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 December 31, 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 [ ].
32,901,568 shares of AMERCO Common Stock, $0.25 par value and 5,762,495 shares
of AMERCO Series A common stock, $0.25 par value were outstanding at February
10, 1995.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were
outstanding at February 10, 1995.
2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
a) Consolidated Balance Sheets as of December 31, 1994,
March 31, 1994 and December 31, 1993............... 4
b) Consolidated Statements of Earnings for the Nine
Months ended December 31, 1994 and 1993............ 6
c) Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months ended December 31, 1994
and 1993........................................... 7
d) Consolidated Statements of Earnings for the
Quarters ended December 31, 1994 and 1993.......... 8
e) Consolidated Statements of Cash Flows for the Nine
Months ended December 31, 1994 and 1993............ 9
f) Notes to Consolidated Financial Statements -
December 31, 1994, March 31, 1994 and
December 31, 1993.................................. 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... 29
Item 2. Changes in Securities.................................. 32
Item 6. Exhibits and Reports on Form 8-K....................... 33
3
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INTENTIONALLY BLANK
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
December 31, March 31, December 31,
ASSETS 1994 1994 1993
------ ---------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Cash $ 38,015 18,442 81,850
Receivables 299,662 204,814 98,722
Inventories 50,552 49,012 50,057
Prepaid expenses 25,236 24,503 25,971
Investments, fixed maturities 697,728 719,605 681,142
Investments, other 97,337 84,738 98,244
Deferred policy acquisition costs 48,296 47,846 50,100
Other assets 17,743 21,246 23,940
--------- --------- ---------
Property, plant and equipment, at
cost:
Land 205,622 186,210 184,584
Buildings and improvements 730,928 676,297 654,978
Furniture and equipment 175,268 163,495 161,539
Rental trailers and other rental
equipment 235,945 212,187 208,028
Rental trucks 899,958 820,395 756,836
General rental items 52,701 57,421 59,107
--------- --------- ---------
2,300,422 2,116,005 2,025,072
Less accumulated depreciation 1,037,569 941,769 911,582
--------- --------- ---------
Total property, plant and
equipment 1,262,853 1,174,236 1,113,490
--------- --------- ---------
$ 2,537,422 2,344,442 2,223,516
========== ========= =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
5
December 31, March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994 1993
------------------------------------ ---------------------------------------
(unaudited) (audited) (unaudited)
(in thousands)
Liabilities:
Accounts payable and accrued
liabilities $ 118,881 124,062 133,682
Notes and loans 827,592 723,764 666,063
Policy liabilities and accruals 467,051 439,266 348,004
Liabilities from premium deposits 290,529 312,708 316,067
Cash overdraft 23,948 26,559 21,125
Other policyholders' funds and
liabilities 9,071 9,592 13,413
Deferred income 12,676 5,913 4,778
Deferred income taxes 82,097 50,791 54,173
--------- --------- ---------
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 December 31,
1994, March 31, 1994, and
December 31,1993 - - -
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 5,762,495 shares as of
December 31, 1994 and 5,754,334
shares as of March 31, 1994,
none as of December 31, 1993 1,441 1,438 -
Common stock of $.25 par value,
authorized 150,000,000 shares,
issued 34,237,505 shares as of
December 31, 1994 and 34,245,666
shares as of March 31, 1994 and
40,000,000 as of December 31, 1993 8,559 8,562 10,000
Additional paid-in capital 165,677 165,651 165,789
Foreign currency translation (12,307) (11,152) (9,003)
Retained earnings 572,475 515,200 527,337
---------- ---------- ---------
735,845 679,699 694,123
Less:
Cost of common shares in treasury,
(1,335,937 shares as of December
31, 1994 and March 31, 1994 and
December 31, 1993) 10,461 10,461 10,461
Loan to leveraged employee stock
ownership plan 19,807 17,451 17,451
--------- --------- ---------
Total stockholders' equity 705,577 651,787 666,211
Contingent liabilities and commitments
--------- --------- ---------
$ 2,537,422 2,344,442 2,223,516
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
6
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Nine Months ended December 31,
(Unaudited)
1994 1993
------------------------
(in thousands except
per share data)
Revenues
Rental and other revenue $ 707,896 639,277
Net sales 131,098 123,567
Premiums 108,659 91,922
Net investment income 32,928 28,998
---------- ----------
Total revenues 980,581 883,764
Costs and expenses
Operating expense 516,568 479,288
Cost of sales 72,634 74,065
Benefits and losses 108,363 94,654
Amortization of deferred acquisition
costs 8,521 6,508
Depreciation 112,631 96,580
Interest expense 50,871 52,530
---------- ----------
Total costs and expenses 869,588 803,625
Pretax earnings from operations 110,993 80,139
Income tax expense (39,602) (25,211)
----------- ----------
Earnings from operations before
extraordinary loss on early
extinguishment of debt and cumulative
effect of change in accounting principle 71,391 54,928
Extraordinary loss on early
extinguishment of debt - (1,897)
Cumulative effect of change in
accounting principle - (3,272)
---------- ----------
Net earnings $ 71,391 49,759
========== ==========
Earnings per common share:
Earnings from operations before
extraordinary loss on early
extinguishment of debt and
cumulative effect of change in
accounting principle $ 1.67 1.41
Extraordinary loss on early
extinguishment of debt - (.05)
Cumulative effect of change in
accounting principle - (.09)
---------- ----------
Net earnings $ 1.67 1.27
========== ==========
Weighted average common shares outstanding 37,025,575 37,070,925
========== ==========
<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
Nine Months ended December 31,
(Unaudited)
<CPTION>
1994 1993
-------------------
(in thousands)
Series A common stock of $.25 par
value: Authorized 10,000,000 shares,
issued 5,762,495 as of December 31, 1994
and 5,754,334 as of March 31, 1994 and
none in 1993
Beginning of period $ 1,438 -
Exchange for Series A common stock 871 -
Exchange for common stock (868) -
-------- -------
End of period 1,441 -
-------- -------
Common stock of $.25 par value:
Authorized 150,000,000 shares, issued 34,237,505
as of December 31, 1994, 34,245,666 as of March 31,
1994 and 40,000,000 as of December 31, 1993
Beginning of period 8,562 10,000
Exchange of Series A common stock (871) -
Exchange for common stock 868 -
-------- -------
End of period 8,559 10,000
-------- -------
Additional paid-in capital:
Beginning of period 165,651 19,331
Issuance of preferred stock - 146,458
Issuance of common shares under ESOP 26 -
------- -------
End of period 165,677 165,789
------- -------
Foreign currency translation:
Beginning of period (11,152) (6,122)
Change during period (1,155) (2,881)
-------- --------
End of period (12,307) (9,003)
-------- --------
Retained earnings:
Beginning of period 515,200 482,163
Net earnings 71,391 49,759
Dividends paid to stockholders:
Preferred stock: ($1.59 and $.25 per share
for 1994 and 1993, respectively) (9,723) (1,512)
Common stock: ($.08 per share 1993) - (3,147)
Tax benefits related to ESOP dividends - 74
Change in net unrealized gain
on investments (4,393) -
-------- ---------
End of period 572,475 527,337
------- -------
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 4,378 4,335
Proceeds from loan (2,022) (1,837)
-------- -------
End of period 19,807 17,451
------- -------
Total stockholders' equity $ 705,577 666,211
======= =======
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
8
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended December 31,
(Unaudited)
1994 1993
-----------------------
(in thousands except
per share data)
Revenues
Rental and other revenue $ 210,911 192,051
Net sales 33,410 30,788
Premiums 41,062 35,261
Net investment income 10,505 9,348
----------- ----------
Total revenues 295,888 267,448
Costs and expenses
Operating expense 174,008 155,422
Cost of sales 19,346 18,967
Benefits and losses 42,084 34,744
Amortization of deferred acquisition
costs 2,845 2,176
Depreciation 37,876 34,314
Interest expense 17,574 17,262
----------- ----------
Total costs and expenses 293,733 262,885
Pretax earnings from operations 2,155 4,563
Income tax expense (248) (867)
----------- ----------
Earnings from operations before
extraordinary loss on early
extinguishment of debt and cumulative
effect of change in accounting principle 1,907 3,696
Extraordinary loss on early
extinguishment of debt - (1,897)
----------- ----------
Net earnings $ 1,907 1,799
=========== ==========
Earnings per common share:
Earnings from operations before
extraordinary loss on early
extinguishment of debt and
cumulative effect of change in
accounting principle $ (.04) .03
Extraordinary loss on early
extinguishment of debt - (.05)
----------- ----------
Net earnings $ (.04) (.02)
=========== ==========
Weighted average common shares outstanding 36,969,310 36,974,310
=========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
9
AMERCO AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months ended December 31,
(Unaudited)
1994 1993
--------------------
(in thousands)
Cash flows from operating activities:
Net earnings $ 71,391 49,759
Depreciation and amortization 124,409 106,525
Provision for losses on accounts
receivable 2,855 1,009
Net gain on sale of real and personal
property (1,159) (3,650)
Gain on sale of investments (798) (2,970)
Cumulative effect of change in
accounting principle - 3,272
Changes in policy liabilities and
accruals 25,076 10,748
Additions to deferred policy
acquisition costs (8,971) (6,859)
Net change in other operating assets
and liabilities (13,218) 39,644
--------- ---------
Net cash provided by operating activities 199,585 197,478
--------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (322,130) (395,247)
Fixed maturities (112,067) (184,368)
Real estate (8) (176)
Mortgage loans (77,194) (41,920)
Proceeds from sale of investments:
Property, plant and equipment 123,653 180,228
Fixed maturities 132,854 152,401
Real estate 564 1,404
Mortgage loans 8,632 58,875
Changes in other investments (1,275) (5,842)
--------- ---------
Net cash used by investing activities (246,971) (234,645)
--------- ---------
Cash flows from financing activities:
Net change in short-term borrowings 121,250 (126,000)
Proceeds from notes 66,000 186,000
Loan to leveraged employee stock
ownership plan (4,378) (4,335)
Proceeds from leveraged employee stock
ownership plan 2,022 1,837
Principal payments on notes (83,422) (91,058)
Issuance of preferred stock - 146,458
Extraordinary loss on early
extinguishment of debt - (1,897)
Net change in cash overdraft (2,611) (3,726)
Dividends paid (9,723) (4,659)
Investment contract deposits 19,561 24,552
Investment contract withdrawals (41,740) (29,446)
--------- ---------
Net cash provided by financing activities 66,959 97,726
--------- ---------
Increase in cash 19,573 60,559
Cash at beginning of period 18,442 21,291
--------- ---------
Cash at end of period $ 38,015 81,850
======= =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
10
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, March 31, 1994 and December 31, 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 December 31, 1994 and 1993, and
the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for the quarters ended
December 31, 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 operating results and financial position of AMERCO's
consolidated insurance operations are determined at a quarter
lag. There were no effects related to intervening events which
would significantly affect consolidated position or results of
operations for the financial statements presented herein.
The financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain 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 December 31, 1993 to conform
with the current year's presentation.
11
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
2. INVESTMENTS
A comparison of amortized cost to market for fixed maturities is as
follows (in thousands, except for par value):
Gross Gross Estimated
Carrying Unrealized Unrealized Market
September 30, 1994 Par Value Value Gains Losses Value
----------------- ---------- ------ ------ ------ ------
U.S. Treasury
securities and
government
obligations 106,807,186 104,904 1,201 (3,664) 102,441
States, municipal-
ities and
political
subdivisions 35,965,000 35,861 2,390 (220) 38,031
Corporate
Securities 417,040,737 424,042 4,354 (20,873) 407,523
Public utility
securities 45,650,000 45,112 425 (1,112) 44,425
Mortgage-backed
securities 87,052,371 85,644 360 (6,268) 79,736
Redeemable pre-
ferred stock 36,051 2,165 346 - 2,511
------- ------ -------- -------
697,728 9,076 (32,137) 674,667
======= ====== ======== =======
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:
December 31,
1994 1993
---------------------
(in thousands)
Investments - fixed maturities $ 697,728 681,142
Other investments 93,633 98,244
Receivables 148,167 47,960
Deferred policy acquisition costs 48,296 50,100
Due from affiliate 16,342 10,072
Deferred federal income taxes 8,157 7,216
Other assets 7,306 25,023
--------- -------
Total assets $ 1,019,629 919,757
========= =======
Policy liabilities and accruals $ 408,903 307,410
Unearned premiums 57,949 40,594
Premium deposits 290,529 316,067
Other policyholders' funds and
liabilities 13,008 13,514
--------- -------
Total liabilities 770,389 677,585
Stockholder's equity 249,240 242,172
--------- -------
Total liabilities and
stockholder's equity $ 1,019,629 919,757
========= =======
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:
Nine Months ended December 31,
1994 1993
---------------------
(in thousands)
Premiums $ 124,047 107,306
Net investment income 33,039 30,165
Other income 3,879 6,075
--------- -------
Total revenue 160,965 143,546
Benefits and losses 108,363 94,654
Amortization of deferred policy
acquisition costs 8,521 6,508
Other expenses 21,299 19,239
--------- -------
Income from operations 22,782 23,145
Federal income tax expense (6,580) (6,084)
---------- --------
Earnings from operations before
change in accounting principle 16,202 17,061
Cumulative effect of change in
accounting principle - (101)
---------- --------
Net income $ 16,202 16,960
========= =======
Effective June 30, 1994, the Board of Directors of Oxford declared
a dividend of its stock in Republic Western Insurance Company to
Ponderosa.
Effective July 1994, 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 nine months ended December 31, 1994, U-Haul Leasing &
Sales Co., a wholly-owned subsidiary of U-Haul International,
Inc., entered into eleven transactions, whereby they sold rental
trucks and subsequently leased them back. AMERCO has guaranteed
$9,609,000 of residual values at December 31, 1994 on these
assets at the end of the lease terms. Following are the lease
commitments for those leases executed during the nine months
ended December 31, 1994, which have a term of more than one year
(in thousands):
Year ended Lease
March 31, Commitments
----------------------------
1995 $ 10,108
1996 16 805
1997 16,805
1998 16,805
1999 16,805
Thereafter 40,305
-------
$ 117,633
========
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 in the Superior Court of the State of
Arizona entitled Samuel W. Shoen, M.D., et al v. Edward J. Shoen,
------------------------------------------------
et al., No. CV88-20139, instituted August 2, 1988. The plantiffs,
------
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:
Nine Months ended December 31,
1994 1993
---------------------
(in thousands)
Receivables $ (39,347) (51)
=====================
Inventories $ 1,540 1,380
=====================
Accounts payable and
accrued liabilities $ (7,272) 20,237
=====================
Income tax paid in cash amounted to $4,089,000 and $2,161,000 for
1994 and 1993, respectively.
Interest paid in cash amounted to $52,363,000 and $62,403,000 for
1994 and 1993, respectively.
6. RELATED PARTIES
Subsequent to March 31, 1994, a subsidiary of the Company loaned
SAC Self-Storage Corporation(SAC)a total of $35,553,000 for the
purchase of 24 self-storage properties by SAC. Such properties
are presently being operated by the Company pursuant to
management agreements. SAC's current sole owner is Mark V.
Shoen, a shareholder and director of the Company. The underlying
notes bear interest at a rate of 9% and are secured by real
property and operating cash flows. Accrued interest in the
aggregate was $1,345,000 as of December 31, 1994. The notes
mature in 2001. The loan is secured by mortgages on all of the
SAC properties.
On November 28, 1994, the Company entered into an Exchange
Agreement with Mark V. Shoen, a director and major stockholder of
the Company. Pursuant to the Exchange Agreement, in exchange for
3,475,520 shares of Series A Common Stock owned by Mark V. Shoen,
Mark V. Shoen received 3,475,520 shares of Common Stock.
On January 17, 1995, Paul F. Shoen sold 50,632 shares of Common
Stock to the ESOP Trust pursuant to a Share Repurchase and
Registration Rights Agreement at the most recent closing price
for the Common Stock trading on Nasdaq of $19.75 per share for an
aggregate sales price of approximately $1,000,000.
As disclosed in Part II, Item 1 - Legal Proceedings, on February 9,
1995, Paul F. Shoen executed a settlement agreement with the
Company whereby Paul F. Shoen agreed to the dismissal of certain
claims he had asserted in an arbitration proceeding and in an
action in the United States District Court for the District of
Nevada. In exchange for Paul F. Shoen's agreement to dismiss
such claims, the Company agreed to work in good faith toward
appointing
15
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
6. RELATED PARTIES, continued
independent trustees for the ESOP and to place Paul F. Shoen on
the management's slate of directors for the 1994 Annual Meeting
of Stockholders. In addition, the settlement agreement provides
for the Company to pay Paul F. Shoen $925,000 and for the Company
to receive a full release of all claims by Paul F. Shoen through
the settlement date, including but not limited to, claims for
reimbursement of attorneys fees related to all matters to which
Paul F. Shoen is or was a party. The terms of the settlement
will not result in a material adverse effect of the Company's
financial condition or results of operations.
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 is
immaterial.
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.
16
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
7. NEW ACCOUNTING STANDARDS, continued
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 December
31, 1994, $9.4 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.
8. SUBSEQUENT EVENTS
On February 7, 1995, the Company declared a cash dividend of
$3,241,000 ($.53 per preferred share) to preferred stockholders
of record as of February 17, 1995.
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 on the plaintiff's theory of
damages, the Court ruled 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. On February 2, 1995, the judge in this case granted the
defendants' motion for remittitur or a new trial on the issue of
damages. The judge determined that the value of the plaintiffs'
stock in 1988 was $25.30 per share or $461,838,000. The
plaintiffs have until March 2, 1995 to file a statement accepting
the remittitur or the defendants' motion for a new trial on the
issue of damages will be deemed granted. The jury also awarded
the plaintiffs $70,000,000 in punitive damages against Edward J.
Shoen. The judge ruled that this punitive damage award is
excessive and granted Edward J. Shoen's motion for remittitur or
a new trial on the issue of punitive damages. The judge reduced
the award of punitive damages against Edward J. Shoen to
$7,000,000. The plaintiffs have until March 2, 1995 to file a
statement accepting the remittitur. If no such statement is
filed by the plaintiffs by that time, Edward J. Shoen's motion
for a new trial on the issue of punitive damages will be deemed
granted.
17
AMERCO AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Unaudited)
8. SUBSEQUENT EVENTS, continued
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. 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 it has various means of financing
any such indemnification obligations consistent with its existing
credit agreements. In the alternative, the Company may 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.
The Company believes that it can satisfy its indemnification
obligations, if any, unless the amount to be paid to the
plaintiffs for their stock is increased following the completion
of any appeals or any new trial on the issue of damages. The
Company does not believe that there will be a material adverse
effect on its earnings, financial position, or cash flows unless
the amount to be paid to the plaintiffs for their stock is
increased. The Company is unable to predict the likelihood,
outcome, or consequences of any appeal or any new trial on the
issue of damages.
As disclosed in Part II, Item 1 - Legal Proceedings, on February 9,
1995, Paul F. Shoen executed a settlement agreement with the
Company whereby Paul F. Shoen agreed to the dismissal of certain
claims he had asserted in an arbitration proceeding and in an
action in the United States District Court for the District of
Nevada. In exchange for Paul F. Shoen's agreement to dismiss
such claims, the Company agreed, among other things, to work in
good faith toward appointing independent trustees for the ESOP
and to place Paul F. Shoen on the management's slate of directors
for the 1994 Annual Meeting of Stockholders. In addition, the
settlement agreement provides for the Company to pay Paul F.
Shoen $925,000 and for the Company to receive a full release of
all claims by Paul F. Shoen through the settlement date,
including but not limited to, claims for reimbursement of
attorneys fees related to all matters to which Paul F. Shoen is
or was a party. The terms of the settlement will not result in a
material adverse effect of the Company's financial condition or
results of operations.
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 nine months ended
December 31, 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)
Nine months ended December 31, 1994
Revenues:
Outside $ 835,593 29,972 115,016 - 980,581
Intersegment (41) 1,134 14,899 (15,992) -
--------- ------- ------- -------- ---------
Total Revenue 835,552 31,106 129,915 (15,992) 980,581
========= ======= ======= ======== =========
Operating profit 139,041 8,016 14,766 41 161,864
======== ======= ======= ========
Interest expense 50,871
---------
Pretax earnings
from operations 110,993
=========
Identifiable Assets
at December 31 1,792,189 452,699 566,930 (274,396) 2,537,422
========= ======= ======= ======== =========
Nine months ended December 31, 1993
Revenues:
Outside $ 755,809 25,400 102,555 - 883,764
Intersegment 1,055 224 15,404 (16,683) -
--------- ------- ------- --------- ----------
Total Revenue 756,864 25,624 117,959 (16,683) 883,764
========= ======= ======= ========= ==========
Operating profit 110,222 8,531 14,614 (698) 132,669
========= ======= ======= =========
Interest expense 52,530
---------
Pretax earnings
from operations 80,139
=========
Identifiable Assets
at December 31 1,563,917 460,558 459,199 (260,158) 2,223,516
========= ======= ======= ======== =========
19
NINE MONTHS ENDED DECEMBER 31, 1994 VERSUS NINE MONTHS ENDED DECEMBER
31, 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 $71.2 million, approximately 11.2%, to $704.5 million in the first
nine months of fiscal 1995. The increase in the first nine months of
fiscal 1995 is primarily attributable to a $64.6 million increase in
net revenues from the rental of moving related equipment, which rose
to $645.5 million as compared to $580.9 million in the first nine
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 $8.3 million
to $60.5 million in the first nine months of fiscal 1995, an increase
of approximately 15.9%. Storage revenues were positively impacted by
additional rentable square footage and higher average rental rates.
Other revenues declined by $1.7 million which primarily reflects a
reduction in gains realized from the disposition of property, plant
and equipment.
Net sales revenues were $131.1 million in the first nine
months of fiscal 1995, which represents an increase of approximately
6.1% from the first nine months of fiscal 1994 net sales of $123.6
million. Revenue growth from the sale of moving support items (i.e.
boxes, etc.), hitches, and propane resulted in a $9.0 million increase
during the first nine month period, which was offset by a $1.4 million
decrease in revenue from gasoline sales.
Cost of sales was $72.6 million in the first nine months of
fiscal 1995, which represents a decrease of approximately 1.9% from
$74.1 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 $511.2 million in the first
nine months of fiscal 1995 from $476.0 million in the first nine
months of fiscal 1994, an increase of approximately 7.4%. The change
from the prior year primarily reflects a $25.7 million increase in
rental equipment maintenance costs. An increase in fleet size, higher
transaction levels, and efforts to minimize downtime are primarily
responsible for the increase. Lease expense declined by $18.1 million
to $48.7 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 $27.6 million, approximately 9.9%, to $305.4 million.
The increase in operating expense relates to the growth in number of
rented transactions.
Depreciation expense for the nine month period was $112.6
million, as compared to $96.6 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 $13.2 million for the nine months
ended September 30, 1994, an increase of $1.4 million, approximately
11.9% over 1993 and accounted for 75.9% 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 $4.2 million for the nine months ended September
30, 1994, an increase of $2.6 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 7.4% of Oxford's premiums in 1994. Other
direct lines accounted for approximately 16.7% of Oxford's premiums
in 1994.
Net investment income before intercompany eliminations was
$11.1 million and $9.4 million for the nine months ended September
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 $1.5
million for the nine months ended September 30, 1994 and 1993,
respectively. Oxford had $1.4 million and $1.3 million of other
income for the nine months ended September 30, 1994 and 1993,
respectively.
Benefits and expenses incurred were $23.1 million for the
nine months ended September 30, 1994, an increase of 35.1% over 1993.
Comparable benefits and expenses incurred for 1993 were $17.1
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. In addition, Oxford
increased its amortization of deferred acquisition costs.
Operating profit before intercompany eliminations decreased
by $.5 million, or approximately 5.9%, in 1994 to $8.0 million,
primarily due to the decrease in gain on sale of investments and
increased amortization of deferred acquisition costs. These
decreases in operating profit were partially offset by the increasing
margins on the interest sensitive business.
RWIC - Property and Casualty
RWIC gross premium writings continued to grow in the first
nine months of 1994, to $141.4 million as compared to $131.5 million
in the first nine months of 1993. This represents an increase of
$9.9 million, or 7.5%. RWIC continues underwriting professional
reinsurance via broker markets, and premiums in this area increased
in the first nine months of 1994 to $54.1 million, or 38.3% of total
premium, from comparable 1993 figures of $44.6 million, or 33.9% of
total premium. Growth is also occurring in selected general agency
21
lines. These premiums accounted for approximately 15.2% of gross
written premium for 1994, compared to 14.0% in 1993. As in prior
years, the rental industry market also accounts for a significant
share of total premiums, approximately 43.3% and 40.1% in the first
nine months of 1994 and the first nine months 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 $12.8 million, or 13.6%, to
$106.7 million for the nine months ended September 30, 1994, compared
with premiums of $93.9 million for the nine months ended September
30, 1993. The premium increase was primarily due to planned
increased writings in the assumed reinsurance and general agency
lines.
Underwriting expenses incurred were $115.1 million for the
nine months ended September 30, 1994, an increase of $11.8 million,
or 11.4% over 1993. Comparable underwriting expenses incurred for
1993 were $103.3 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 1.10 in
the first nine months of 1993 to 1.08 in the first nine months of
1994. This improvement is primarily attributable to improved loss
experience combined with continued market 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 $21.9 million for the nine months
ended September 30, 1994, an increase of 5.8% over the nine months
ended September 30, 1993 net investment income of $20.7 million. The
increase is due to an increased asset base generated from larger
premium volume.
RWIC completed the nine months ended September 30, 1994
with income before tax expense of $14.8 million as compared to $14.6
million for the comparable period ended September 30, 1993. This
represents a decrease of $.2 million, or 1.1% over 1993. Improved
underwriting results in the Company's assumed reinsurance and general
agency area were offset by declines in its worker's compensation and
rental industry liability lines.
Interest Expense
Interest expense decreased by $1.6 million to $50.9 million
for the nine months ended December 31, 1994, as compared to $52.5
million for the nine months ended December 31, 1993. This decrease
reflects a reduction in the costs of funds.
Extraordinary Loss on Extinguishment of Debt
During fiscal 1994, the Company extinguished $25.2 million
of its medium term notes originally due in fiscal 1995 through 2000.
The weighted average rate of the notes purchased is 9.34%. The
purchase resulted in an extraordinary charge of $1.9 million net of
$1.0 million of tax benefit.
22
Consolidated Group
As a result of the foregoing, pretax earnings of $111.0
million were realized in the nine months ended December 31, 1994, as
compared to $80.1 million for the same period in 1993. After
providing for income taxes, net earnings for the nine months ended
December 31, 1994 were $71.4 million, as compared to $49.8 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" and extraordinary costs
associated with the early retirement of debt.
THREE MONTHS ENDED DECEMBER 31, 1994 VERSUS THREE MONTHS ENDED
DECEMBER 31, 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 $22.6 million, approximately 12.0%, to $210.5 million in the three
months ended December 1994. The increase is primarily attributable to
a $18.4 million increase in net revenues from the rental of moving
related equipment, which rose to $186.1 million, as compared to $167.7
million for the three months ended December 31, 1994 and December 31,
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 $3.6
million to $21.1 million for the three months ended December 1994, an
increase of approximately 20.6%. Storage revenues were positively
impacted by additional rentable square footage and higher average
rental rates. Other revenues increased by $.6 million which primarily
reflects changes in gains realized from the disposition of property,
plant and equipment.
Net sales were $33.4 million for the three months ended
December 31, 1994, which represents an increase of approximately 8.4%
from the three months ended December 31, 1993 net sales of $30.8
million. Revenue growth from the sale of hitches, moving support
items (i.e. boxes, etc.), and propane resulted in a $2.7 million
increase during the three month period.
Cost of sales was $19.3 million for the three months ended
December 31, 1994 compared to $19.0 million for the same period ended
December 1993. Increased material costs corresponding to higher sales
levels of moving support items, propane and hitches were primarily
responsible.
Operating expenses increased to $171.7 million for the three
months ended December 31, 1994 compared to $154.0 million for the
three months ended December 1993, an increase of approximately 11.5%.
The change from the prior year primarily reflects increases in
virtually all operating expense categories reflecting higher
transaction levels, an increase in fleet size and continuing efforts
to minimize rental equipment downtime. Lease expense declined by $.8
23
million to $17.2 million reflecting the full benefits of last year's
lease termination in both the current and prior year.
Depreciation expense for the three month period was $37.8
million, as compared to $34.3 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.
Oxford - Life Insurance
Premiums from Oxford's reinsurance lines before intercompany
eliminations were $5.0 million for the quarter ended September 30,
1994, an increase of $.8 million, approximately 19.0% over 1993 and
accounted for 75.9% 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 September 30,
1994, an increase of $1.5 million (375%) 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. Other direct lines include the
underwriting of credit life and accident and health business and
individual life insurance acquired from other insurers. The increase
in direct premium is primarily due to Oxfords entrance into the credit
life and accident and health business.
Net investment income before intercompany eliminations was
$3.4 million and $3.0 million for the quarters ended September 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 during the
quarter ended September 30, 1993. There were no gains on sale of
investments during the quarter ended September 30, 1994. Oxford had
$.4 million and $.3 million of other income for the quarters ended
September 30, 1994 and 1993, respectively.
Benefits and expenses incurred were $9.0 million for the
quarter ended September 30, 1994, an increase of 73.1% over 1993.
Comparable benefits and expenses incurred for 1993 were $5.2 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. In addition, Oxford increased its
amortization of deferred acquisition costs.
Operating income before intercompany eliminations decreased
by $2.1 million, or approximately 55.3%, in 1994 to $1.7 million,
primarily due to the decrease on sale of investments and Oxford's
increased amortization of deferred acquisition costs. These decreases
in operating income were partially offset by the increasing margins on
the interest sensitive business.
24
RWIC - Property and Casualty
RWIC gross premium writings for the quarter ended September
1994 were $47.8 million as compared to $50.2 million for the quarter
ended September 1993. This represents a decrease of $2.4 million, or
4.6%. As in prior years, the rental industry market accounts for a
significant share of total premiums, approximately 48.8% and 42.0% for
the quarter ended September 1994 and the quarter ended September 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 $3.9 million, or 10.7%, to
$40.3 million for the three months ended September 30, 1994, compared
with premiums of $36.4 million for the three months ended September
30, 1993. The premium increase was primarily due to increased
writings in the general agency lines.
Underwriting expenses incurred were $44.5 million for the
three months ended September 30, 1994, an increase of $5.5 million, or
14.1% over 1993. Comparable underwriting expenses incurred for 1993
were $39.0 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 increased from 1.07 for
the three months ended September 30, 1993 to 1.10 for the three months
ended September 30, 1994.
Net investment income was $7.1 million during the quarters
ended September 30, 1994 and 1993, respectively.
RWIC completed the three months ended September 30, 1994
with pretax earnings of $3.2 million as compared to $6.3 million for
the comparable period ended September 1993. This represents a
decrease of $3.1 million, or 49.2% over 1993. The decrease is due to
poor underwriting results in the rental industry liability lines.
Interest Expense
Interest expense increased by $.3 million to $17.6 million
for the three months ended December 31, 1994, as compared to $17.2
million for the three months ended December 31, 1993. This increase
reflects increases in average debt outstanding which was partially
offset by a reduction in the average cost of funds.
Consolidated Group
As a result of the foregoing, pretax earnings of $2.3
million were realized in the three months ended December 31, 1994, as
compared to $4.5 million for the same period in 1993. After providing
for income taxes, net earnings for the three months ended December 31,
1994 were $1.9 million, as compared to $1.8 million for the same
period of the prior year.
25
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 December 31, 1994,
net property, plant and equipment represented approximately 70.5% of
total U-Haul assets and approximately 49.8% of consolidated assets.
In the first nine months of fiscal 1995, capital expenditures were
$322.1 million, as compared to $395.2 million in the first nine 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
required to fund these acquisitions were funded with internally
generated funds from operations, debt, equity and lease financings.
Cash flows from operations were $170.7 million in the first
nine months of fiscal 1995, as compared to $171.2 million in the first
nine months of fiscal 1994. The decrease of $.5 million is due to an
increase in net earnings and depreciation and amortization with a
decrease in net change of operating assets and liabilities,
specifically receivables and deferred income taxes.
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 $14.4 million and $18.7
million for the nine months ended September 30, 1994 and 1993,
respectively. 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 September 30, 1994 and 1993, short-
term investments amounted to $9.5 million and $22.8 million,
respectively. Management believes that the overall sources of
liquidity will continue to meet foreseeable cash needs.
Stockholder's equity of Oxford, on September 30, 1994 was
$87.9 million. Stockholder's equity excluding investment in RWIC, was
$86.3 million in 1993. On June 30, 1994 Oxford dividended 100% of the
common stock of RWIC to Ponderosa. During 1994 and 1993, Oxford paid
cash dividends of $4.9 million and $10.0 million, respectively, 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. As a result of the dividend of
26
RWIC stock on June 30, 1994, the state of Arizona must approve future
dividends made through June 30, 1995. 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 $14.3 million and $7.5
million for the nine months ended September 30, 1994 and 1993,
respectively. The increase is primarily attributed to increased
premium writings and decreased reinsurance receivable balances due to
the timing of collection proceedures. In addition to cash flows from
operations, a substantial amount of liquid assets and budgeted cash
flows is available to meet periodic needs.
RWIC's short-term investment portfolio was $6.3 million at
September 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 96.8% 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 94.4% of total liabilities.
Shareholder equity increased .2% from $161.0 million at
December 31, 1993 to $161.4 million at September 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. RWIC paid shareholder
dividends of $9.7 million during the nine months ended September 30,
1994.
Consolidated Group
At December 31, 1994, total notes and loans payable
outstanding was $827.6 million as compared to $723.8 million at March
31, 1994, $666.1 million at December 31, 1993. The increase from 1993
reflects the expansion in the rental fleet and self-storage segment.
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
27
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 December 31, 1994, the Company had
$827.6 million in total notes and loans payable outstanding and
unutilized lines of credit of approximately $310.0 million.
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 December 31, 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. Based on the plaintiff's
28
theory of damages, the Court ruled 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. On February 2, 1995,
the judge in this case granted the defendants' motion for remittitur
or a new trial on the issue of damages. The judge determined that the
value of the plaintiffs' stock in 1988 was $25.30 per share or
$461,838,000. The plaintiffs have until March 2, 1995 to file a
statement accepting the remittitur or the defendants' motion for a new
trial on the issue of damages will be deemed granted. The jury also
awarded the plaintiffs $70 million in punitive damages against Edward
J. Shoen. The judge ruled that this punitive damage award is excessive
and granted Edward J. Shoen's motion for remittitur or a new trial on
the issue of punitive damages. The judge reduced the award of
punitive damages against Edward J. Shoen to $7,000,000. The
plaintiffs have until March 2, 1995 to file a statement accepting the
remittitur. If no such statement is filed by the plaintiffs by that
time, Edward J. Shoen's motion for a new trial on the issue of
punitive damages will be deemed granted. 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 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. The Company believes that it can satisfy its
indemnification obligations, if any, unless the amount to be paid to
the plaintiffs for their stock is increased following the completion
of any appeals or any new trial on the issue of damages. The Company
does not believe that there will be a material adverse effect on its
earnings, financial position, or cash flows unless the amount to be
paid to the plaintiffs for their stock is increased. The Company is
unable to predict the likelihood, outcome, or consequences of any
appeal or any new trial on the issue of damages.
29
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As disclosed in the Company's Annual Report on Form 10-K for the
year ended March 31, 1994 and the Company's Quarterly Reports for the
quarters ended June 30, 1994 and September 30, 1994, certain members
of the Company's Board of Directors are defendants in an action 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"). The Company was also a defendant in the action as
originally filed, but the Company 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. The plaintiffs,
who are all members of a stockholder group that is currently opposed
to existing Company management have alleged, among other things, that
certain of the individual plaintiffs were wrongfully excluded from
sitting on the Company's Board of Directors in 1988 through the sale
of Company common stock to certain key employees. That sale allegedly
prevented the plaintiffs from gaining a majority position in the
Company's voting stock and control of the Company's Board of
Directors. The plaintiffs alleged various breaches of fiduciary duty
and other unlawful conduct by the individual defendants and sought
equitable relief, compensatory damages, and punitive damages. The
Court dismissed all claims for equitable relief that would have
allowed the plaintiffs to sit on the Board of Directors, subject only
to the right, to the extent that any exists, of the plaintiffs to
appeal such dismissal. Based on the plaintiffs' theory of damages,
the Court ruled that the plaintiffs elected as their remedy in this
lawsuit to sell their shares of stock to the defendants. The price
was to be determined based on the value of the plaintiffs' stock in
1988. On October 7, 1994, the jury determined that (i) the defendants
breached their fiduciary duties, and (ii) such breach diminished the
value of the plaintiffs' stock. The jury also determined the value of
the plaintiffs' stock in 1988 to be $81.12 per share or approximately
$1.48 billion. On February 2, 1995, the judge in this case granted
the defendants' motion for remittitur or a new trial on the issue of
damages. The judge determined that the value of the plaintiffs' stock
in 1988 was $25.30 per share or $461,838,000. The plaintiffs have
until March 2, 1995 to file a statement accepting the remittitur or
the defendants' motion for a new trial on the issue of damages will be
deemed granted. The jury also awarded the plaintiffs $70 million in
punitive damages against Edward J. Shoen. The judge ruled that this
punitive damage award is excessive and granted Edward J. Shoen's
motion for remittitur or a new trial on the issue of punitive damages.
The judge reduced the award of punitive damages against Edward J.
Shoen to $7 million. The plaintiffs have until March 2, 1995 to file
a statement accepting the remittitur. If no such statement is filed
by the plaintiffs by that time, Edward J. Shoen's motion for a new
trial on the issue of punitive damages will be deemed granted. The
Company is unable to predict the likelihood, outcome, or consequences
of any appeal or any new trial on the issue of damages.
Pursuant to separate indemnification agreements, the Company has
agreed to advance litigation expenses to the defendants and 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
30
and damages, if any, incurred by the defendants in this proceeding,
subject to certain exceptions. The Company has no indemnification
obligation, other than to advance litigation expenses, until a final
judgment is entered or a settlement is reached. At this time, the
extent of the Company's indemnification obligation, if any, cannot be
reasonably estimated. 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 it has various means of financing any such
indemnification obligations consistent with its existing credit
agreements, or, in the alternative, the Company may 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 assurance can be given, that it can obtain
any necessary waivers or amendments. The Company believes that it can
satisfy its indemnification obligations, if any, unless the amount to
be paid to the plaintiffs for their stock is increased following the
completion of any appeals or any new trial on the issue of damages.
The Company does not believe that there will be a material adverse
effect on its earnings, financial position, or cash flows unless the
amount to be paid to the plaintiffs for their stock is increased. The
Company's By-Laws provide for a right of first refusal in favor of the
Company on the Company's Common Stock except for bona fide sales
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), and sales pursuant to bona fide underwritten public
offerings. No determination has been made by the Company as to
whether the Company will exercise its right of first refusal upon any
attempted transfer of Common Stock from the plaintiffs to the
defendants.
Sophia M. Shoen, Paul F. Shoen and the Company are parties to
separate Share Repurchase and Registration Rights Agreements which
require all disputes relating thereto to be resolved by arbitration.
On April 8, 1994, Sophia M. Shoen and Paul F. Shoen commenced the
dispute resolution process. As disclosed in the Company's Annual
Report on Form 10-K for the year ended March 31, 1994, private
arbitration proceedings pursuant to these agreements were convened on
June 19,1994. In the arbitration, Sophia M. Shoen asserts that the
Company has breached its obligations to her by failing to timely
register the sale of her shares which were sold to the public in
November of 1994 and by failing to remove the right of first refusal
on all Company common stock. Paul F. Shoen asserts that the Company
has breached its obligations to him by failing to timely consummate
the purchase from him of 58,823 shares of Company common stock for an
aggregate purchase price of $1,000,000 and, on an anticipatory basis,
by failing to remove the right of first refusal on all of the
Company's outstanding common stock. The Trust under the AMERCO
Employee Savings, Profit Sharing and Employee Stock Ownership Plan
(the "ESOP Trust") purchased 58,823 shares from Paul F. Shoen on June
30, 1994. The Company has released the right of first refusal with
respect to sales pursuant to bona fide underwritten public offerings
or pursuant to bona fide public distributions pursuant to Rule 144
under the Securities Act. Sophia M. Shoen and Paul F. Shoen have
asserted that, as a consequence of these alleged breaches, they are
entitled to give notice of termination of a stockholder agreement
pursuant to which the shares of common stock held by Edward J. Shoen,
Mark V. Shoen, Paul F. Shoen, Sophia M. Shoen, and others are voted.
The Company disagrees with the above assertions. Sophia M. Shoen gave
31
such notice of termination on July 11, 1994. The arbitration hearings
concluded on August 21, 1994 and the arbitration panel is expected to
render a decision at any time.
The Company, the Company's Board of Directors, the ESOP, and the
ESOP Trustee are defendants in an action currently pending in United
States District Court for the District of Nevada entitled Paul F.
-------
Shoen v. AMERCO, et al., No. CV-N-94-475-DWH, instituted July 19,
- ------------------------
1994. Paul F. Shoen alleges among other things that the defendants
have solicited proxies in connection with the Company's annual meeting
by means of false and misleading proxy materials, that the Company has
violated the proxy rules, and that the ESOP Trustee has prevented him
from communicating with participants in the ESOP. The Court on July
20, 1994 issued a temporary restraining order enjoining the Company's
Annual Meeting of Stockholders, scheduled for July 21, 1994. On
October 6, 1994, the Court issued a Memorandum and Order entering a
preliminary injunction in this case. In the Order entering the
preliminary injunction, the Court stated that it found it
overwhelmingly likely that Paul F. Shoen would prevail on the merits
of the case since it appeared likely to the Court that the Company's
Board of Directors had breached its fiduciary duties by advancing the
annual meeting date, the Company and the ESOP Trustee had violated
certain Commission Proxy Rules, and the ESOP Trustee had breached its
fiduciary duties under ERISA. The Court ordered that the current ESOP
Trustee be replaced with three neutral trustees and that the new
trustees immediately send a "curative" letter to all ESOP participants
telling them to disregard any materials sent to them thus far, that
any voting directions they may have given to the former trustee are
void, and that the election process will begin anew. The Court
enjoined the Company's Annual Meeting of Stockholders for a period of
at least 45 days from the date neutral trustees are appointed and
enjoined the Company, the Board of Directors, the ESOP, and the ESOP
Trustee from committing further violations of the federal securities
laws. Additionally, the Court ordered the Company to comply with the
Commission's filing requirements, to re-solicit proxies, to re-start
the annual meeting process, and to appoint an independent firm to
tabulate proxies. The Company has joined in motions filed by be ESOP
Trustee to appeal the Court's order to the Ninth Circuit. On October
24, 1994, the Court amended its Memorandum and Order to provide that
the new trustees shall act as trustees only until the 1994 Annual
Meeting of Stockholders is held and only with respect to pass-through
voting and discretionary voting of shares held by the ESOP Trust.
On February 9, 1995, Paul F. Shoen executed a settlement
agreement with the Company and the other defendants resolving all of
his claims described in the two preceding paragraphs. As part of the
settlement, the Company agreed, among other things, to work in good
faith toward appointing independent trustees for the ESOP and to place
Paul F. Shoen on the management's slate of directors for the 1994
Annual Meeting of Stockholders which has been delayed as described in
the immediately preceding paragraph. In addition, the settlement
agreement provides for the Company to pay Paul F. Shoen $925,000 and
for the Company to receive a full release of all claims by Paul F.
Shoen through the settlement date, including but not limited to,
claims for reimbursement of attorneys fees related to all matters to
which Paul F. Shoen is or was a party. The terms of the settlement
will not result in a material adverse effect of the Company's
financial condition or results of operations.
32
The Company, certain officers of the Company, certain members of
the Company's Board of Directors, and others are defendants in actions
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), Evan Julber v. Edward J.
------------------------
Shoen, et al., No. CV-N-94-00811-HDM (filed November 16, 1994), and
- -------------
Anne Markin v. Edward J. Shoen, et al., No. CV-N-94-00821-ECR (filed
- --------------------------------------
November 18, 1994). The plaintiffs in these cases, 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 the Company 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, concealing
material adverse information, and taking 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 Shoen Litigation.
In addition, certain officers of the Company, certain members of the
Company's Board of Directors, and an employee of the Company are
defendants in an action currently pending in United States District
Court for the District of Nevada entitled Bernard L. and Frieda
---------------------
Goldwasser, et al. v. Edward J. Shoen, et al., No. CV-N-94-00810-ECR
- ------------------
(filed November 16, 1994). The plaintiffs in this case allege
derivatively on behalf of the Company, that the defendants breached
their fiduciary duties to the Company and its shareholders by causing
the Company to violate the federal securities laws, by concealing the
financial responsibility of the Company for the claims asserted in the
Shoen Litigation, by subjecting the Company to adverse publicity, and
by misusing their corporate control for personal benefit. In addition
to unspecified damages, the plaintiffs are seeking equitable and/or
injunctive relief to prevent the defendants in this case from causing
the Company to indemnify the defendants in the Shoen Litigation
against their liability in that case. The plaintiffs in these cases
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 these actions.
ITEM 2. Changes in Securities
On January 10, 1995, the Company amended its By-Laws to provide that
the right of first refusal in favor of the Company on the Company's
Common Stock shall not apply to any of the Company's Common Stock sold
in a bona fide underwritten public offering or in a bona fide public
distribution pursuant to Rule 144 under the Securities Act of 1933, as
amended, provided that if the distribution is pursuant to Rule 144(k),
then such distribution must comply with the manner of sale
requirements of Rule 144.
33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
4 By-Laws
10 Exchange Agreement with Mark V. Shoen (November 28,
1994)
27 Financial Data Schedule
b. Reports on Form 8-K.
A current report on Form 8-K was filed on October 13, 1994
reporting the jury verdict in the case entitled Samuel W.
---------
Shoen, M.D., et al. v. Edward J. Shoen, et al., No. CV88-
----------------------------------------------
20139
34
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: February 10, 1995 By: /S/ GARY B. HORTON
___________________________________
Gary B. Horton, Treasurer
(Principal Financial Officer)