volume) growth within the truck and trailer fleets reflecting
higher utilization and rental fleet expansion. Revenues from the rental of
self-storage facilities increased by $4.7 million to $39.4 million in the first
six months of fiscal 1995, an increase of approximately 13.5%. Storage revenues
were positively impacted by additional rentable square footage and higher
average rental rates. Other revenues declined by $2.3 million which primarily
reflects changes in gains realized from the disposition of property, plant and
equipment.
Net sales revenues were $97.7 million in the first six months of
fiscal 1995, which represents an increase of approximately 5.3% from the first
six months of fiscal 1994 net sales of $92.8 million. Revenue growth from the
sale of hitches, moving support items (i.e. boxes, etc.), and propane resulted
in a $6.3 million increase during the first six month period, which was offset
by a $1.3 million decrease in revenue from gasoline sales and outside repair.
Cost of sales was $53.3 million in the first six months of fiscal
1995, which represents a decrease of approximately 3.3% from $55.1 million for
the same period in fiscal 1994. The decrease in cost of sales primarily
reflects improved margins on hitch sales, and the liquidation of RV parts in the
first quarter of fiscal 1994. Increased material costs from the sale of moving
support items and propane, which can be primarily attributed to higher sales
levels, partially offset these decreases.
Operating expenses increased to $339.5 million in the first six months
of fiscal 1995 from $322.0 million in the first six months of fiscal 1994, an
increase of approximately 5.4%. The change from the prior year primarily
reflects a $16.7 million increase in rental equipment maintenance costs.
Efforts to minimize downtime, an increase in fleet size, and higher transaction
levels are primarily responsible for the increase. Lease expense declined by
$17.3 million to $31.5 million reflecting lease terminations, lease
restructuring, and lower finance costs on new leases originated during the past
18 months. All other operating expense categories increased in the aggregate of
$18.1 million, approximately 9.8%, to $202.5 million.
Depreciation expense for the six month period was $74.8 million, as
compared to $62.3 million in the same period of the prior year, reflecting the
increase in fleet size, the acquisition of trucks that were previously leased
and real property acquisitions.
20
Oxford - Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $8.2 million for the six months ended June 30, 1994, an
increase of $.6 million, approximately 7.9% over 1993 and accounted for 78.5% of
Oxford's premiums in 1994. These premiums are primarily from term life
insurance and single and flexible premium deferred annuities. Increases in
premiums are primarily from the anticipated increase in annuitizations as a
result of the maturing of deferred annuities.
Premiums from Oxford's direct lines before intercompany eliminations
were $2.3 million for the six months ended June 30, 1994, an increase of $1.1
million over the prior year. The increase in direct premium is primarily due to
Oxford's entrance into the credit life and accident and health business.
Oxford's direct lines are principally related to the underwriting of group life
and disability income and credit life and accident and health. Insurance on the
lives of the employees of AMERCO and its subsidiary companies accounted for
approximately 8.0% of Oxford's premiums in 1994. Unaffiliated direct lines
accounted for approximately 13.5% of Oxford's premiums in 1994.
Net investment income before intercompany eliminations was $7.7
million and $6.4 million for the six months ended June 30, 1994 and 1993,
respectively. This increase is primarily due to increasing margins on the
interest sensitive business. Gains on the disposition of fixed maturity
investments were $1.2 million and $.5 million for the six months ended June 30,
1994 and 1993, respectively. Oxford had $1.0 million of other income for both
of the six months periods ended June 30, 1994 and 1993.
Benefits and expenses incurred were $14.1 million for the six months
ended June 30, 1994, an increase of 18.5% over 1993. Comparable benefits and
expenses incurred for 1993 were $11.9 million. This increase is primarily due
to the increase in reserve caused by the increase in annuitizations and the
credit life and accident and health business discussed above.
Operating profit before intercompany eliminations increased by $1.6
million, or approximately 34%, in 1994 to $6.3 million, primarily due to the
increasing margins on the interest sensitive business and the gain on
disposition of fixed maturities.
RWIC - Property and Casualty
RWIC gross premium writings continued to grow in the first six months
of 1994, to $93.6 million as compared to $81.3 million in the first half of
1993. This represents an increase of $12.3 million, or 15.1%. RWIC continues
underwriting professional reinsurance via broker markets, and premiums in this
area increased in the first half of 1994 to $38.7 million, or 41.4% of total
premium, from comparable 1993 figures of $26.2 million, or 32.3% of total
premium. As in prior years, the rental industry market also accounts for a
significant share of total premiums, approximately 40.5% and 38.9% in the first
half of 1994 and the first half of 1993, respectively. These writings include
U-Haul customers, fleetowners
21
and U-Haul as well as other rental industry insureds with similar
characteristics.
Net earned premiums increased $8.9 million, or 15.5%, to $66.4 million
for the six months ended June 30, 1994, compared with premiums of $57.5 million
for the six months ended June 30, 1993. The premium increase was primarily due
to increased writings in the assumed reinsurance area.
Underwriting expenses incurred were $70.6 million for the six months
ended June 30, 1994, an increase of $6.3 million, or 9.8% over 1993. Comparable
underwriting expenses incurred for 1993 were $64.3 million. The increase in
underwriting expenses is due to the larger premium volume being written in 1994,
which increased acquisition costs and commensurate reserves. The ratio of
underwriting expenses to net earned premiums decreased from 1.12 in the first
half of 1993 to 1.06 in the first half of 1994. This improvement is primarily
attributable to improved loss experience combined with continued rate strength
in the Company's assumed reinsurance area. Also contributing to the improvement
was better than expected loss ratios on the Company's general agency lines.
Net investment income was $14.8 million during the first half of 1994,
an increase of 8.8% over 1993 net investment income of $13.6 million. The
increase is due to an increased asset base generated from larger premium volume.
RWIC completed the first six months of 1994 with net after tax income
of $8.2 million as compared to $6.9 million for the comparable period ended June
1993. This represents an increase of $1.3 million, or 18.8% over 1993. The
increase is due to better underwriting results in the assumed reinsurance area.
Interest Expense
Interest expense decreased by $2.0 million to $33.3 million for the
six months ended September 30, 1994, as compared to $35.3 million for the six
months ended September 30, 1993. This decrease reflects a reduction in the
costs of funds and lower average debt levels outstanding.
Consolidated Group
As a result of the foregoing, pretax earnings of $108.8 million were
realized in the six months ended September 30, 1994, as compared to $75.6
million for the same period in 1993. After providing for income taxes, net
earnings for the six months ended September 30, 1994 were $69.5 million, as
compared to $48.0 million for the same period of the prior year. The
consolidated results for the prior year reflect a cumulative effect adjustment
resulting from the adoption of Statement of Accounting Standards No. 106
"Accounting for Post-Retirement Benefits Other Than Pensions."
22
THREE MONTHS ENDED SEPTEMBER 30, 1994 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1993
U-Haul
U-Haul revenues consist of (i) total rental and other revenue and (ii)
net sales. Total rental and other revenue increased by $26.0 million,
approximately 10.9%, to $264.9 million in the three months ended September 1994.
The increase is primarily attributable to a $22.8 million increase in net
revenues from the rental of moving related equipment, which rose to $245.0
million, as compared to $22.8 million for the three months ended September 30,
1994 and September 30, 1993, respectively. Moving related revenues benefited
from transactional (volume) growth within the truck and trailer fleets.
Revenues from the rental of self-storage facilities increased by $2.6 million to
$20.6 million for the three months ended September 1994, an increase of
approximately 14.4%. Storage revenues were positively impacted by additional
rentable square footage and higher average rental rates. Other revenues
declined by $.6 million which primarily reflects changes in gains realized from
the disposition of property, plant and equipment.
Net sales were $46.4 million for the three months ended September 30,
1994, which represents an increase of approximately 2.9% from the three months
ended September 30, 1993 net sales of $45.1 million. Revenue growth from the
sale of hitches, moving support items (i.e. boxes, etc.), and propane resulted
in a $2.0 million increase during the three month period, which was offset by a
$.7 million decrease in revenue from gasoline sales and outside repair.
Cost of sales was $25.7 million for the three months ended September
30, 1994 compared to $25.8 million for the same period ended September 1993.
The relative static activity represents improved margins on hitch sales, with
increased material costs for support items and propane.
Operating expenses increased to $177.5 million for the three months
ended September 30, 1994 compared to $166.4 million for the three months ended
September 1993, an increase of approximately 6.7%. The change from the prior
year primarily reflects a $6.6 million increase in rental equipment maintenance
costs. Efforts to minimize downtime, an increase in fleet size and higher
transaction levels are primarily responsible for the increase. Lease expense
declined by $4.8 million to $16.3 million reflecting lease terminations, lease
restructuring, and lower finance costs on new leases originated during the past
18 months. All other operating expense categories increased in the aggregate by
$9.3 million, approximately 9.5% to $106.2 million.
Depreciation expense for the three month period was $37.5 million, as
compared to $32.1 million in the same period of the prior year, reflecting the
increase in fleet size, the acquisition of trucks that were previously leased
and real property acquisitions.
23
Oxford - Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $4.4 million for the quarter ended June 30, 1994, an increase
of $.1 million, approximately 2.3% over 1993 and accounted for 78.5% of Oxford's
premiums in 1994. These premiums are primarily from term life insurance and
single and flexible premium deferred annuities. Increases in premiums are
primarily from the anticipated increase in annuitizations as a result of the
maturing of deferred annuities.
Premiums from Oxford's direct lines before intercompany eliminations
were $1.9 million for the quarter ended June 30, 1994, an increase of $.6
million (46.2%) over the prior year. Oxford's direct lines are principally
related to the underwriting of group life and disability income insurance on the
lives of the employees of AMERCO and its subsidiary companies. Unaffiliated
direct lines include the underwriting of credit life and accident and health
business and individual life insurance acquired from other insurers.
Net investment income before intercompany eliminations was $4.1
million and $3.0 million for the quarters ended June 30, 1994 and 1993,
respectively. This increase is primarily due to increasing margins on the
interest sensitive business. Gains on the disposition of fixed maturity
investments were $1.0 million and $.2 million. Oxford had $.5 million of other
income for both of the quarters ended June 30, 1994 and 1993.
Benefits and expenses incurred were $7.5 million for the quarter ended
June 30, 1994, an increase of 7.1% over 1993. Comparable benefits and expenses
incurred for 1993 were $7.0 million. This increase is primarily due to the
increase in reserve caused by the increase in annuitizations and Oxford's
entrance into credit life and accident and health business. Oxford also
increased its amortization of deferred acquisition costs.
Operating profit before intercompany eliminations increased by $2.2
million, or approximately 100%, in 1994 to $4.4 million, primarily due to the
increasing margins on the interest sensitive business and the gain on
disposition of fixed maturities.
RWIC - Property and Casualty
RWIC gross premium writings in the second quarter of 1994 were $48.0
million as compared to $47.2 million in the second quarter of 1993. This
represents an increase of $.8 million, or 1.7%. As in prior years, the rental
industry market accounts for a significant share of total premiums,
approximately 62.2% and 50.7% for the second quarter of 1994 and the second
quarter of 1993, respectively. These writings include U-Haul customers,
fleetowners and U-Haul as well as other rental industry insureds with similar
characteristics.
Net earned premiums increased $2.5 million, or 7.4%, to $36.3 million
for the three months ended June 30, 1994, compared with premiums of $33.8
million for the three months ended June 30, 1993. The premium increase was
primarily due to increased writings in the assumed reinsurance area.
24
Underwriting expenses incurred were $39.9 million for the three months
ended June 30, 1994, an increase of $2.5 million, or 6.7% over 1993. Comparable
underwriting expenses incurred for 1993 were $37.4 million. The increase in
underwriting expenses is due to the larger premium volume being written in 1994,
which increased acquisition costs and commensurate reserves. The ratio of
underwriting expenses to net earned premiums remained the same from 1.1 in the
second quarter of 1993 to 1.1 in the second quarter of 1994.
Net investment income was $7.9 million during the second quarter of
1994, an increase of 33.9% over 1993 net investment income of $5.9 million. The
increase is attributable to one time accrual changes to certain government
agency bonds in first quarter 1993 which decreased second quarter 1993 net
investment income.
RWIC completed the three months ended June 30, 1994 with net after tax
income of $3.3 million as compared to $2.6 million for the comparable period
ended June 1993. This represents an increase of $.7 million, or 26.9% over
1993. The increase is due to better underwriting results in the assumed
reinsurance area.
Interest Expense
Interest expense decreased by $1.3 million to $16.7 million for the
three months ended September 30, 1994, as compared to $18.0 million for the
three months ended September 30, 1993. This decrease reflects a reduction in
the costs of funds and lower average debt levels outstanding.
Consolidated Group
As a result of the foregoing, pretax earnings of $63.0 million were
realized in the three months ended September 30, 1994, as compared to $45.9
million for the same period in 1993. After providing for income taxes, net
earnings for the three months ended September 30, 1994 were $40.1 million, as
compared to $30.6 million for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
U-Haul
To meet the needs of its customers, U-Haul must maintain a large
inventory of fixed asset rental items. At September 30, 1994, net property,
plant and equipment represented approximately 73.1% of total U-Haul assets and
approximately 50.6% of consolidated assets. In the first six months of fiscal
1995, capital expenditures were $255.2 million, as compared to $330.3 million in
the first six months of fiscal 1994, reflecting expansion of the rental fleet in
both periods, purchase of trucks previously leased, and increases in the
available square footage in the self-storage segment. The capital needs
required to fund these acquisitions were funded with internally generated funds
from operations, debt and lease financings.
25
Cash flows from operations were $162.6 million in the first six months
of fiscal 1995, as compared to $143.0 million in the first six months of fiscal
1994. The increase primarily reflects improved earnings and higher depreciation
during the current year.
Oxford - Life Insurance
Oxford's primary sources of cash are premiums, receipts from interest-
sensitive products and investment income. The primary uses of cash are
operating costs and benefit payments to policyholders. Matching the investment
portfolio to the cash flow demands of the types of insurance being written is an
important consideration. Benefit and claim statistics are continually monitored
to provide projections of future cash requirements.
Cash flows from operations were $9.8 million and $8.0 million for the
six months ended June 30, 1994 and 1993, respectively. During 1993 there were no
cash flows from new reinsurance agreements. In addition to cash flow from
operations and financing activities, a substantial amount of liquid funds is
available through Oxford's short-term portfolio. At June 30, 1994 and 1993,
short-term investments amounted to $9.1 million and $9.5 million, respectively.
Management believes that the overall sources of liquidity will continue to meet
foreseeable cash needs.
Stockholder's equity of Oxford, on June 30, 1994 was $91.0 million.
Stockholder's equity excluding investment in RWIC, was $83.8 million in 1993.
On June 30, 1994 Oxford dividended 100% of common stock of RWIC to Ponderosa.
In May 1993, Oxford paid dividends of $10.0 million to Ponderosa.
Applicable laws and regulations of the State of Arizona require the
Company's insurance subsidiaries to maintain minimum capital determined in
accordance with statutory accounting practices in the amount of $600,000. In
addition, the amount of dividends that can be paid to shareholders by insurance
companies domiciled in the State of Arizona is limited. Any dividend in excess
of the limit requires prior regulatory approval. Statutory surplus that can be
distributed as dividends without prior regulatory approval is $17,619,000 at
June 30, 1994. These restrictions are not expected to have a material adverse
effect on the ability of the Company to meet its cash obligations.
RWIC - Property and Casualty
Cash flows from operations were $12.4 million and $4.3 million for the
six months ended June 30, 1994 and 1993, respectively. The increase is
primarily attributed to increased premium writings which were partially offset
by increased reinsurance loss payables. In addition to cash flows from
operations, a substantial amount of liquid assets and budgeted cash flows is
available to meet periodic needs.
26
RWIC's short-term investment portfolio was $6.2 million at June 30,
1994. This level of liquid assets, combined with budgeted cash flow, is
adequate to meet periodic needs. This balance also reflects funds in transition
from maturity proceeds to long-term investments. The structure of the long-term
portfolio is designed to match future cash needs. Capital and operating budgets
allow RWIC to schedule cash needs.
RWIC maintains a diversified investment portfolio, primarily in bonds
at varying maturity levels. Approximately 97.4% of the portfolio consists of
investment grade securities. The maturity distribution is designed to provide
sufficient liquidity to meet future cash needs. Current liquidity is adequate,
with current invested assets equal to 93.4% of total liabilities.
Shareholder equity increased 2.4% from $165.1 million at December 31,
1993 to $169.0 million at June 30, 1994. RWIC considers current shareholders'
equity to be adequate to support future growth and absorb unforseen risk events.
RWIC does not use debt or equity issues to increase capital and therefore has no
exposure to capital market conditions. During the first six months of 1994,
RWIC paid no shareholder dividends.
Consolidated Group
At September 30, 1994, total notes and loans payable outstanding was
$752.5 million as compared to $723.8 million at March 31, 1994, $793.9 million
at September 30, 1993. The decrease from September 1993 is due to a combination
of cash flow from operations, a preferred stock offering and lease fundings.
During each of the fiscal years ending March 31, 1995, 1996, and 1997,
U-Haul estimates gross capital expenditures will average approximately $360
million as a result of the expansion of the rental fleet and self-storage
segment. This level of capital expenditures, combined with an average of
approximately $100 million in annual long-term debt maturities during this same
period, are expected to create annual average funding needs of approximately
$460 million. Management estimates that U-Haul will fund approximately 55% of
these requirements with internally generated funds, including proceeds from the
disposition of older trucks and other asset sales. The remainder of the
required capital expenditures are expected to be financed through existing
credit facilities, new debt placements, lease fundings, and equity offerings.
Credit Agreements
The Company's operations are funded by various credit and financing
arrangements, including unsecured long-term borrowings, unsecured medium-term
notes, and revolving lines of credit with domestic and foreign banks.
Principally to finance its fleet of trucks and trailers, the Company routinely
enters into sale and leaseback transactions. As of September 30, 1994, the
Company had $752.5 million in total notes and loans payable outstanding and
unutilized lines of credit of approximately $422.0 million.
27
Certain of the Company's credit agreements contain restrictive
financial and other covenants, including, among others, covenants with respect
to incurring additional indebtedness, maintaining certain financial ratios, and
placing certain additional liens on its properties and assets. At September 30,
1994, the Company was in compliance with these covenants. In addition, these
credit agreements contain provisions that could result in a required prepayment
upon a "change in control" of the Company.
Under certain of the Company's credit agreements, a "change in
control" is deemed to occur if (a) any transfer of any shares of any class of
capital stock results in the Company's ESOP and members of the Shoen family
owning in the aggregate less than the amount of capital stock as may be
necessary to enable them to cast in excess of 50% of the votes for the election
of directors of the Company or (b) during any period for two consecutive years,
persons who at the beginning of such period constituted the Board of Directors
of the Company (including any director approved by a vote of not less than 66
2/3% of such board) cease for any reason to constitute greater than 50% of the
then acting Board.
The Company is further restricted in the type and amount of dividends
and distributions that it may issue or pay, and in the issuance of certain types
of preferred stock. The Company is prohibited from issuing shares of preferred
stock that provide for any mandatory redemption, sinking fund payment, or
mandatory prepayment, or that allow the holders thereof to require the Company
or an subsidiary of the Company to repurchase such preferred stock at the option
of such holders or upon the occurrence of any event or events without the
consent of its lenders.
Shareholder Litigation
Certain current and former members of the Company's Board of Directors
are defendants in an action initiated by certain of the Company's shareholders.
The Company has agreed to indemnify the defendants to the fullest extent
permitted by law or the Company's Articles of Incorporation or Bylaws for all
expenses and damages, if any, incurred by the defendants in this proceeding,
subject to certain exceptions. The extent of the Company's indemnification
obligation, if any, cannot be reasonably estimated. The Company believes that
the plaintiffs elected that their remedy in this litigation would be the sale of
their stock to the defendants at a price determined by the Court based on the
value of their stock in 1988. The jury has determined that such value was
$81.12 per share or approximately $1.48 billion. The jury also awarded the
plaintiffs $70 million in punitive damages against Edward J. Shoen. Edward J.
Shoen has filed a motion to set aside in its entirety or in the alternative to
reduce this award. No assurance can be given as to the ruling of the Court on
this motion. The defendants have filed post-trial motions to (i) request a new
trial and/or (ii) reduce the amount of consideration to be paid to the
plaintiffs for their stock to not more than $394 million or to obtain judgment
in favor of the defendants. The Company is unable to predict the outcome of the
post-trial motions and the likelihood of appeal by any party or the consequences
of any appeal. However, the Company believes that even if the Court does not
28
render judgment in favor of the defendants or order a new trial, a substantial
reduction in the jury verdict is probable. The Company believes that there is a
substantial likelihood that if the jury verdict is substantially reduced, the
resulting amount to be paid to the plaintiffs for their shares will not exceed
the fair market value of the shares to be acquired by the defendants. In such
event, the defendants may chose to acquire the shares without making
indemnification claims against the Company. No provision has been made in the
Company's financial statements for any possible indemnification claims. Before
the Company will have any indemnification obligations, a final judgment must be
entered against the defendants, the defendants must request indemnification from
the Company, and a determination must be made under Nevada law as to the
validity of the indemnification claims. If valid indemnification claims are
made, the Company believes that various means of financing the purchase of the
plaintiffs' stock would exist, including, but not limited to, the public sale of
common stock by the Company or by certain of the defendants. The Company does
not believe that in such event there would be a material adverse effect on its
earnings, financial position, or cash flows. The Company believes, but no
assurance can be given, that it can obtain any necessary waivers or amendments
of any provisions of its credit agreements to permit the Company to finance the
purchase of the plaintiffs' stock. If the jury verdict is not significantly
reduced and any resulting judgment is not stayed by appeal or other proceedings,
the Company may be unable to satisfy its indemnification obligation if valid
indemnification claims are made, and such obligation may have a material adverse
effect on the Company's capital expenditure plans in the future. There can be
no assurance that the jury verdict will be significantly reduced or that the
Company or the defendants will be able to finance the purchase of the
plaintiffs' stock if the jury verdict is significantly reduced.
29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
10(a) AMERCO Employee Savings, Profit Sharing and Employee Stock
Ownership Plan (1)
10(b) U-Haul Dealership Contract (1)
10(c) Share Repurchase and Registration Rights Agreement (1)
10(d) Share Repurchase and Registration Rights Agreement (1)
10(e) Management Consulting Agreement (1)
10(f) Management Consulting Agreement (1)
10(g) ESOP Loan Credit Agreement (2)
10(h) ESOP Loan Agreement (2)
10(i) Trust Agreement for the AMERCO Employee Savings, Profit Sharing
and Employee Stock Ownership Plan (2)
10(j) Amended Indemnification Agreement (2)
10(k) Indemnification Trust Agreement (2)
10(l) W.E. Carty Installment Sales Agreement (2)
10(m) Exchange Agreement with Mark V. Shoen (3)
10(n) Exchange Agreement with James P. Shoen (3)
10(o) Exchange Agreement with Edward J. Shoen (3)
10(p) W.E. Carty Contract of Purchase and Sale of Land (3)
10(q) Promissory Notes between SAC Self-Storage Corporation and a
subsidiary of AMERCO
27 Financial Data Schedule
b. Reports on Form 8-K.
A current report Form 8-K was filed on October 13, 1994.
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1993, file no. 0-7862.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended March 31, 1990, file no. 0-7862.
(3) Incorporated by reference to the Company's S-2 Pre-effective Amendment No 2
dated September 16, 1994 file no. 0-7862.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERCO
___________________________________
(Registrant)
Dated: November 10, 1994 By: /S/ GARY B. HORTON
___________________________________
Gary B. Horton, Treasurer
(Principal Financial Officer)