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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, 2002
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.
----------- ---------------------------- ------------------
1-11255 AMERCO 88-0106815
(A Nevada Corporation)
1325 Airmotive Way, Ste. 100
Reno, Nevada 89502-3239
Telephone (775) 688-6300
2-38498 U-Haul International, Inc. 86-0663060
(A Nevada Corporation
2727 N. Central Avenue
Phoenix, Arizona 85004
Telephone (602) 263-6645
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 [ ].
20,514,958 shares of AMERCO Common Stock, $0.25 par value were outstanding at
December 31, 2002.
5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were
outstanding at February 14, 2002.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Balance Sheets as of
December 31, 2002 (unaudited) and March 31, 2002 ..... 5
b) Condensed Consolidated Statements of Earnings for the
Nine months ended December 31, 2002 and 2001
(unaudited) ......................................... 7
c) Condensed Consolidated Statements of Comprehensive
Income for the Nine months ended
December 31, 2002 and 2001
(unaudited) ......................................... 8
d) Condensed Consolidated Statements of Earnings for
the Quarters ended December 31, 2002 and 2001
(unaudited) ......................................... 9
e) Condensed Consolidated Statements of Comprehensive
Income for the Quarters ended December 31, 2002
and 2001 (unaudited) ................................. 10
f) Condensed Consolidated Statements of Cash Flows for
the Nine months ended December 31, 2002 and 2001
(unaudited) ......................................... 11
g) Notes to Condensed Consolidated Financial Statements..... 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 43
Item 4. Controls and Procedures........................................... 43
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 44
Item 3. Defaults Upon Senior Securities................................... 45
Item 6. Exhibits and Reports on Form 8-K.................................. 46
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, March 31,
Assets 2002 2002
----------- -----------
(Unaudited)
(in thousands)
Cash and cash equivalents $ 51,910 $ 47,651
Receivables 284,708 279,914
Inventories, net 64,154 76,519
Prepaid expenses 48,722 31,069
Investments, fixed maturities 930,461 994,875
Investments, other 266,102 250,458
Other assets 176,737 178,066
----------- -----------
1,822,794 1,858,552
Property, plant and equipment, at cost:
Buildings and improvements 717,020 703,841
SAC Holdings' Buildings and improvements 475,794 458,077
Rental trucks 1,128,422 1,071,604
Other property, plant and equipment 626,263 626,391
SAC Holdings other property, plant and
equipment 267,072 266,172
----------- -----------
3,214,571 3,126,085
Less accumulated depreciation (1,282,675) (1,211,182)
----------- -----------
Total property, plant and equipment 1,931,896 1,914,903
----------- -----------
Total Assets $ 3,754,690 $ 3,773,455
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
December 31, March 31,
Liabilities and Stockholders' Equity 2002 2002
----------- -----------
(Unaudited)
(in thousands)
Liabilities:
AMERCO's notes and loans payable $ 908,430 $ 1,045,802
SAC Holdings notes and loans payable 583,856 557,761
Policy benefits and losses, claims and loss expenses
payable 675,175 729,343
Liabilities from premium deposits 635,924 572,793
Other liabilities 430,548 368,650
----------- -----------
Total liabilities 3,233,933 3,274,349
Commitments and Contingent Liabilities
Stockholders' equity:
Serial preferred stock -
Series A preferred stock - -
Series B preferred stock - -
Serial common stock -
Series A common stock 1,441 1,441
Common stock 9,122 9,122
Additional paid-in-capital 266,073 267,712
Accumulated other comprehensive loss (52,782) (32,384)
Retained earnings 758,474 716,614
Cost of common shares in treasury, net (448,394) (449,247)
Unearned ESOP shares (13,177) (14,152)
----------- -----------
Total stockholders' equity 520,757 499,106
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,754,690 $ 3,773,455
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Nine months ended December 31,
(Unaudited)
2002 2001
------------ ------------
(in thousands, except share and per share data)
Revenues
Rental revenue $ 1,108,202 $ 1,047,292
Net sales 175,709 175,410
Premiums 243,131 308,261
Net investment and interest income 32,763 44,143
------------ ------------
Total revenues 1,559,805 1,575,106
Costs and expenses
Operating expenses 823,976 828,524
Cost of sales 87,484 97,591
Benefits and losses 200,142 276,260
Amortization of deferred policy acquisition costs 27,895 32,346
Lease expense 127,443 134,593
Depreciation, net of gain/(loss) on sale of
$ (779) and $ 17,907 97,514 76,681
------------ ------------
Total costs and expenses 1,364,454 1,445,995
------------ ------------
Earnings from operations 195,351 129,111
Interest expense 86,306 74,487
Fees on early termination of BBATs 26,551 --
------------ ------------
Pretax earnings 82,494 54,624
Income tax expense (33,667) (23,055)
------------ ------------
Net earnings $ 48,826 $ 31,569
Preferred stock dividends (9,723) (9,723)
------------ ------------
Earnings available to common shareholders $ 39,103 $ 21,846
============ ============
Basic and diluted earnings per common share: $ 1.88 $ 1.04
============ ============
Basic and diluted average common shares outstanding: 20,762,722 21,092,225
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
Nine months ended December 31,
(Unaudited)
2002 2001
-------- --------
(in thousands)
Comprehensive income:
Net earnings $ 48,826 $ 31,569
Changes in other comprehensive income:
Foreign currency translation (3,393) (3,647)
Fair market value of cash flow hedge 24 153
Unrealized loss on investments (15,334) 13,522
-------- --------
Total comprehensive income $ 30,123 $ 41,597
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Statements of Earnings
Quarters ended December 31,
(Unaudited)
2002 2001
------------ ------------
(in thousands, except share and per share data)
Revenues
Rental revenue $ 319,298 $ 300,385
Net sales 45,074 44,818
Premiums 80,115 105,381
Net investment and interest income 7,407 12,661
------------ ------------
Total revenues 451,894 463,245
Costs and expenses
Operating expense 277,709 269,877
Cost of sales 21,962 26,420
Benefits and losses 59,709 95,487
Amortization of deferred policy acquisition costs 6,253 11,413
Lease expense 39,388 43,380
Depreciation, net of gain/(loss) on sale of 32,610 30,974
$ (779) million and $ 17,907 million
Total costs and expenses 437,631 477,551
Earnings from operations 14,263 (14,306)
Interest expense 31,419 21,970
Fees on early termination of BBATs 26,551 --
------------ ------------
Pretax loss (43,707) (36,276)
Income tax benefit 11,441 11,206
------------ ------------
Net loss $ (32,266) $ (25,070)
Less: Preferred Stock Dividends (3,241) (3,241)
------------ ------------
Loss available to common shareholders $ (35,507) $ (28,311)
============ ============
Basic and diluted loss per common share $ (1.73) $ (1.36)
============ ============
Basic and diluted average common shares 20,729,079 20,892,342
============ ============
outstanding:
The accompanying notes are an integral part of these consolidated financial
statements.
7
AMERCO AND CONSOLIDATED SUBSIDIARIES
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
Quarters ended December 31,
(Unaudited)
2002 2001
-------- --------
(in thousands)
Comprehensive income:
Net earnings $(32,266) $(25,070)
Changes in other comprehensive income:
Foreign currency translation (12) (970)
Fair market value of cash flow hedge 23 800
Unrealized loss on investments (1,984) 17,896
-------- --------
Total comprehensive income $(34,239) $ (7,344)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
8
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31,
(Unaudited)
2002 2001
--------- ---------
(in thousands)
Net cash provided by operating activities $ 157,820 $ 131,125
--------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (153,081) (152,490)
Fixed maturities (248,121) (140,695)
Real estate (30,988) (60,189)
Mortgage loans (22,000) (8,497)
Proceeds from sale of investments:
Property, plant and equipment 57,137 109,436
Fixed maturities 291,328 117,356
Mortgage loans 13,201 10,039
Other investments (7,057) (15,670)
--------- ---------
Net cash provided (used) by investing activities (99,581) (140,710)
--------- ---------
Cash flows from financing activities:
Net change in short-term borrowings -- 81,743
Principal borrowings (payments) on notes (215,358) (19)
Investment contract deposits 137,488 107,855
Investment contract withdrawals (74,047) (83,224)
Other financing activities 100,734 (113,832)
--------- ---------
Net cash used by financing activities (51,183) (7,477)
--------- ---------
Foreign currency translation (2,797) --
Increase (decrease) in cash and cash equivalents 4,259 (17,062)
Cash and cash equivalents at beginning of period 47,651 52,788
--------- ---------
Cash and cash equivalents at end of period $ 51,910 $ 35,726
========= =========
Cash paid for interest $ 105,249 $ 61,254
Cash paid for income taxes $ 8,000 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
9
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 2002, March 31, 2002 and December 31, 2001
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AMERCO, a Nevada corporation (AMERCO), is the holding company for
U-Haul International, Inc. (U-Haul), which conducts moving and storage
operations; Amerco Real Estate Company (Real Estate), which conducts real estate
operations; Republic Western Insurance Company (RepWest), which conducts
property and casualty insurance operations; and Oxford Life Insurance Company
(Oxford), which conducts life insurance operations.
SAC Holding Corporation and SAC Holding II Corporation (collectively
referred to as SAC Holdings) are Nevada corporations owned by Mark V. Shoen.
Mark V. Shoen is the beneficial owner of 16.3% of AMERCO's common stock and is
an executive officer of U-Haul.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements presented here include
the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holdings and
their subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation. AMERCO has made significant loans to SAC
Holdings and is entitled to participate in SAC Holdings' excess cash flow (after
senior debt service). All of the equity interest of SAC Holdings is owned by
Mark V. Shoen, a significant shareholder and executive officer of AMERCO. AMERCO
does not have an equity ownership interest in SAC Holdings, except for
investments made by RepWest and Oxford in a SAC Holdings-controlled limited
partnership which holds Canadian self-storage properties. SAC Holdings are not
legal subsidiaries of AMERCO. AMERCO is not liable for the debts of SAC Holdings
and there are no default provisions in AMERCO indebtedness that cross-default to
SAC Holdings' obligations. The condensed consolidated financial statements and
notes are presented as permitted by Form 10-Q and do not contain certain
information included in AMERCO's annual financial statements and notes. For a
more detailed presentation of the accounts and transactions of AMERCO, refer to
AMERCO's Form 10-K.
The condensed consolidated balance sheet as of December 31, 2002 and
the related condensed consolidated statements of earnings, comprehensive income,
and cash flows for the nine months and quarters ended December 31, 2002 and 2001
are unaudited. In our opinion, all adjustments necessary for a fair presentation
of such condensed consolidated 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 accounts of AMERCO and SAC Holdings are consolidated due to SAC
Holdings majority owner not qualifying as an independent third party to AMERCO
and not maintaining a substantive residual equity investment, exclusive of
unrealized appreciation of real estate held by SAC Holdings subsidiaries, in SAC
Holdings during the entire period.
The operating results and financial position of RepWest and Oxford have
been consolidated on the basis of a calendar year and, accordingly, are
determined on a one quarter lag for financial reporting purposes. There
10
were no effects related to intervening events which would materially affect the
consolidated financial position or results of operations for the financial
statements presented herein.
Certain reclassifications have been made to the financial statements
for the nine months and the quarter ended December 31, 2001 to conform with the
current period's presentation.
11
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
2. INVESTMENTS
A comparison of amortized cost to estimated market value for fixed
maturities is as follows:
September 30, 2002 Par Value Gross Gross Estimated
Consolidated or number of Amortized unrealized unrealized market
Held-to-Maturity shares cost gains losses value
---------------- ------ ---- ----- ------ -----
(in thousands)
U.S. treasury securities and government
obligations $ 925 $ 490 $ 180 -- $ 670
U.S. government agency mortgage-backed
securities $ 4,042 4,028 284 -- 4,312
Corporate securities 24,932 566 (748) 24,750
Mortgage-backed securities $ 13,979 17,214 447 (13) 17,648
Redeemable preferred stocks -- 105,323 782 (2,271) 103,834
--------- ------ --- --- ------
-- $ 151,987 $ 2,259 $ (3032) $ 151,214
September 30, 2002 Par Value Gross Gross Estimated
Consolidated or number of Amortized unrealized unrealized market value
Available-for-Sale shares cost gains losses
(in thousands)
U.S. treasury securities and government
obligations $ 8,760 $ 41,747 $ 3,776 $ -- $ 45,523
U.S. government agency mortgage-backed
securities $ 67,616 69,711 1,705 (3,296) 68,120
Obligations of states and political
subdivisions $ 3,675 5,874 268 (4) 6,138
Corporate securities $ 516,695 622,989 27,110 (43,460) 606,639
Mortgage-backed securities $ 22,287 24,715 486 (612) 24,589
Redeemable preferred stocks 1,070 26,350 449 (587) 26,212
Redeemable common stocks 59 2,449 (978) (218) 1,253
--------- --------- --------- ---------
793,835 32,816 (48,177) 778,474
--------- --------- --------- ---------
Total -- $ 945,822 $ 35,075 $ (51,209) $ 929,688
========= ========= ========= =========
12
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
3. CONTINGENT LIABILITIES AND COMMITMENTS
During the nine months ended December 31, 2002, a subsidiary of AMERCO
entered into two transactions whereby the subsidiary sold rental trucks and
trailers to unrelated third parties, which were subsequently leased back to an
AMERCO subsidiary. Following are the lease commitments for the leases executed
during the nine months and quarter ended December 31, 2002, and subsequently
leased back which have a term of more than one year:
Year ending Lease
March 31, Commitments
2003 $ 354
2004 1,416
2005 1,416
2006 1,416
2007 1,416
Thereafter 4,749
--------
$ 10,767
========
In the normal course of business, AMERCO is a defendant in a number of
suits and claims. AMERCO is also a party to several administrative proceedings
arising from state and local provisions that regulate the removal and/or
clean-up of underground fuel storage tanks. In our opinion, none of such suits,
claims or proceedings involving AMERCO, individually, or in the aggregate, are
expected to result in a material loss.
Compliance with environmental requirements of federal, state and local
governments significantly affects Real Estate's business operations. Among other
things, these requirements regulate the discharge of materials into the water,
air and land and govern the use and disposal of hazardous substances. Real
Estate is aware of issues regarding hazardous substances on some of its
properties. Real Estate regularly makes capital and operating expenditures to
stay in compliance with environmental laws and has put in place a remedial plan
at each site where it believes such a plan is necessary. Since 1988, Real Estate
has managed a testing and removal program for underground storage tanks. Under
this program, over 3,000 tanks have been removed at a cost of approximately
$44.5 million.
A subsidiary of U-Haul, INW Company (INW), owns one property located
within two different state hazardous substance sites in the State of Washington.
The sites are referred to as the "Yakima Valley Spray Site" and the Yakima
Railroad Area." INW has been named as a "potentially responsible party" under
state law with respect to this property as it relates to both sites. As a result
of the cleanup costs of approximately $5.5 to $10.0 million required by the
State of Washington, INW filed for reorganization under federal bankruptcy laws
in May of 2001. The potential liability to INW could be in the range of $2.0
million to $5.5 million.
Based upon the information currently available, compliance with the
environmental laws and the costs of investigation and cleanup of known hazardous
waste sites are not expected to have a material adverse affect on AMERCO's
financial position of operating results.
13
We are currently under IRS examination for the years 1996-1997. The IRS
has proposed adjustments to our 1997 and 1996 tax returns in the amount of
$229.8 million and $87.3 million, respectively. Nearly all of the adjustments
relate to denials of deductions that we took for costs incurred in resolution of
prior litigation with certain members of the Shoen family and their
corporations. We believe these income tax deductions are appropriate and we are
vigorously contesting the IRS adjustments. We estimate that if we are
unsuccessful in our challenge in all respects, based on our current tax
position, we could incur tax exposure totaling approximately $76.0 million plus
interest.
On July 20, 2000, Charles Kocher ("Kocher") filed suit in Wetzel
County, West Virginia, Civil Action No. 00-C-51-K, entitled Charles Kocher v.
Oxford Life Insurance Co. ("Oxford") seeking compensatory and punitive damages
for breach of contract, bad faith and unfair claims settlement practices arising
from an alleged failure of Oxford to properly and timely pay a claim under a
disability and dismemberment policy aquired in conjunction with the purchase of
a $7,800 used pick-up truck. On March 22, 2002, the jury returned a verdict of
$5 million in compensatory damages and $34 million in punitive damages. On
November 5, 2002, the trial court entered an Order ("Order") affirming the $39
million jury verdict and denying Oxford's Motion for New Trial Or, in The
Alternative, Remittitur. Oxford is in the process of perfecting its appeal to
the West Virginia Supreme Court. Management does not believe that the Order is
sustainable and expects the Order to be overturned by the West Virginia Supreme
Court, in part because the jury award has no reasonable nexus to the actual harm
suffered by Kocher.
14
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
4. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations, requires recognition of the fair value of
liabilities associated with the retirement of long-lived assets when a legal
obligation to incur such costs arises as a result of the acquisition,
construction, development and/or the normal operation of a long-lived asset.
Upon recognition of the liability, a corresponding asset is recorded at present
value and accreted over the life of the asset and depreciated over the remaining
life of the long-lived asset. SFAS 143 defines a legal obligation as one that a
party is required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. SFAS 143 is effective for fiscal
years beginning after June 15, 2002.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, are to be applied prospectively. We have
adopted this statement effective April 1, 2002 and it did not affect our
consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of No. 4,
(Reporting Gains and Losses from Extinguishment of Debt), No. 44 (Accounting for
Intangible Assets of Motor Carriers), No. 64, (Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements), Amendment of FASB Statement No. 13
(Accounting for Leases) and Technical Corrections. This statement eliminates the
current requirement that gains and losses on debt extinguishement must be
classified as extraordinary items in the income statement. Instead, such gains
and losses will be classified as extraordinary items only if they are deemed to
be unusual and infrequent, in accordance with the current GAAP criteria for
extraordinary classification. In addition, SFAS 145 eliminates an inconsistency
in lease accounting by requiring that modification of capital leases that result
in reclassification as operating leases be accounted for consistent with
sale-leaseback accounting rules. The statement also contains other
nonsubstantive corrections to authoritative accounting literature. The changes
related to debt extinguishment will be effective for fiscal years beginning
after May 15, 2002, and the changes related to lease accounting will be
effective for transactions occurring after May 15, 2002. Management recognizes
the need to reclassify debt extinguishments previously reported as
extraordinary.
15
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, (SFAS 146) Accounting for Costs Associated with Exit or
Disposal Activities, which addresses accounting for restructuring and similar
costs. SFAS 146 supersedes previous accounting guidance, principally Emerging
Issues Task Force (EITF) Issue No. 94-3. SFAS 146 requires that the liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of a company's commitment to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company intends to adopt the Statement at that time.
In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting for Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34,
Disclosure of Indirect Guarantees of Indebtedness of Others("FIN 45"). FIN 45
clarifies the requirements for a guarantor's accounting for and disclosure of
certain guarantees issued and outstanding. It also requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation also
incorporates without reconsideration the guidance in FASB Interpetation No. 34,
which is being superseded. The adoption of FIN 45 will not have any immediate
effect on the Company's consolidated financial statements and will be applied
prospectively.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("FAS 148"), which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, FAS 148 amends the disclosure requirement of FAS 123 to require more
prominent and more frequent disclosures in financial statements of the effects
of stock-based compensation. The transition guidance and annual disclosure
provisions of FAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002. The adoption of FAS 148 is not expected to have a material
impact on the Company's consolidated balance sheet or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletins ("ARB") No. 51, Consolidated Financial Statements ("FIN 46").
FIN 46 clarifies the application of ARB No. 51 to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
16
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
AMERCO has four industry segments represented by moving and storage
operations (AMERCO and U-Haul), real estate (Real Estate), property and casualty
insurance (RepWest), and life insurance (Oxford). SAC Holdings consist of one
moving and storage industry segment.
Consolidating balance sheets by industry segment as of December 31, 2002 are as
follows:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1)
----------- ----------- ------------ ------------ -------------
(in thousands)
DECEMBER 31, 2002
ASSETS
Cash and cash equivalents $ 23,073 26,783 320 2,774 (1,803)
Receivables 21 49,621 15,935 210,740 22,791
Inventories, net -- 61,614 4 -- --
Prepaid expenses 90 47,291 11 -- --
Investments, fixed maturities -- -- -- 292,682 637,779
Investments, other 10,000 256,109 92,266 115,244 159,154
Other assets 1,845,419 5,249 5,050 140,212 142,137
----------- --------- ------- ------- -------
1,878,603 446,667 113,586 761,652 960,058
Property, plant and equipment, at cost:
Buildings and improvements -- 121,635 595,385 -- --
SAC Holdings buildings
and improvements -- -- -- -- --
Rental trucks -- 1,128,422 -- -- --
Other property, plant and
equipment 454 468,152 157,657 -- --
SAC Holdings other property,
plant and equipment -- -- -- -- --
----------- --------- ------- ------- -------
454 1,718,209 753,042 -- --
Less accumulated depreciation (312) (977,006) (252,820) -- --
----------- --------- ------- ------- -------
Total property, plant and
equipment 142 741,203 500,222 -- --
----------- --------- ------- ------- -------
TOTAL ASSETS $ 1,878,745 1,187,870 613,808 761,652 960,058
=========== ========= ======= ======= =======
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
DECEMBER 31, 2002
ASSETS
Cash and cash equivalents -- 51,147 763 -- 51,910
Receivables -- 299,108 (2,021) (12,379) 284,708
Inventories, net -- 61,618 2,536 -- 64,154
Prepaid expenses -- 47,392 1,330 -- 48,722
Investments, fixed maturities -- 930,461 -- -- 930,461
Investments, other (20,249) 612,524 7,558 (353,980) 266,102
Other assets (1,991,432) 146,635 30,102 -- 176,732
---------- --------- ------- -------- ---------
(2,011,681) 2,148,885 40,268 (366,359) 1,822,794
Property, plant and equipment, at cost:
Buildings and improvements -- 717,020 -- -- 717,020
SAC Holdings buildings
and improvements -- -- 730,824 (255,030) 475,794
Rental trucks -- 1,128,422 -- -- 1,128,422
Other property, plant and
equipment -- 626,263 -- -- 626,263
SAC Holdings other property,
plant and equipment -- -- 267,072 -- 267,072
---------- --------- ------- -------- ---------
-- 2,471,705 997,896 (255,030) 3,214,571
Less accumulated depreciation -- (1,230,138) (51,405) (1,132) (1,282,675)
---------- ---------- ------- -------- ----------
Total property, plant and
equipment -- 1,241,567 946,491 (256,162) 1,931,896
---------- --------- ------- -------- ----------
TOTAL ASSETS (2,011,681) 3,390,452 986,759 (622,521) 3,754,690
========== ========= ======= ======== =========
(1) Balances as of September 30, 2002
17
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED
Consolidating balance sheets by industry segment as of December 31, 2002 are as
follows, continued:
Moving and
Storage Property and
Operations Casualty Life
AMERCO U-Haul Real Estate Insurance (1) Insurance (1)
----------- ----------- ----------- ------------- -------------
(in thousands)
DECEMBER 31, 2002
LIABILITIES
AMERCO's notes and loans payable $ 832,956 14,789 100,185 -- --
SAC Holdings notes and loans
payable -- -- -- -- --
Policy benefits and losses,
claims and loss expenses payable -- -- -- 495,252 179,923
Liabilities from premium deposits -- -- -- -- 635,924
Other liabilities 316,729 506,288 298,929 56,262 28,797
----------- ----------- ----------- ----------- -----------
Total liabilities 1,149,685 521,077 399,114 551,514 844,644
Minority Interest -- -- -- -- --
STOCKHOLDERS' EQUITY
Serial preferred stock -
Series A preferred stock -- -- -- -- --
Series B preferred stock -- -- -- -- --
Serial common stock -
Series A common stock 1,441 -- -- -- --
Common stock 9,122 540 1 3,300 2,500
Additional paid-in-capital 405,285 130,465 147,481 71,975 15,169
Accumulated other comprehensive
loss (47,695) (43,197) -- (1,489) (8,898)
Retained earnings 779,065 592,182 67,212 136,352 106,643
Cost of common shares in treasury (418,178) -- -- -- --
Unearned ESOP shares 20 (13,197) -- -- --
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 729,060 666,793 214,694 210,138 115,414
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,878,745 1,187,870 613,808 761,652 960,058
=========== =========== =========== =========== ===========
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
(in thousands)
AMERCO's notes and loans payable (39,500) 908,430 -- -- 908,430
SAC Holdings notes and loans
payable -- -- 972,044 (388,188) 583,856
Policy benefits and losses,
claims and loss expenses payable -- 675,175 -- -- 675,175
Liabilities from premium deposits -- 635,924 -- -- 635,924
Other liabilities (727,963) 479,042 52,552 (101,046) 430,548
----------- ----------- ----------- ----------- -----------
Total liabilities (767,463) 2,698,571 1,024,596 (489,234) 3,233,933
Minority Interest -- -- 9,045 (9,045) --
STOCKHOLDERS' EQUITY
Serial preferred stock -
Series A preferred stock -- -- -- -- --
Series B preferred stock -- -- -- -- --
Serial common stock -
Series A common stock -- 1,441 -- -- 1,441
Common stock (6,341) 9,122 -- -- 9,122
Additional paid-in-capital (365,088) 405,287 28,281 (167,495) 266,073
Accumulated other comprehensive
loss 50,191 (51,088) (24,352) 22,658 (52,782)
Retained earnings (922,980) 758,474 (50,811) 50,811 758,474
Cost of common shares in treasury -- (418,178) -- (30,216) (448,394)
Unearned ESOP shares -- (13,177) -- -- (13,177)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity (1,244,248) 691,881 (46,882) (124,242) 520,757
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (2,011,681) 3,390,452 986,759 (622,521) 3,754,689
=========== =========== =========== =========== ===========
(1) Balances as of September 31, 2002
18
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating balance sheets by industry segment as of March 31, 2002 are as
follows, continued:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1) Eliminations
------------ ------------ ------------ ------------- ------------- ------------
(in thousands)
MARCH 31, 2002
ASSETS
Cash and cash equivalents $ 71 29,823 576 5,912 11,259 --
Receivables 7 17,970 5,020 230,228 26,689 --
Inventories, net -- 72,323 4 -- -- --
Prepaid expenses 112 44,461 11 -- -- --
Investments, fixed maturities -- -- -- 362,569 632,306 --
Investments, other 10,000 264,984 95,245 95,918 172,281 (24,855)
Other assets 2,017,383 31,993 4,401 125,193 76,176 (2,089,307)
----------- ----------- ----------- ----------- ----------- -----------
2,027,573 461,554 105,257 819,820 918,711 (2,114,162)
Property, plant and
equipment, at cost:
Buildings and improvements -- 124,059 579,782 -- -- --
SAC Holdings buildings and
improvements -- -- -- -- -- (1)
Rental trucks -- 1,071,604 -- -- -- --
Other property, plant and
equipment 395 465,215 160,781 -- -- --
SAC Holdings other
property, plant and
equipment -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
395 1,660,878 740,563 -- -- (1)
Less accumulated
depreciation (299) (923,685) (248,525) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total property, plant
and equipment 96 737,193 492,038 -- -- (1)
TOTAL ASSETS $ 2,027,669 1,198,747 597,295 819,820 918,711 (2,114,163)
=========== =========== =========== =========== =========== ===========
SACH Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated
------------ ------------ ------------ ------------
MARCH 31, 2002
ASSETS
Cash and cash equivalents 47,641 10 -- 47,651
Receivables 279,914 -- -- 279,914
Inventories, net 72,327 4,192 -- 76,519
Prepaid expenses 44,584 -- (13,515) 31,069
Investments, fixed maturities 994,575 -- -- 994,875
Investments, other 613,573 30,090 (393,205) 250,458
Other assets 165,839 25,694 (13,467) 178,066
----------- ----------- ----------- -----------
2,218,753 59,986 (420,187) 1,858,552
Property, plant and
equipment, at cost:
Buildings and improvements 703,841 -- -- 703,841
SAC Holdings buildings and
improvements (1) 713,108 (255,030) 458,077
Rental trucks 1,071,604 -- -- 1,071,604
Other property, plant and
equipment 626,391 -- -- 626,391
SAC Holdings other
property, plant and
equipment -- 266,172 -- 266,172
----------- ----------- ----------- -----------
2,401,835 979,280 (255,030) 3,126,085
Less accumulated
depreciation (1,172,509) (37,541) (1,132) (1,211,182)
----------- ----------- ----------- -----------
Total property, plant
and equipment 1,229,326 941,739 (256,162) 1,914,903
TOTAL ASSETS 3,448,079 1,001,725 (676,349) 3,773,455
=========== =========== =========== ===========
(1) Balances as of December 31, 2001
19
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating balance sheets by industry segment as of March 31, 2002 are as
follows, continued
U-Haul
Moving and Property and
Storage Casualty
AMERCO Operations Real Estate Insurance (1) Life Insurance (1)
------------ ------------ ----------- ------------- -----------------
(in thousands)
MARCH 31, 2002
LIABILITIES
AMERCO's notes and loans payable $ 1,030,805 14,793 204 -- --
SAC Holdings notes and loans payable -- -- -- -- --
Policy benefits and losses, claims and loss
expenses payable -- -- -- 551,592 177,751
Liabilities from premium deposits -- -- -- -- 572,793
Other liabilities 310,464 608,236 398,656 54,203 39,360
----------- ----------- ----------- ----------- -----------
Total liabilities 1,341,269 623,029 398,860 605,795 789,904
STOCKHOLDERS' EQUITY
Serial preferred stock -
Series A preferred stock -- -- -- -- --
Series B preferred stock -- -- -- -- --
Serial common stock -
Series A common stock 1,441 -- -- -- --
Common stock 9,122 540 1 3,300 2,500
Additional paid-in-capital 405,794 130,465 147,347 71,508 15,174
Accumulated other comprehensive loss (32,384) (39,804) -- 4,967 4,947
Retained earnings 719,178 498,689 51,087 134,250 106,186
Cost of common shares in treasury (416,771) -- -- -- --
Unearned ESOP shares 20 (14,172) -- -- --
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 686,400 575,718 198,435 214,025 128,807
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,027,669 1,198,747 597,295 819,820 918,711
=========== =========== =========== =========== ===========
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
MARCH 31, 2002
LIABILITIES
AMERCO's notes and loans payable -- 1,045,802 -- -- 1,045,802
SAC Holdings notes and loans payable -- -- 957,378 (399,617) 557,761
Policy benefits and losses, claims and loss
expenses payable -- 729,343 -- -- 729,343
Liabilities from premium deposits -- 572,793 -- -- 572,793
Other liabilities (979,999) 430,920 63,866 (126,136) 368,650
----------- ----------- ----------- ----------- -----------
Total liabilities (979,999) 2,778,858 1,021,244 (525,753) 3,274,349
STOCKHOLDERS' EQUITY
Serial preferred stock -
Series A preferred stock -- -- -- -- --
Series B preferred stock -- -- -- -- --
Serial common stock -
Series A common stock -- 1,441 -- -- 1,441
Common stock (6,341) 9,122 -- -- 9,122
Additional paid-in-capital (364,494) 405,794 28,281 (166,363) 267,712
Accumulated other comprehensive loss 29,890 (32,384) (2,385) 2,385 (32,384)
Retained earnings (793,219) 716,171 (45,415) 45,858 716,614
Cost of common shares in treasury -- (416,771) -- (32,476) (449,247)
Unearned ESOP shares -- (14,152) -- -- (14,152)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity (1,134,164) 669,221 (19,519) (150,596) 499,106
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (2,114,163) 3,448,079 1,001,725 (676,349) 3,773,455
=========== =========== =========== =========== ===========
(1) Balances as of December 31, 2001
20
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating income statements by industry segment for the nine months ended
December 31, 2002 are as follows, continued:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1)
------------ ------------ ------------ ------------- -------------
(in thousands)
NINE MONTHS ENDED DECEMBER 31, 2002
Revenues
Rental revenue $ -- 994,34 51,384 -- --
Net sales -- 137,554 48 -- --
Premiums -- -- -- 126,876 121,099
Net investment and interest income 105,535 23,243 8,040 21,464 11,815
----------- ----------- ----------- ----------- -----------
Total revenues 105,535 1,155,143 59,472 148,340 132,914
Costs and expenses
Operating expenses 11,399 747,623 5,080 26,234 28,334
Cost of sales -- 71,481 17 --
Benefits and losses -- -- -- 111,733 88,409
Amortization of deferred policy
acquisition costs -- -- -- 13,159 14,736
Lease expense 697 120,407 7,480 -- --
Depreciation, net 21 77,599 5,437 -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses 12,117 1,017,110 18,014 151,126 131,479
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations 93,418 138,033 41,458 (2,786) 1,435
Interest expense 29,842 7,657 16,650 -- --
Fees on early termination of BBATs 26,551 -- -- -- --
----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) 37,025 130,376 24,808 (2,786) 1,435
Income tax benefit (expense) (13,884) (36,883) (8,683) (79) (978)
----------- ----------- ----------- ----------- -----------
Net earnings 23,141 93,493 16,125 (2,865) 457
=========== =========== =========== =========== ===========
Less: preferred stock dividends 9,723 -- -- -- --
----------- ----------- ----------- ----------- -----------
Earnings (loss) available to common
shareholders $ 13,418 93,493 16,125 (2,865) 457
=========== =========== =========== =========== ===========
SACH Moving
AMERCO AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
NINE MONTHS ENDED DECEMBER 31, 2002
Revenues
Rental revenue (52,092) 993,638 123,760 (9,195) $ 1,108,202
Net sales -- 137,602 38,107 -- 175,709
Premiums (4,844) 243,131 -- -- 243,131
Net investment and interest income (113,195) 56,902 -- (28,956) 27,946
----------- ----------- ----------- ----------- -----------
Total revenues (170,131) 1,431,273 161,867 (38,151) 1,554,989
Costs and expenses
Operating expenses (60,421) 758,249 74,922 (9,195) 823,976
Cost of sales -- 71,498 15,986 -- 87,484
Benefits and losses -- 200,142 -- -- 200,142
Amortization of deferred policy
acquisition costs -- 27,895 -- -- 27,895
Lease expense -- 128,584 -- (5,956) 122,628
Depreciation, net -- 83,057 14,457 -- 97,514
----------- ----------- ----------- ----------- -----------
Total costs and expenses (60,421) 1,269,425 105,365 (15,151) 1,359,637
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations (109,710) 161,848 56,502 (23,000) 195,350
Interest expense -- 54,149 60,551 (28,394) 86,306
Fees on early termination of BBATs -- 26,551 -- -- 26,551
----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) (109,710) 81,148 (4,049) 5,394 82,493
Income tax benefit (expense) 28,185 (32,322) (1,345) -- (33,667)
----------- ----------- ----------- ----------- -----------
Net earnings (81,525) 48,826 (5,394) 5,394 48,826
=========== =========== =========== =========== ===========
Less: preferred stock dividends -- 9,723 -- -- 9,723
----------- ----------- ----------- ----------- -----------
Earnings (loss) available to common
shareholders (81,525) 39,103 (5,394) 5,394 $ 39,103
=========== =========== =========== =========== ===========
(1) Balances as of September 30, 2002
21
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating income statements by industry segment for the nine months ended
December 31, 2001 are as follows, continued:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1)
------------ ------------ ------------ ------------ ------------
(in thousands)
NINE MONTHS ENDED DECEMBER 31, 2001
Revenues
Rental revenue $ -- 976,081 52,278 -- --
Net sales -- 158,513 43 -- --
Premiums -- -- -- 192,982 119,736
Net investment and interest income 163,341 17,566 6,929 23,967 18,975
----------- ----------- ----------- ----------- -----------
Total revenues 163,341 1,152,160 59,250 216,949 138,711
Costs and expenses
Operating expenses 4,775 763,271 (4,869) 42,556 30,207
Cost of sales -- 89,096 20 --
Benefits and losses -- -- -- 188,256 88,004
Amortization of deferred policy
acquisition costs -- -- -- 17,837 14,509
Lease expense 576 123,225 9,329 -- --
Depreciation, net (504) 73,561 (4,303) -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses 4,847 1,049,153 177 248,649 132,720
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations 158,494 103,007 59,073 (31,700) 5,991
Interest expense 82,614 8,823 27,953 -- --
----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) 75,880 94,184 31,120 (31,700) 5,991
Income tax benefit (expense) (29,403) (34,586) (10,892) 11,209 (1,787)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) 46,477 59,598 20,228 (20,491) 4,204
=========== =========== =========== =========== ===========
Less: preferred stock dividends 9,723 -- -- -- --
----------- ----------- ----------- ----------- -----------
Earnings (loss) available to common
shareholders $ 36,754 59,598 20,228 (20,491) 4,204
=========== =========== =========== =========== ===========
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
NINE MONTHS ENDED DECEMBER 31, 2001
Revenues
Rental revenue (48,264) 980,095 77,816 (10,619) $ 1,047,292
Net sales -- 158,556 16,854 -- 175,410
Premiums (4,457) 308,261 -- -- 308,261
Net investment and interest income (163,892) 66,886 -- (22,743) 44,143
----------- ----------- ----------- ----------- -----------
Total revenues (216,613) 1,513,798 94,670 (33,362) 1,575,106
Costs and expenses
Operating expenses (45,544) 790,396 44,039 (5,911) 828,524
Cost of sales 87 89,203 8,388 -- 97,591
Benefits and losses -- 276,260 -- -- 276,260
Amortization of deferred policy
acquisition costs -- 32,346 -- -- 32,346
Lease expense 6,508 139,638 564 (5,609) 134,593
Depreciation, net 36 68,790 8,132 (241) 76,681
----------- ----------- ----------- ----------- -----------
Total costs and expenses (38,913) 1,396,633 61,123 (11,761) 1,445,995
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations (177,700) 117,165 33,547 (21,601) 129,111
Interest expense (61,238) 58,152 39,078 (22,743) 74,487
----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) (116,462) 59,013 (5,531) 1,142 54,624
Income tax benefit (expense) 38,590 (26,869) (308) 4,122 (23,055)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) (77,872) 32,144 (5,839) 5,264 31,569
=========== =========== =========== =========== ===========
Less: preferred stock dividends -- 9,723 -- -- 9,723
----------- ----------- ----------- ----------- -----------
Earnings (loss) available to common
shareholders (77,872) 22,421 (5,839) 5,264 $ 21,846
=========== =========== =========== =========== ===========
(1) Balances as of September 30, 2002
22
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating income statements by industry segment are as follows, continued:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1)
----------- ----------- ----------- ------------- -------------
(in thousands)
QUARTER ENDED DECEMBER 31, 2002
Revenues
Rental revenue $ -- 282,852 21,675 -- --
Net sales -- 34,881 13 -- --
Premiums -- -- -- 40,557 40,406
Net investment and interest income (4,514) 7,280 3,056 6,207 4,042
--------- --------- --------- --------- ---------
Total revenues (4,514) 325,013 24,744 46,764 44,448
Costs and expenses
Operating expenses 6,265 244,195 6,964 13,587 8,485
Cost of sales -- 18,416 1 -- --
Benefits and losses -- -- -- 31,788 27,921
Amortization of deferred policy
acquisition costs -- -- -- 1,638 4,615
Lease expense 234 40,370 2,748 -- --
Depreciation, net 13 26,756 1,174 -- --
--------- --------- --------- --------- ---------
Total costs and expenses 6,512 329,737 10,887 47,013 41,021
--------- --------- --------- --------- ---------
Earnings (loss) from operations (11,026) (4,724) 13,857 (249) 3,427
Interest expense 3,433 1,532 7,853 -- --
Fees on early extinguishment of BBAT's 26,551 -- -- -- --
--------- --------- --------- --------- ---------
Pretax earnings (loss) (41,010) (6,256) 6,004 (249) 3,427
Income tax benefit (expense) 15,379 11,081 (2,102) (1,039) (1,677)
--------- --------- --------- --------- ---------
Net earnings (loss) (25,631) 4,825 3,902 (1,288) 1,750
========= ========= ========= ========= =========
Less: preferred stock dividends 3,241 -- -- -- --
--------- --------- --------- --------- ---------
Earnings available to common shareholders $(28,872 ) 4,825 3,902 (1,288) 1,750
========= ========= ========= ========= =========
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
QUARTER ENDED DECEMBER 31, 2002
Revenues
Rental revenue (21,747) 282,780 39,369 (2,851) $ 319,298
Net sales -- 34,894 10,180 -- 45,074
Premiums (848) 80,115 -- -- 80,115
Net investment and interest income (1,716) 14,355 -- (6,948) 7,407
--------- --------- --------- --------- ---------
Total revenues (24,311) 412,144 49,549 (9,799) 451,894
Costs and expenses
Operating expenses (23,635) 255,861 24,698 (2,850) 277,709
Cost of sales -- 18,417 3,545 -- 21,962
Benefits and losses -- 59,709 -- -- 59,709
Amortization of deferred policy
acquisition costs -- 6,253 -- -- 6,253
Lease expense -- 43,352 -- (3,964) 39,388
Depreciation, net -- 27,943 4,667 -- 32,610
--------- --------- --------- --------- ---------
Total costs and expenses (23,635) 411,535 32,910 (6,814) 437,631
--------- --------- --------- --------- ---------
Earnings (loss) from operations 676 609 16,639 (2,985) 14,263
Interest expense 9,199 22,017 20,483 (11,081) 31,419
Fees on early extinguishment of BBAT's -- 26,551 -- -- 26,551
--------- --------- --------- --------- ---------
Pretax earnings (loss) (9,875) (47,959) (3,844) 8,096 (43,707)
Income tax benefit (expense) (8,708) 12,934 (494) (999) 11,441
--------- --------- --------- --------- ---------
Net earnings (loss) (18,583) (35,025) (4,338) 7,097 (32,266)
========= ========= ========= ========= =========
Less: preferred stock dividends -- 3,241 -- -- 3,241
--------- --------- --------- --------- ---------
Earnings available to common shareholders (18,583) (38,266) (4,338) 7,096 $ (35,507)
========= ========= ========= ========= =========
(1) Balances as of December 31, 2002
23
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating income statements by industry segment are as follows, continued:
U-Haul Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance (1)
--------- ------------- ----------- ------------- -------------
(in thousands)
QUARTER ENDED DECEMBER 31, 2001
Revenues
Rental revenue $ -- 273,638 17,423 -- --
Net sales -- 40,270 14 -- --
Premiums -- -- -- 64,717 42,198
Net investment and interest income 102,342 4,907 2,129 8,102 5,791
--------- --------- --------- --------- ---------
Total revenues 102,342 318,815 19,566 72,819 47,989
Costs and expenses
Operating expenses 1,905 245,136 (1,628) 13,793 10,771
Cost of sales -- 23,946 4 -- --
Benefits and losses -- -- -- 65,618 29,869
Amortization of deferred policy
acquisition costs -- -- -- 6,196 5,217
Lease expense 191 39,900 2,814 -- --
Depreciation, net 5 26,198 1,720 -- --
--------- --------- --------- --------- ---------
Total costs and expenses 2,101 335,180 2,910 85,607 45,857
--------- --------- --------- --------- ---------
Earnings from operations 100,241 (16,365) 16,656 (12,788) 2,132
Interest expense 8,064 1,693 8,229 -- --
Fees on early extinguishment of BBAT's -- -- -- -- --
--------- --------- --------- --------- ---------
Pretax earnings (loss) 92,177 (18,058) 8,427 (12,788) 2,132
Income tax benefit (expense) 3,483 5,526 (2,949) 4,522 (555)
--------- --------- --------- --------- ---------
Net earnings (loss) 95,660 (12,532) 5,478 (8,266) 1,577
========= ========= ========= ========= =========
Less: preferred stock dividends 3,241 -- -- -- --
--------- --------- --------- --------- ---------
Earnings available to common shareholders $ 92,419 (12,532) 5,478 (8,266) 1,577
========= ========= ========= ========= =========
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ----------- ------------ ------------
QUARTER ENDED DECEMBER 31, 2001
Revenues
Rental revenue (11,947) 279,114 24,809 (3,538) $ 300,385
Net sales -- 40,284 4,534 -- 44,818
Premiums (1,534) 105,381 -- -- 105,381
Net investment and interest income (102,534) 20,737 -- (8,076) 12,661
--------- --------- --------- --------- ---------
Total revenues (116,015) 445,516 29,343 (11,614) 463,245
Costs and expenses
Operating expenses (13,124) 256,853 14,993 (1,969) 269,877
Cost of sales 29 23,979 2,441 -- 26,420
Benefits and losses -- 95,487 -- -- 95,487
Amortization of deferred policy
acquisition costs -- 11,413 -- -- 11,413
Lease expense 2,170 45,075 175 (1,870) 43,380
Depreciation, net 12 27,935 3,119 (80) 30,974
--------- --------- --------- --------- ---------
Total costs and expenses (10,913) 460,742 20,728 (3,919) 477,551
--------- --------- --------- --------- ---------
Earnings from operations (105,102) (15,226) 8,615 (7,695) (14,306)
Interest expense (230) 17,756 11,795 (7,581) 21,970
Fees on early extinguishment of BBAT's -- -- -- -- --
--------- --------- --------- --------- ---------
Pretax earnings (loss) (104,872) (32,982) (3,180) (114) (36,276)
Income tax benefit (expense) -- 10,027 (197) 1,376 11,206
--------- --------- --------- --------- ---------
Net earnings (loss) (104,872) (22,955) (3,377) 1,262 (25,070)
========= ========= ========= ========= =========
Less: preferred stock dividends -- 3,241 -- -- 3,241
--------- --------- --------- --------- ---------
Earnings available to common shareholders (104,872) (26,196) (3,377) 1,262 $ (28,311)
========= ========= ========= ========= =========
(1) Balances as of September 30, 2001
24
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating cash flow statements by industry segment for the nine months ended
December 31, 2002 are as follows:
U-Haul
Moving Property and
and Storage Casualty
AMERCO Operations Real Estate Insurance (1)
------ ---------- ----------- -------------
(in thousands)
NINE MONTHS ENDED DECEMBER 31, 2002
Net cash flows provided by (used in) operating activities $ 231,977 81,401 (90,812) (45,151)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment (76) (140,467) (12,538) --
Fixed maturities -- -- -- --
Real estate -- -- -- (9,229)
Mortgage loans -- -- -- --
Proceeds from sale of investments:
Property, plant and equipment -- 57,003 134 --
Fixed maturities -- 8,875 2,979 64,312
Mortgage loans -- -- -- 561
Other investments -- -- 2,979 (13,631)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (76) (74,589) (9,425) 42,013
--------- --------- --------- ---------
Cash flows from financing activities:
Net change in short-term borrowings -- -- --
Principal repayments (201,010) (4) --
Investment contract deposits -- -- -- --
Investment contract withdrawals -- -- -- --
Other financing activities 99,981
Net cash provided by (used in) financing activities (208,899) (6,459) 99,981 --
-------- --------- --------- ---------
Foreign currency translation (3,393)
Increase (decrease) in cash and cash equivalents 23,002 (3,040) (256) (3,138)
Cash and cash equivalents at the beginning of period 71 29,823 576 5,912
--------- --------- --------- ---------
Cash and cash equivalents at the end of period $ 23,073 26,783 320 2,774
--------- --------- --------- ---------
SACH Moving
Life AMERCO and Storage Total
Insurance(1) Eliminations Consolidated Operations Consolidated
------------ ------------ ------------ ---------- ------------
Net cash flows provided by (used in) operating activities (18,999) -- 158,416 (596) 157,820
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment -- -- (153,081) (153,081)
Fixed maturities (248,121) -- (248,121) -- (248,121)
Real estate (21,759) -- (30,988) -- (30,988)
Mortgage loans (22,000) (22,000) -- (22,000)
Proceeds from sale of investments:
Property, plant and equipment -- -- 57,137 -- 57,137
Fixed maturities 215,162 -- 291,328 -- 291,328
Mortgage loans 12,640 -- 13,201 -- 13,201
Other investments 6,574 -- (7,057) -- (7,057)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities (57,504) -- (99,581) -- (99,581)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net change in short-term borrowings -- --
Principal repayments -- (215,358) (215,358)
Investment contract deposits 137,488 -- 137,488 -- 137,488
Investment contract withdrawals (74,047) -- (74,047) -- (74,047)
Other financing activities -- 99,981 753 100,734
Net cash provided by (used in) financing activities 63,441 -- (51,936) 753 (51,183)
--------- --------- --------- --------- ---------
Foreign currency translation (3,393) 596 (2,797)
Increase (decrease) in cash and cash equivalents (13,062) -- 3,506 753 4,259
Cash and cash equivalents at the beginning of period 11,259 -- 47,641 10 47,651
--------- --------- --------- --------- ---------
Cash and cash equivalents at the end of period (1,803) -- 51,147 763 51,910
--------- --------- --------- --------- ---------
(1) Balances as of September 30, 2002
25
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. CONSOLIDATING INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED:
Consolidating cash flow statements by industry segment for the nine months ended
December 31, 2001 are as follows, continued:
U-Haul
Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance (1) Insurance(1)
------ ---------- ----------- ------------- ------------
(in thousands)
NINE MONTHS ENDED DECEMBER 31, 2001
Net cash flows provided by (used in) operating activities $ 39,461 82,291 (36,377) (31,969) 4,819
-------- -------- -------- ---------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment -- (152,490) -- -- --
Fixed maturities -- -- -- (8,888) (131,807)
Real estate -- -- -- (57,500) (2,689)
Mortgage loans -- -- (561) -- (7,936)
Proceeds from sale of investments:
Property, plant and equipment 673 74,268 34,495 -- --
Fixed maturities -- -- -- 30,154 87,202
Mortgage loans -- 68 425 1 9,545
Other investments -- (4,912) 1,252 12,744 (24,754)
-------- -------- -------- ---------- ---------
Net cash provided by (used in) investing activities 673 (83,066) 35,611 (23,489) (70,439)
-------- -------- -------- ---------- ---------
Cash flows from financing activities:
Net change in short-term borrowings 81,743 -- -- -- --
Borrowings -- -- (19) -- --
Investment contract deposits -- -- -- -- 107,855
Investment contract withdrawals -- -- -- -- (83,224)
Other financing activities (121,536) 7,704 -- 57,500 15,400
-------- -------- -------- ---------- ---------
Net cash provided by (used in) financing activities (39,793) 7,704 (19) 57,500 40,031
-------- -------- -------- ---------- ---------
Increase (decrease) in cash and cash equivalents 341 6,929 (785) 2,042 (25,589)
Cash and cash equivalents at the beginning of period 114 21,814 988 3,063 26,799
-------- -------- -------- ---------- ---------
Cash and cash equivalents at the end of period $ 455 28,743 203 5,105 1,210
-------- -------- -------- ---------- ---------
SACH Moving
AMERCO and Storage Total
Eliminations Consolidated Operations Eliminations Consolidated
------------ ------------ ------------ ----------- ------------
NINE MONTHS ENDED DECEMBER 31, 2001
Net cash flows provided by( used in) operating activities 72,900 131,125 -- -- 131,125
-------- -------- -------- ---------- ---------
Cash flows from investing activities:
Purchases of investments:
Property, plant and equipment -- (152,490) -- -- (152,490)
Fixed maturities -- (140,695) -- -- (140,695)
Real estate -- (60,189) -- -- (60,189)
Mortgage loans -- (8,497) -- -- (8,497)
Proceeds from sale of investments:
Property, plant and equipment -- 109,436 -- -- 109,436
Fixed maturities -- 117,356 -- -- 117,356
Mortgage loans -- 10,039 -- -- 10,039
Other investments -- (15,670) -- -- (15,670)
-------- -------- -------- ---------- ---------
Net cash provided by (used in) investing activities -- (140,710) -- -- (140,710)
-------- -------- -------- ---------- ---------
Cash flows from financing activities:
Net change in short-term borrowings -- 81,743 -- -- 81,743
Borrowings -- (19) -- -- (19)
Investment contract deposits -- 107,855 -- -- 107,855
Investment contract withdrawals -- (83,224) -- -- (83,224)
Other financing activities (72,900) (113,832) -- -- (113,832)
-------- -------- -------- ---------- ---------
Net cash provided by (used in) financing activities (72,900) (7,477) -- -- (7,477)
-------- -------- -------- ---------- ---------
Increase (decrease) in cash and cash equivalents -- (17,062) -- -- (17,062)
Cash and cash equivalents at the beginning of period -- 52,778 10 -- 52,788
-------- -------- -------- ---------- ---------
Cash and cash equivalents at the end of period -- 35,716 10 -- 35,726
-------- -------- -------- ---------- ---------
26
AMERCO AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, CONTINUED
United States Canada Consolidated United States Canada Consolidated
------------- ----------- ------------ ------------- ----------- -----------
Geographic Area Data - Nine months ended Quarter ended
(All amounts are in U.S. $'s) ------------------------------------------ -----------------------------------------
(in thousands)
December 31, 2002
Total revenues $ 1,515,914 $ 43,891 $ 1,559,805 $ 436,971 $ 14,923 $ 451,894
Depreciation/amortization 121,412 3,997 125,409 37,536 1,327 38,863
Interest expense 83,017 3,289 86,306 30,475 944 31,419
Pretax earnings 75,529 6,965 82,494 (44,136) 429 (43,707)
Income tax (31,430) 263 (31,167) 13,678 263 13,941
Identifiable assets 3,692,121 51,329 3,743,450 3,692,121 51,329 3,743,450
December 31, 2001
Total revenues $ 1,543,596 31,510 1,575,106 455,811 7,928 463,739
Depreciation/amortization 106,337 2,691 109,028 39,965 942 40,907
Interest expense 74,528 (41) 74,487 22,050 (80) 21,970
Pretax earnings 49,442 5,182 54,624 (35,144) (636) (35,780)
Income tax (23,055) -- (23,055) 11,204 -- 11,204
Identifiable assets 3,714,508 58,947 3,773,455 3,714,508 58,947 3,773,455
28
6. NOTES AND LOANS PAYABLE
On October 15, 2002, the Company failed to make a $100 million principal
payment and a $3.6 million interest payment due to the Series 1997-C Bond
Backed, Asset Trust. On that date, the Company also failed to pay $26.5 million
in the aggregate to Citibank and Bank of America in connection with the Series
1997-C bonds. The $26.5 million has been recorded as fees on early termination
of BBATs during the quarter ended December 31, 2002.
As a result of the foregoing, the Company is in default with respect to
its other credit arrangements which contain cross-default provisions, including
its 3-Year Credit Agreement dated June 28, 2002 (the "Credit Agreement"). In
addition to the cross-default under the Credit Agreement, the Company is also in
default under that agreement as a result of its failure to obtain incremental
net cash proceeds and/or availability from additional financings in the
aggregate amount of at least $150.0 million prior to October 15, 2002. The total
amount of obligations currently in default (either directly or as a result of a
cross-default) is approximately $1,178.1 million.
On November 11, 2002, AMERCO announced that it will defer the dividend
payment to the holders of its Series A 8 1/2% preferred stock due December 1,
2002. On February 6, 2003, AMERCO announced that it will defer the Series A 8
- -1/2% Preferred Stock quarterly dividend that is payable on March 1, 2003. The
dividend amount is $3.2 million.
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the quarter and nine months ended December 31, 2002, the Company
purchased $744,000 and $1.8 million, respectively of printing from Form
Builders, Inc. Mark V. Shoen, his daughter and Edward J. Shoen's sons are major
stockholders of Form Builders, Inc.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We
may make additional written or oral forward-looking statements from time to time
in filings with the Securities and Exchange Commission or otherwise. We believe
such forward-looking statements are within the meaning of the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may include, but are not limited to, projections of revenues, income
or loss, estimates of capital expenditures, our plans and intentions regarding
the recapitalization of our balance sheet and the payment of dividends
arrearages, plans for future operations, products or services, financing needs
and plans, our perceptions of our legal positions and anticipated outcomes of
pending litigation against us, and liquidity as well as assumptions relating to
the foregoing. The words "believe", "expect", "anticipate", "estimate",
"project" and similar expressions identify forward-looking statements, which
speak only as of the date the statement was made. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified. Future events and actual results could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements. Some of the important factors that could cause our actual results,
performance or financial condition to differ materially from our expectations
are: fluctuations in our costs to maintain and update our fleet and facilities;
our inability to refinance our debt; our ability to successfully recapitalize
our balance sheet and cure existing defaults of our debt agreements, our ability
to continue as a going concern, changes in government regulations, particularly
environmental regulations; our credit ratings; the availability of credit;
changes in demand for our products; changes in the general domestic economy; the
degree and nature of our competition; the resolution of pending litigation
against the company; changes in accounting standards; and other factors
described in this Quarterly Report on Form 10-Q or the other documents we file
with the Securities and Exchange Commission. The above factors, the following
disclosures, as well as other statements in this report and in the Notes to
Consolidated Financial Statements, could contribute to or cause such
differences, or could cause AMERCO's stock and note prices to fluctuate
dramatically.
GENERAL
Information on industry segments is incorporated by reference from --
Notes 1 and 5 of Notes to Condensed Consolidated Financial Statements. The notes
discuss the principles of consolidation, summarized consolidated financial
information and industry segment and geographical area data, respectively. In
consolidation, all intersegment premiums are eliminated and the benefits, losses
and expenses are retained by the insurance companies.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results of
operations are based upon the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our financial statements requires
the use of estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, estimates are reevaluated, including those
related to areas that require a significant level of judgment or are otherwise
subject to an inherent degree of uncertainty. These areas include allowances for
doubtful accounts, depreciation of revenue earning vehicles and buildings,
self-insured liabilities, impairments of assets, insurance reserves, premiums
and acquisition cost amortization, income taxes and commitments and
contingencies. Our estimates are based on historical experience, observance of
trends in particular areas, information and/or valuations available from outside
sources and on various other assumptions that we believe to be reasonable under
the circumstances and which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual amounts may differ from these estimates under different
assumptions and conditions.
30
Accounting policies are considered critical when they are significant and
involve difficult, subjective or complex judgments or estimates. We consider the
following to be critical accounting policies:
Principles of consolidation -- The consolidated financial statements
include the accounts of AMERCO and its wholly-owned subsidiaries and SAC
Holdings and the wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation. AMERCO does not have an
equity ownership interest in SAC Holdings or any of SAC Holdings' subsidiaries,
except for investments made by Repwest and Oxford in a SAC Holdings-controlled
limited partnership which holds Canadian self-storage properties. SAC Holdings
are not legal subsidiaries of AMERCO. AMERCO is not liable for the debts of SAC
Holdings and there are no default provisions in AMERCO indebtedness that
cross-default to SAC Holdings' obligations.
Revenue earning vehicles and buildings -- Depreciation is recognized in
amounts expected to result in the recovery of estimated residual values upon
disposal (i.e. no gains or losses). In determining the depreciation rate, we
review historical disposal experience and holding periods, and trends in the
market. Due to longer holding periods on trucks and the resulting increased
possibility of changes in the economic environment and market conditions, these
estimates are subject to a greater degree of risk.
Long-lived assets and intangible assets -- We review carrying value
whenever events or circumstances indicate the carrying values may not be
recoverable through projected undiscounted future cash flows. The events could
include significant underperformance relative to expected, historical or
projected future operating results, significant changes in the manner of using
the assets, overall business strategy, significant negative industry or economic
trends and non-compliance with significant debt agreements.
Investments -- In determining if and when a decline in market value below
amortized cost is other than temporary, we review quoted market prices, dealer
quotes or a discounted cash flow analysis. Permanent declines in value are
recognized in the current period operating results to the extent of the decline.
Insurance Revenue and Expense Recognition -- Premiums are recognized as
revenue as earned over the terms of the respective policies. Benefits and
expenses are matched with recognized premiums to result in recognition over the
life of the contracts. This match is accomplished by recording a provision for
future policy benefits and unpaid claims and claim adjustment expenses and by
amortizing deferred policy acquisition costs. Charges related to services to be
performed are deferred until earned. The amounts received in excess of premiums
and fees are included in other policyholder funds in the consolidated balance
sheets.
Unearned premiums represent the portion of premiums written which relates
to the unexpired term of policies. Liabilities for health and disability and
other policy claims and benefits payable represent estimates of payments to be
made on insurance claims for reported losses and estimates of losses incurred
but not yet reported. These estimates are based on past claims experience and
current claim trends as well as social and economic conditions such as changes
in legal theories and inflation. Due to the nature of underlying risks and the
high degree of uncertainty associated with the determination of the liability
for future policy benefits and claims, the amounts to be ultimately paid to
settle liabilities cannot be precisely determined and may vary significantly
from the estimated liability.
Acquisition costs related to insurance contracts have been deferred to
accomplish matching against future premium revenue. The costs are charged to
current earnings to the extent it is determined that future premiums are not
adequate to cover amounts deferred.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2002 VERSUS NINE MONTHS ENDED DECEMBER 31, 2001
U-HAUL MOVING AND STORAGE OPERATIONS
31
Revenues consist of rental revenues, net sales and investment earnings.
Rental revenue was $994.3 million and $976.1 million for the nine months ended
December 31, 2002 and 2001.
Net sales revenues were $137.6 million and $158.5 million for the nine
months ended December 31, 2002 and 2001. The decrease in sales was due to the
sale of stores to SAC Holdings. U-Haul sold 114 stores to SAC Holdings during
the period from August 1, 2001 to March 28, 2002.
Cost of sales were $71.5 million and $89.1 million for the nine months
ended December 31, 2002 and 2001. The decrease was due to the sale of
U-Haul-owned stores to SAC Holdings.
Operating expenses before intercompany eliminations were $747.6 million
and $763.3 million for the nine months ended December 31, 2002 and 2001.
Operating expenses declined due to the sale of stores to SAC Holdings.
Lease expense was $120.4 million and $123.2 million for the nine months
ended December 31, 2002 and 2001. This decrease reflects a decline in the number
of leased rental trucks.
Net depreciation expense was $77.6 million and $73.6 million for the nine
months ended December 31, 2002 and 2001.
Operating profit before intercompany eliminations was $138.0 million and
$103.0 million for the nine months ended December 31, 2002 and 2001.
SAC MOVING AND STORAGE OPERATIONS
Total revenues consist of storage rental revenues, vehicle rental
commissions and net sales. Total rental revenue was $123.8 million and $77.8
million for the nine months ended December 31, 2002 and 2001. Storage revenues
increased $46.0 million due to increased facility capacity through the
acquisition of 114 new locations from U-Haul between August 2001 and March 2002,
and increased storage rates.
Net sales revenues were $38.1 million and $16.9 million for the nine
months ended December 31, 2002 and 2001. This reflects the acquisition of
additional stores.
Operating expenses before intercompany eliminations were $74.9 million and
$44.0 million for the nine months ended December 31, 2002 and 2001. The increase
was due to more stores in operation.
Cost of sales were $16.0 million and $8.4 million for the nine months
ended December 31, 2002 and 2001. The increase was due to the acquisition of new
stores.
Net depreciation expense was $14.5 million and $8.4 million for the nine
months ended December 31, 2002 and 2001. The increase was due to the addition of
stores. Depreciation expense is reported net of gains (losses) in sale of assets
of $ 779.0 million and $ 17,907.0 million for the nine months ended December 31,
2002 and 2001.
Operating profits were $56.5 million and $33.5 million for the nine months
ended December 31, 2002 and 2001.
AMERCO'S REAL ESTATE OPERATIONS
Rental revenue before intercompany eliminations was $51.4 million and
$52.3 million for the nine months ended December 31, 2002 and 2001. Intercompany
revenue was $42.1 and $50.4 million for the nine months ended December 31, 2002
and 2001.
Net investment and interest income was $8.0 million and $6.9 million for
the nine months ended December 31, 2002 and 2001.
32
Lease expense was $7.5 million and $9.3 for the nine months ended December
31, 2002 and 2001.
Net depreciation expense was $5.4 million and $(4.3) million for the nine
months ended December 31, 2002 and 2001. Gains on asset sales during fiscal year
2001 resulted in the negative depreciation expense.
Operating profit before intercompany eliminations was $41.5 million and
$59.0 million for the nine months ended December 31, 2002 and 2001.
PROPERTY AND CASUALTY
RepWest's earned premiums were $126.9 million and $193.0 million for the
nine months ended September 30, 2002 and 2001. The decrease in premiums from
2001 to 2002 was primarily the result of eliminating the Company's direct
Non-Standard Auto line, obtaining additional quota share reinsurance on the
Transportation line, and a significant reduction in the Assumed Reinsurance
program.
Net investment income was $21.5 million and $24.0 million for the nine
months ended September 31, 2002 and 2001. The decrease is attributable to a
reduction of invested assets.
Operating expenses were $26.2 million and $42.6 million for the nine
months ended September 30, 2002 and 2001. The decrease is a result of reduced
general and administrative expenses.
Benefits and losses incurred were $111.7 million and $188.3 million for
the nine months ended September 30, 2002 and 2001. This decrease was
attributable to reduced earned premiums and to the elimination of unprofitable
programs.
The amortization of deferred acquisition costs (DAC) was $13.0 million and
$17.8 million for the nine months ended September 30, 2002 and 2001. The
decrease is the result of reduced premium writing.
Operating (loss) before intercompany eliminations was $(2.8) million and
$(31.7) million for the nine months ended September 30, 2002 and 2001. The
decrease in losses is the result of the elimination of unprofitable lines of
business as well as decreased expenses.
LIFE INSURANCE
Net premiums were $121.1 million and $119.7 million for the nine months
ended September 30, 2002 and 2001, respectively. Oxford increased Medicare
supplement premiums by $5.4 million through direct writings and rate management
activity. Whole life sales increased $1.4 million above the same period in 2001.
Credit insurance premiums decreased $2.4 million for the nine months. Major
medical premiums decreased $2.3 million due to the termination of the in-force
policies.
Net investment income before intercompany eliminations decreased $7.2
million to $11.8 million due to realized losses on fixed maturities and write
downs of fixed maturities whose decline in value is deemed to be other than
temporary.
Operating expenses were $28.3 million and $30.2 million for the nine
months ended September 30, 2002 and 2001. General and administrative expenses
net of fees collected increased $0.7 million.
Benefits incurred were $88.4 million and $88.0 million for the nine months
ended September 30, 2002 and 2001. Medicare supplement incurred benefits
increased $1.2 million due to an increase in population. Life insurance benefits
increased $1.4 million due to new business lines written. Major medical benefits
declined $2.2 million due to the termination of in-force policies.
Amortization of DAC and the value of business acquired VOBA was $14.7
million and $14.5 million for the nine months ended September 30, 2002 and 2001.
33
Operating profit/(loss) before intercompany eliminations was $1.4 million
and $6.0 million for the nine months ended September 30, 2002 and 2001. The
decline is primarily due to the write downs of bonds whose decline in value is
deemed other than temporary.
QUARTER ENDED DECEMBER 31, 2002 VERSUS QUARTER ENDED DECEMBER 31, 2001
U-HAUL MOVING AND STORAGE OPERATIONS
Revenues consist of rental revenues and net sales. Total rental revenue
was $282.9 million and $273.6 million for the quarters ended December 31, 2002
and 2001.
Net sales revenues were $34.9 million and $40.3 million for the quarters
ended December 31, 2002 and 2001. The decline in sales is the result of fewer
stores operating during fiscal year 2002.
Operating expenses before intercompany eliminations were $244.2 million
and $245.1 million for the quarters ended December 31, 2002 and 2001.
Cost of sales was $18.4 million and $23.9 million for the quarters ended
December 31, 2002 and 2001. The decrease is the result of a reduction in the
number of stores in operation.
Lease expense was $40.4 million and $39.9 million for the quarters ended
December 31, 2002 and 2001.
Net depreciation expense was $26.8 million and $26.2 million for the
quarters ended December 31, 2002 and 2001.
Operating (loss) before intercompany eliminations was $(6.2) million and
$(16.4) million for the quarters ended December 31, 2002 and 2001.
SAC MOVING AND STORAGE OPERATIONS
Revenues consist of rental revenues and net sales. Total rental revenue
was $39.4 million and $24.8 million for the quarters ended December 31, 2002 and
2001. Storage revenues increased $10.2 million due to increased facility
capacity through the acquisition of 114 locations from UHI and increased storage
rental rates.
Net sales revenues were $10.2 million and $4.5 million for the quarters
ended December 31, 2002 and 2001. The increase is due to the increase in the
number of stores in operation.
Cost of sales was $3.5 million and $2.4 million for the quarters ended
December 31, 2002 and 2001. The increase is attributable to the increased sales
volume.
Net depreciation expense was $4.7 million and $3.1 million for the
quarters ended December 31, 2002 and 2001. Depreciation expense has increased as
a result of the addition of 114 storage properties over the past 12 months.
Operating profit/(loss) was $16.6 million and 8.6 million for the quarters
ended December 31, 2002 and 2001.
AMERCO'S REAL ESTATE OPERATIONS
34
Rental revenue before intercompany eliminations was $21.7 million and
$17.4 million for the quarters ended December 31, 2002 and 2001.
Net investment and interest income was $3.1 million and $2.1 million for
the quarters ended December 31, 2002 and 2001.
Lease expense was $2.7 million and $2.8 million for the quarters ended
December 31, 2002 and 2001.
Net depreciation expense was $1.2 million and $1.7 million for the
quarters ended December 31, 2002. The decrease from 2001 to 2002 reflected a
loss on the disposition of assets for 2001 of $0.5 million.
Operating profit before intercompany eliminations was $13.9 million and
$16.7 million for the quarters ended December 31, 2002 and 2001.
PROPERTY AND CASUALTY
RepWest's earned premiums were $40.6 million and $64.7 million for the
three months ended September 30, 2002 and 2001, respectively. The decreased from
2001 to 2002 was primarily the result of elimination of RepWest's direct
Non-Standard Auto line and a reduction in the Assumed reinsurance segment.
Net investment income was $6.2 million and $8.1 million for the quarters
ended September 30, 2002 and 2001, respectively. The decrease is attributable to
a reduction of invested assets.
Operating expenses were $13.6 million and $13.8 million for the quarters
ended September 30, 2002 and 2001, respectively. The decrease is a result of
reduced commissions and general and administrative expenses.
Benefits and losses incurred were $31.8 million and $65.6 million for the
quarters ended September 30, 2002 and 2001, respectively. This decrease is
attributable to reduced earned premiums and to the elimination of unprofitable
lines.
The amortization of DAC was $1.6 million and $6.2 million for the quarters
ended September 30, 2002 and 2001, respectively. The decrease is the result of
reduced premium writings.
Operating (loss) before intercompany elimination was $(.2) million and
$(12.8) million for the quarters ended September 30, 2002 and 2001,
respectively. The increase is the result of the elimination of unprofitable
lines of business as well as decreased expenses.
LIFE INSURANCE
Net premiums were $40.4 million and $42.2 million for the quarters ended
September 30, 2002 and 2001, respectively. Oxford increased Medicare supplement
premiums by $0.3 million through direct writings and rate management activity
offset by lapses. Credit insurance premiums decreased $0.7 million for the
quarter. Major medical premiums decreased by $1.1 million due to the termination
of in-force policies. Other business segments had premium decreases totaling
$0.3 million.
Net investment income before intercompany eliminations decreased to $4.0
million from $5.8 million. The decrease is due to a decrease in spreads on fixed
deferred annuities.
Operating expenses were $8.5 million and $10.8 million for the quarters
ended September 30, 2002 and 2001, respectively. Commissions increased $0.3
million from 2001 primarily due to the increases in premium in the Medicare
supplement and life insurance lines. General and administrative expenses net of
fees collected decreased $0.8 million.
Benefits incurred were $27.9 million and $29.9 million for the quarters
ended September 30, 2002 and 2001, respectively. Medicare supplement incurred
benefits decreased $1.9 due to improving morbidity experience and a lower
exposure. Credit life and disability benefits increased $0.7 million due to
decreased exposure and improved morbidity. Major medical benefits decreased by
$0.9 million due to termination of in-force policies. Life and annuity segments
had benefits increases totaling $1.5 million.
35
Amortization of DAC and the value of business acquired VOBA was $4.6
million and $5.2 million for the quarters ended September 30, 2002 and 2001,
respectively. The decrease is primarily due to the credit insurance segment.
Operating profit before intercompany eliminations was $3.4 million and
$2.1 million for the quarters ended September 30, 2002 and 2001, respectively.
The increase is primarily due to improved profitability in the Medicare
supplement segment and expense reductions.
CONSOLIDATED GROUP
INTEREST EXPENSE
Interest expense was $86.3 million and $54.6 million for the nine months
ended December 31, 2002 and 2001, respectively. The increase is due to increased
outstanding debt obligations of SAC Holdings as a result of the acquisition of
additional storage properties.
Interest expense of SAC Holdings on third party debt was $31.6 million and
$24.1 million for the nine months ended December 31, 2002 and 2001,
respectively. AMERCO's interest expense on third party debt was $54.1 and $58.8
million for the nine months ended December 31, 2002 and 2001, respectively.
EARNINGS
Pretax earnings were $82.5 million and $54.6 million for the nine months
ended December 31, 2002 and 2001, respectively. After providing for income
taxes, net earnings were $51.3 million and $31.56 million for the nine months
ended December 31, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
U-HAUL MOVING AND STORAGE OPERATIONS
Cash provided by operating activities was $81.4 million and $82.3
million for the quarters ended December 31, 2002 and 2001, respectively.
SAC MOVING AND STORAGE OPERATIONS
SAC Holdings' operations are funded by various mortgage loans and
unsecured notes, with interest rates ranging from 7.5% to 13.0%. SAC Holdings'
does not utilize revolving lines of credit to finance its operations or
acquisitions. Certain of SAC Holdings' agreements contain restrictive covenants
including coverage ratios and restrictions on incurring additional subsidiary
indebtedness. At December 31, 2002, SAC Holdings was in compliance with all of
these covenants.
PROPERTY AND CASUALTY
Cash used by operating activities was $45.2 million and $32.0 million for
the nine months ended September 30, 2002 and 2001, respectively. This change
resulted from decreased written premiums and decreased loss reserves.
RepWest's cash and cash equivalents and short-term investment portfolio
was $2.7 million and $6.3 million at September 30, 2002 and 2001, respectively.
36
RepWest maintains a diversified securities investment portfolio, primarily
in bonds, at varying maturity levels with 86.0% of the fixed-income securities
consisting of investment grade securities. The maturity distribution is designed
to provide sufficient liquidity to meet future cash needs. Current liquidity
remains stable with current invested assets equal to 74.0% of total liabilities.
The liability for reported and unreported losses based upon RepWest's
historical results and industry averages. Unpaid loss adjustment expenses are
based on historical ratios of loss adjustment expenses paid to losses paid.
Unpaid loss and loss expenses are not discounted.
Stockholder's equity was $210.1 million and $214.0 million at September
30, 2002 and 2001, respectively. RepWest considers current shareholder's equity
to be adequate to support future growth and absorb unforeseen risk events.
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 provided/(used) by operating activities was $(19.0) million and 4.8
million for the nine months ended September 30, 2002 and 2001. The decrease in
cash flows from operating activities in 2002 relates to $9.5 million of federal
income taxes paid, $8.1 million increase in receivables for securities pending
settlement, and paid loss experience. Cash flows provided/(used) by financing
activities were $63.4 million, and $40.0 million for the nine months ended
September 30, 2002, and 2001. Cash flows from deferred annuity sales increase
investment contract deposits, which are a component of financing activities. The
increase from 2001 is due to increased annuity deposits and reduced annuity
withdrawals.
In addition to cash flows from operating and financing activities, a
substantial amount of liquid funds is available through Oxford's short-term
portfolio. At September 30, 2002 and 2001, short-term investments were $49.8
million and $74.0 million, respectively. Management believes that the overall
sources of liquidity will continue to meet foreseeable cash needs.
Applicable laws and regulations of the State of Arizona require the
Company's insurance subsidiaries to maintain minimum capital and surplus
determined in accordance with statutory accounting practices. With respect to
Oxford, the amount is $0.4 million. 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 regulatory approval is $0.1 million at September 30, 2002. These
restrictions are not expected to have a material adverse effect on the ability
of the Company to meet its cash obligations.
See the discussion of the Kocher case contained in Part II, Item I "Legal
Proceedings."
CONSOLIDATED GROUP
Cash provided by operating activities was $158.4 million and $131.1
million for the nine months ended December 31, 2002 and 2001, respectively. The
increase resulted primarily from a decrease in notes and mortgage receivable
partially offset by decreases in the accounts payable and intercompany payable
balances along with increased earnings.
At December 31, 2002, total outstanding notes and mortgages payable for
AMERCO and wholly owned subsidiaries was $908.3 million compared to $1,045.8
million at March 31, 2002. At December 31, 2002, total outstanding notes and
mortgages payable for SAC Holdings and consolidated subsidiaries was $972.1
million compared to $957.8 million at March 31, 2002. SAC Holdings' securitized
loan agreements have no guarantees, or triggers that could create a guarantee,
from AMERCO. There are no cross default provisions on indebtedness between
AMERCO and SAC Holdings.
On October 15, 2002 the AMERCO failed to make a $100 million principal
payment and a $3.6 million interest payment due to the Series 1997-C Bond Backed
Asset Trust ("BBAT") holders. On that date, the AMERCO also failed to pay a
$26.5 million obligation, in the aggregate, to Citibank and Bank of America in
connection with the BBATs. This expense was recognized in the third quarter.
As a result of the foregoing, the AMERCO is in default with respect to its
other credit arrangements that contain cross-default provisions, including its
3-Year Credit Agreement dated June 28, 2002 (the "Revolver") in the
37
amount of $205.0 million. In addition to the cross-default under the Revolver,
the Company is also in default under that agreement as a result of the Company's
failure to obtain incremental net cash proceeds and/or availability from
additional financings in the aggregate amount of at least $150 million prior to
October 15, 2002. In addition, Amerco Real Estate Company has defaulted on a
$100 million loan by failing to grant mortgages required by the loan agreement
in a timely manner. The obligations of the Company currently in default (either
directly or as a result of a cross-default) are approximately $1,178.1 million.
In addition, the Company may be required to pay interest at default interest
rates, which would increase interest expense going forward.
We have retained the financial restructuring firm Crossroads, LLC to
assist with the negotiation of standstill agreements with holders of directly
defaulted obligations and waivers from our lenders holding cross-default
obligations. This will allow us to pursue financing alternatives and asset sales
that will enable us to repay the above-referred amounts that are in direct
default, meet fiscal 2004 maturities and restructure our balance sheet.
We are, through Crossroads, in communication with all of our lenders. On
November 27, 2002 we reached a standstill agreement with respect to the
Revolver. During the standstill period, the Revolver lenders will receive
interest at the default rate on the outstanding balance.
Generally speaking, our lenders have been cooperative to date and are
acting in a manner consistent with customary standstill arrangements even though
written standstill agreements have not been executed with any lenders other than
the Revolver lenders. All lenders are receiving detailed financial and other
information from us concerning the progress of the restructuring. In addition,
all of our lenders are continuing to receive all payments due to them (other
than the $100 million owed to the BATs and default interest). Lenders that
execute a standstill agreement (e.g., the Revolver lenders) will receive default
interest.
Currently, we are in discussions with several major financial institutions
regarding loans that would enable us to fully satisfy our obligations under the
BATs, the Revolver, and debt maturities in calendar year 2003. On December 20,
2002, we executed term sheets with two major financial institutions for up to
$650 million in connection with our planned debt restructuring. We plan to close
the financing by March 31, 2003. Our continuation as a going concern is
dependent, in part, upon our ability to successfully complete these necessary
financing arrangements.
Although we are optimistic that we will successfully restructure our
balance sheet and repay our obligations, there can be no assurance that we will
be able to complete asset sales, obtain financing on acceptable terms or secure
the standstills and waivers necessary to do so.
AMERCO does not have any ownership interest in SAC Holdings or its
subsidiaries, except for investments made by RepWest and Oxford in a SAC
Holdings - controlled limited partnership which holds Canadian self-storage
properties. The presentation of the consolidated statements has no bearing on
the credit agreements or the operations of either AMERCO or SAC Holdings. The
accounts of AMERCO and SAC Holdings are presented as consolidated due to a
revised interpretation of EITF 90-15 by the Company's former independent public
accountants during the
38
year ended March 31, 2002, which concluded that SAC Holdings' majority owner did
not qualify as an independent third party to AMERCO.
From time to time, Real Estate sells storage properties to SAC Holdings.
These sales have in the past provided significant cash flows to the Company. The
ability of the Company to engage in similar transactions in the future is
dependent to a large degree on the ability of SAC Holdings to obtain third party
financing for its acquisition of properties from Real Estate and, in general,
its willingness to engage in such transactions.
Due to the defaults that exist with respect to certain obligations of the
Company we suspended the dividend payment to the holders of our Series A 8 1/2%
preferred stock that is due December 1, 2002. On February 6, 2003, AMERCO
announced that it will defer the Series A 8 -1/2% Preferred Stock quarterly
dividend that is payable on March 1, 2003. The dividend amount is $3.2 million.
CREDIT AGREEMENTS
Our operations are funded by various credit and financing arrangements,
including unsecured long-term borrowings, unsecured medium-term notes, revolving
lines of credit with banks and operating leases. The operating leases are
primarily used to finance the Company's fleet of trucks and trailers. As of
December 31, 2002, we had $908.4 million in total notes and loans payable
outstanding.
On June 28, 2002, AMERCO entered into an agreement replacing an existing
five year $400.0 million revolving credit agreement with the Revolver.
Certain of our credit agreements contain restrictive financial and other
covenants, including, among others, covenants with respect to incurring
additional indebtedness, making third party guarantees, entering into contingent
obligations, maintaining certain financial ratios, placing certain additional
liens on our properties and assets, and restricting the issuance of certain
types of preferred stock. Although AMERCO was in compliance with these covenants
at September 30, 2002, we were in default as of October 15, 2002 as a result of
our failure to make the principal payment due to the BBAT holders and a covenant
contained in the Revolver that required the completion of a $150 million
financing. For additional discussion regarding these defaults, see Part II, Item
III "Defaults Upon Senior Securities."
Reference is made to Note 5 of Notes to Consolidated Financial Statements
in AMERCO's Annual Report on Form 10-K/A for the fiscal year ended March 31,
2002 for additional information about our credit agreements.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Payments due by Period (as of December 31, 2002)
--------------------------------------------------------------------------------------
Prior to 10-01-03 10-01-05 October 1, 2007
Financial Obligations Total 09-30-03 09-30-05 09-30-07 and thereafter
----------- ----------- ----------- ----------- ---------------
AMERCO's notes and loans Payable $ 908,432 $ 276,904 $ 224,864 $ 237,072 $ 169,592
AMERCO's truck and trailer Lease
obligations 461,918 130,927 200,243 114,232 16,516
SAC Holdings' financed lease obligations 117,100 39,000 78,100 -- --
SAC Holdings' notes and loans payable 855,046 9,630 38,792 18,707 787,917
Elimination of SAC Holdings' Obligations
to AMERCO (388,188) -- -- -- (388,188)
----------- ----------- ----------- ----------- -----------
Total Contractual Obligations $ 1,954,308 $ 456,461 $ 541,999 $ 370,011 $ 585,837
=========== =========== =========== =========== ===========
39
The above disclosure is as of December 31, 2002. As discussed above and in Part
II, Item III "Defaults Upon Senior Securities", on October 15, 2002 we defaulted
on our BBATs and related obligations. This default triggered cross-default
provisions in most of AMERCO's other debt agreements. As a result, approximately
$1,178.1 million of AMERCO's contractual obligations and commercial commitments
listed below are classified as current.
Bank of Montreal synthetic lease $ 149.0
Citibank synthetic lease 101.7
3yr Credit Agreement 205.0
Royal Bank of Canada lease 5.7
Amerco Real Estate Notes 100.0
'03 Notes 175.0
'05 Notes 200.0
Medium Term Notes 109.5
BBAT 100.0
Bank of America Obligation (BBAT) 11.3
Citicorp Obligation (BBAT) 15.3
Bank of America Swap 2.1
JP Morgan Swap 3.5
---------
$ 1,178.1
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosure About Market Risk, in AMERCO's Annual Report on Form 10-K/A for the
fiscal year ended March 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
We maintain disclosure controls procedures, which are designed to ensure
that material information related to AMERCO and its subsidiaries and SAC
Holdings and their subsidiaries, is disclosed in our public filings on a regular
basis. In response to recent legislation and proposed regulations, we reviewed
our internal control structure and our disclosure controls and procedures. We
believe our pre-existing disclosure controls and procedures are adequate to
enable us to comply with our disclosure obligations.
Within 90 days prior to filing this report, members of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation,
management concluded that the Company's disclosure controls and procedures are
effective in causing material information to be recorded, processed, summarized
and reported by management of the Company on a timely basis and to ensure that
the quality and timeliness of the Company's public disclosures complies with its
SEC disclosure obligations.
Changes in Controls and Procedures
There were significant changes in the Company's internal controls and
other factors that could significantly affect these internal controls after the
date of our most recent evaluation. They include, but are not limited to, the
following:
a. We limited access to the general ledger (posting ability) to
specifically identified individuals;
40
b. We require documentation for all journal postings;
c. We have hired a system administrator to document and map all accounting
imports and exports to the various subledgers maintained throughout the
organization.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 20, 2000, Charles Kocher ("Kocher") filed suit in Wetzel County,
West Virginia, Civil Action No. 00-C-51-K, entitled Charles Kocher v. Oxford
Life Insurance Co. ("Oxford") seeking compensatory and punitive damages for
breach of contract, bad faith and unfair claims settlement practices arising
from an alleged failure of Oxford to properly and timely pay a claim under a
disability and dismemberment policy acquired in conjunction with the purchase of
a $7,800 used pick-up truck. On March 22, 2002, the jury returned a verdict of
$5 million in compensatory damages and $34 million in punitive damages. On
November 5, 2002, the trial court entered an Order ("Order") affirming the $39
million jury verdict and denying Oxford's Motion for New Trial Or, in The
Alternative, Remittitur. Oxford is in the process of perfecting its appeal to
the West Virginia Supreme Court. Management does not believe that the Order is
sustainable and expects the Order to be overturned by the West Virginia Supreme
Court, in part because the jury award has no reasonable nexus to the actual harm
suffered by Kocher.
On September 24, 2002, Paul F.Shoen filed a derivative action in the
Second Judicial District Court of the State of Nevada, Washoe County, captioned
Paul F. Shoen vs. SAC Holding Corporation et al, CV02-05602, seeking damages and
equitable relief on behalf of AMERCO from SAC Holdings and certain current and
former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark
V. Shoen and James P. Shoen as defendants. AMERCO is named a nominal defendant
for purposes of the derivative action. The complaint alleges breach of fiduciary
duty, self-dealing, usurpation of corporate opportunities, wrongful interference
with prospective economic advantage and unjust enrichment and seeks the
unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC
Holdings over the last several years. The complaint seeks a declaration that
such transfers are void as well as unspecified damages. On October 28, 2002,
AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed
Motions to Dismiss the complaint. On November 12, 2002 the plaintiff responded
to the Motions to Dismiss. The reply in support of the Motion to Dismiss was
filed on November 22, 2002. On December 27, 2002 the court granted plaintiff
leave to amend his complaint and an amended complaint was filed on January 24,
2003. In addition, on October 28, 2002, Ron Belec filed a derivative action in
the Second Judicial District Court of the State of Nevada, Washoe County,
captioned Ron Belec vs. William E. Carty, et al, CV 02-06331 and on January 16,
2003, M.S. Management Company, Inc. filed a derivative action in the Second
Judicial District Court of the State of Nevada, Washoe County, captioned M.S.
Management Company, Inc. vs. William E. Carty, et. al, CV 03-00386. These
derivative suits are substantially similar to the Paul F. Shoen derivative
action. AMERCO believes that the allegations contained in these complaints are
baseless and without merit and AMERCO will aggressively and vigorously respond
to these claims. However, as with any litigation, no assurances can be given as
to the outcome.
We are currently under IRS examination for the years 1996-1997. The IRS
has proposed adjustments to our 1997 and 1996 tax returns in the amount of
$229.8 million and $87.3 million, respectively. Nearly all of the adjustments
relate to denials of deductions that we took for costs incurred in resolution of
prior litigation with certain members of the Shoen family and their
corporations. We believe these income tax deductions are appropriate and we are
vigorously contesting the IRS adjustments. We estimate that if we are
unsuccessful in our challenge in all respects, based on our current tax
position, we could incur tax exposure totaling approximately $76.0 million plus
interest.
PART II. OTHER INFORMATION, continued
41
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) On October 15, 2002, AMERCO failed to make a $100 million principal
payment and a $3.6 million interest payment due to the Series 1997-C Bond Backed
Asset Trust. On that date, AMERCO also failed to pay $26.5 million in the
aggregate to Citibank and Bank of America in connection with the early
extinguishment of the Series 1997-C bonds. As a result of the foregoing, the
AMERCO is in default with respect to its other credit arrangements which contain
cross-default provisions, including its 3-Year Credit Agreement dated June 28,
2002 (the "Revolver"). In addition to the cross-default under the Revolver, the
AMERCO is also in default under that agreement as a result of its failure to
obtain incremental net cash proceeds and/or availability from additional
financings in an aggregate amount of at least $150.0 million prior to October
15, 2002. In addition, Amerco Real Estate Company has defaulted on a $100
million loan by failing to grant mortgages required by the loan agreement in a
timely manner. The total amount of indebtedness currently in default (either
directly or as a result of a cross-default) is approximately $1,178.1 million.
We are, through Crossroads, in communication with all of our lenders. On
November 27, 2002 we reached a standstill agreement with respect to the
Revolver. During the standstill period, the Revolver lenders will receive
interest at the default rate on the outstanding balance.
Generally speaking, our lenders have been cooperative to date and are
acting in a manner consistent with customary standstill arrangements even though
written standstill agreements have not been executed with any lenders other than
the Revolver lenders. All lenders are receiving detailed financial and other
information from us concerning the progress of the restructuring. In addition,
all of our lenders are continuing to receive all payments due to them (other
than the $100 million owed to the BATs and default interest). Lenders that
execute a standstill agreement (e.g., the Revolver lenders) will receive default
interest.
Currently, we are in discussions with several major financial institutions
regarding loans that would enable us to fully satisfy our obligations under the
BATs, the Revolver, and debt maturities in calendar year 2003. On December 20,
2002, we executed term sheets with two major financial institutions for up to
$650 million in connection with our planned debt restructuring. We plan to close
the financing by March 31, 2003. Our continuation as a going concern is
dependent, in part, upon our ability to successfully complete these necessary
financing arrangements.
(b) On November 5, 2002, AMERCO announced that it has suspended the
December 1, 2002 dividend payment to holders of its Series A 8.5% Preferred
Stock. The dividend amount is $3.2 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------------------------------------------------
3.1 Restated Articles of Incorporation (1)
3.2 Restated By-Laws of AMERCO as of August 27, 1997(2)
Certificate of Edward J. Shoen, President of AMERCO
pursuant
- -----------------------------------------
(1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2002, file no. 1-11255.
42
99.1 Certificate of Edward J. Shoen, President of AMERCO
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certificate of Gary B. Horton, Treasurer of AMERCO
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.3 Certificate of Edward J. Shoen, President of U-Haul
International, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.4 Certificate of Gary B. Horton, Assistant Treasurer
of U-Haul, International, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
On October 16, 2002 and October 18, 2002, the Company filed reports on
Form 8-K to disclose the Company's retention of a financial advisor to assist it
in restructuring certain of its debt.
- -----------------------------------------
(1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2002, file no. 1-11255.
(2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997, file no. 1-11255.
- --------------------------------------------------------------------------------
2 Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997, file no. 1-11255.
43
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 14, 2003 By: /S/ GARY B. HORTON
------------------------------
Gary B. Horton, Treasurer
(Principal Financial Officer)
44
Certification of CFO Pursuant to
Securities Exchange Acts Rules 13a-14 and 15d-14
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATION OF THE TREASURER OF AMERCO
I, Gary B. Horton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMERCO;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 14, 2003 /s/ Gary B. Horton
---------------------------------
Gary B. Horton
Treasurer of AMERCO
45
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.
U-Haul International, Inc.
------------------------------
(Registrant)
Dated: February 14, 2003 By: /S/ GARY B. HORTON
------------------------------
Gary B. Horton, Assistant Treasurer
(Principal Financial Officer)
46
Certification of CFO Pursuant to
Securities Exchange Acts Rules 13a-14 and 15d-14
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATION OF THE ASSISTANT TREASURER OF U-HAUL INTERNATIONAL, INC.
I, Gary B. Horton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U-Haul International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 14, 2003 /s/ Gary B. Horton
------------------------------
Gary B. Horton
Assistant Treasurer of
U-Haul International, Inc.
47
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 14, 2003 By: /s/ Edward J. Shoen
-----------------------------------
Edward J. Shoen
Chairman of the Board and President
48
Certification of CEO Pursuant to
Securities Exchange Acts Rules 13a-14 and 15d-14
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATIONS
CERTIFICATION OF THE PRESIDENT OF AMERCO
I, Edward J. Shoen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMERCO;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 14, 2003 /s/ Edward J. Shoen
------------------------------
Edward J. Shoen
President of AMERCO
49
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.
U-Haul International, Inc.
-----------------------------------
(Registrant)
Dated: February 14, 2003 /s/ Edward J. Shoen
-----------------------------------
Edward J. Shoen
Chairman of the Board and President
50
Certification of CEO Pursuant to
Securities Exchange Acts Rules 13a-14 and 15d-14
As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATION OF THE PRESIDENT OF U-HAUL INTERNATIONAL, INC.
I, Edward J. Shoen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U-Haul International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 14, 2003 /s/ Edward J. Shoen
------------------------------
Edward J. Shoen
President of U-Haul
International, Inc.
51
INDEX OF EXHIBITS
Exhibit No. Description
----------- ----------------------------------------------------
3.1 Restated Articles of Incorporation (1)
3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2)
99.1 Certificate of Edward J. Shoen, President of AMERCO
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certificate of Gary B. Horton, Treasurer of AMERCO
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
99.3 Certificate of Edward J. Shoen, President of U-Haul
International, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.4 Certificate of Gary B. Horton, Assistant Treasurer
of U-Haul International, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
- -------------------------------------------
(1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001, file no. 1-11255.
(2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997, file no. 1-11255.
52