1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 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 [ ]. 21,757,437 shares of AMERCO Common Stock, $0.25 par value were outstanding at August 8, 2001. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at August 8, 2001. U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and March 31, 2001................ 4 b) Condensed Consolidated Statements of Earnings for the Quarters ended June 30, 2001 and 2000 (unaudited)........... 6 c) Condensed Consolidated Statements of Comprehensive Income for the Quarters ended June 30, 2001 and 2000 (unaudited)... 7 d) Condensed Consolidated Statements of Cash Flows for the Quarters ended June 30, 2001 and 2000 (unaudited)........... 8 e) Notes to Consolidated Financial Statements - June 30, 2001 (unaudited), March 31, 2001 and June 30, 2000 (unaudited)................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 24 Item 6. Exhibits and Reports on Form 8-K.............................. 25
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4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) June 30, March 31, Assets 2001 2001 --------------------------- (Unaudited) (in thousands) Cash and cash equivalents $ 44,067 52,778 Inventories, net 78,667 84,005 Investments, fixed maturities 950,660 952,482 Investments, other 457,199 464,958 Other assets 482,841 467,197 ------------------------- Property, plant and equipment, at cost: Buildings and improvements 842,867 832,372 Rental trucks 1,081,395 1,037,653 Other property, plant and equipment 659,613 660,802 ------------------------- 2,583,875 2,530,827 Less accumulated depreciation 1,193,315 1,168,183 ------------------------- Total property, plant and equipment 1,390,560 1,362,644 ------------------------- Total Assets $ 3,403,994 3,384,064 ========================= The accompanying notes are an integral part of these consolidated financial statements.
5 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets, Continued (Unaudited) June 30, March 31, Liabilities and Stockholders' Equity 2001 2001 -------------------------- (Unaudited) (in thousands) Liabilities: Notes and loans payable $ 1,143,271 1,156,848 Policy benefits and losses, claims and loss expenses payable 677,915 668,830 Liabilities from premium deposits 523,772 522,207 Other liabilities 411,918 420,813 ------------------------- Total liabilities 2,756,876 2,768,698 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 312,128 312,128 Accumulated other comprehensive income (30,066) (40,709) Retained earnings 776,937 755,174 Cost of common shares in treasury, net (407,525) (406,617) Unearned ESOP shares (14,919) (15,173) ------------------------- Total stockholders' equity 647,118 615,366 Contingent liabilities and commitments ------------------------- Total Liabilities and Stockholders' Equity $ 3,403,994 3,384,064 ========================= The accompanying notes are an integral part of these consolidated financial statements.
6 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Quarters ended June 30, (Unaudited) 2001 2000 ------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 334,543 322,748 Net sales 62,423 60,146 Premiums 100,330 54,987 Net investment and interest income 22,586 21,681 ------------------------- Total revenues 519,882 459,562 Costs and expenses Operating expenses 248,967 231,775 Cost of sales 33,768 33,197 Benefits and losses 91,432 42,235 Amortization of deferred acquisition costs 9,794 7,869 Lease expense 46,342 40,434 Depreciation, net 30,250 22,810 ------------------------- Total costs and expenses 460,553 378,320 Earnings from operations 59,329 81,242 Interest expense 21,120 22,810 ------------------------- Pretax earnings 38,209 58,432 Income tax expense (13,206) (20,820) ------------------------- Net earnings $ 25,003 37,612 ========================= Basic and diluted earnings per common share: $ 1.02 1.58 ========================= Basic and diluted average common shares outstanding: 21,280,361 21,718,988 ========================= The accompanying notes are an integral part of these consolidated financial statements.
7 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Quarters ended June 30, (Unaudited) 2001 2000 --------------------- (in thousands) Comprehensive income: Net earnings $ 25,003 37,612 Changes in other comprehensive income: Foreign currency translation 1,497 (465) Fair market value of cash flow hedge 357 24 Unrealized gain (loss) on investments 8,789 (2,258) --------------------- Total comprehensive income $ 35,646 34,913 ===================== The accompanying notes are an integral part of these consolidated financial statements.
8 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Quarters ended June 30, (Unaudited) 2001 2000 ------------------- (in thousands) Net cash provided by operating activities 46,670 38,572 ------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (84,074) (149,758) Fixed maturities (18,652) (23,504) Mortgage loans (561) (4,055) Proceeds from sale of investments: Property, plant and equipment 25,797 122,035 Fixed maturities 31,696 24,341 Mortgage loans 3,817 6,215 Changes in other investments 4,806 (36,217) ------------------- Net cash used by investing activities (37,171) (60,943) ------------------- Cash flows from financing activities: Net change in short-term borrowings (13,578) (14,258) Investment contract deposits 37,477 20,495 Investment contract withdrawals (35,713) (17,368) Changes in other financing activities (6,396) (5,877) ------------------- Net cash used by financing activities (18,210) (17,008) ------------------- Decrease in cash and cash equivalents (8,711) (39,379) Cash and cash equivalents at beginning of period 52,778 48,435 ------------------- Cash and cash equivalents at end of period $ 44,067 9,056 =================== The accompanying notes are an integral part of these consolidated financial statements.
9 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, March 31, 2001 and June 30, 2000 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (RepWest) and Oxford Life Insurance Company (Oxford). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its wholly-owned subsidiaries. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The 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. The consolidated balance sheet as of June 30, 2001 and the related consolidated statements of earnings for the quarters ended June 30, 2001 and 2000, and the consolidated statements of comprehensive income and cash flows for the quarters ended June 30, 2001 and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There 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 quarter ended June 30, 2000 and year ended March 31, 2001 to conform with the current year's presentation.
10 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows: March 31, 2001 Par Value Gross Gross Estimated -------------- or number Amortized unrealized unrealized market Consolidated of shares cost gains losses value Held-to-Maturity ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 4,150 3,643 194 - 3,837 U.S. government agency mortgage- backed securities $ 13,202 13,140 270 (49) 13,361 Corporate securities $ 51,763 50,259 1,640 (97) 51,802 Mortgage-backed securities $ 38,349 37,823 876 (77) 38,622 Redeemable preferred stocks 114,772 114,674 219 (3,793) 111,100 ---------------------------------------- 219,539 3,199 (4,016) 218,722 ---------------------------------------- March 31, 2001 Par Value Gross Gross Estimated -------------- or number Amortized unrealized unrealized market Consolidated of shares cost gains losses value Available-for-Sale ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 41,710 43,386 2,091 (100) 45,377 U.S. government agency mortgage- backed securities $ 32,157 32,588 836 (18) 33,406 Obligations of states and political subdivisions $ 16,490 16,646 580 (127) 17,099 Corporate securities $ 565,653 558,332 17,459 (13,053) 562,738 Mortgage-backed securities $ 32,910 32,674 1,410 (637) 33,447 Redeemable preferred stocks 1,280 32,283 280 (567) 31,996 Redeemable common stocks 633 6,554 878 (374) 7,058 ---------------------------------------- 722,463 23,534 (14,876) 731,121 ---------------------------------------- Total $ 942,002 26,733 (18,892) 949,843 ========================================
11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized condensed consolidated balance sheet for RepWest is presented below: March 31, ------------------- 2001 2000 ------------------- (in thousands) Investments, fixed maturities $ 409,210 404,079 Receivables 210,051 162,398 Due from affiliate 51,361 22,559 Other assets 71,169 70,230 ------------------- Total assets $ 741,791 659,266 =================== Policy liabilities and accruals $ 384,635 338,443 Unearned premiums 106,203 69,713 Other policyholders' funds and liabilities 58,539 40,951 ------------------- Total liabilities 549,377 449,107 Stockholder's equity 192,414 210,159 ------------------- Total liabilities and stockholder's equity $ 741,791 659,266 =================== A summarized condensed consolidated income statement for RepWest is presented below: Quarters ended March 31, ------------------ 2001 2000 ------------------ (in thousands) Premiums $ 62,178 30,407 Net investment income 8,416 8,008 ------------------ Total revenue 70,594 38,415 Benefits and losses 60,267 24,582 Amortization of deferred policy acquisition costs 5,040 3,174 Operating expenses 10,870 8,318 ------------------ Total expenses 76,177 36,074 Income (loss) from operations (5,583) 2,341 Income tax benefit (expense) 1,979 (863) ------------------ Net income (loss) $ (3,604) 1,478 ===================
12 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized condensed consolidated balance sheet for Oxford is presented below: March 31, ------------------- 2001 2000 ------------------- (in thousands) Investments, fixed maturities $ 541,450 483,705 Investments, other 190,048 154,124 Receivables 28,200 15,283 Deferred policy acquisition costs 81,231 73,911 Due from affiliate (10,079) (10,909) Other assets 16,189 5,084 ------------------- Total assets $ 847,039 721,198 =================== Policy liabilities and accruals $ 183,936 145,290 Premium deposits 523,772 464,179 Other policyholders' funds and liabilities 18,522 12,880 Deferred federal income taxes 14,423 11,006 ------------------- Total liabilities 740,653 633,355 Stockholder's equity 106,386 87,843 ------------------- Total liabilities and stockholder's equity $ 847,039 721,198 =================== A summarized condensed consolidated income statement for Oxford is presented below: Quarters ended March 31, ------------------- 2001 2000 ------------------- (in thousands) Premiums $ 39,633 25,504 Net investment income 6,208 5,829 ------------------- Total revenue 45,841 31,333 Benefits and losses 31,165 17,653 Amortization of deferred policy acquisition costs 4,754 4,695 Operating expenses 7,239 5,730 ------------------- Total expenses 43,158 28,078 Income from operations 2,683 3,255 Income tax expense (960) (1,069) ------------------- Net income $ 1,723 2,186 ===================
13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 4. CONTINGENT LIABILITIES AND COMMITMENTS During the quarter ended June 30, 2001, a subsidiary of U-Haul entered into two transactions, whereby the subsidiary sold rental trucks and trailers, which were subsequently leased back. AMERCO has guaranteed $9,139,000 of residual values at June 30, 2001 for these assets at the end of the respective lease terms. Following are the lease commitments for the leases executed during the quarter ended June 30, 2001, and subsequently which have a term of more than one year (in thousands): Net activity Year ended Lease subsequent to March 31, Commitments period end Total -------------------------------------------------------- 2002 $ 777 - 777 2003 976 - 976 2004 976 - 976 2005 651 - 651 2006 642 - 642 Thereafter 2,098 - 2,098 ----------------------------------- $ 6,120 - 6,120 =================================== 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. It is the opinion of management that none of such suits, claims or proceedings involving AMERCO, individually or in the aggregate are expected to result in a material loss. 5. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Quarters ended June 30, 2001 2000 ----------------------- (in thousands) Receivables $ (15,178) (46) ======================= Receivables from the sale of property to SAC Holdings $ - (98,351) ======================= Inventories $ 5,338 (2,917) ======================= Accounts payable and accrued expenses $ (17,231) (2,038) ======================= Income taxes paid in cash amounted to $21,000 and $218,000 for the quarters ended June 30, 2001 and 2000, respectively. Interest paid in cash amounted to $16,616,000 and $24,127,000 for the quarters ended June 30, 2001 and 2000, respectively.
14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 6. EARNINGS PER SHARE The following table reflects the calculation of the earnings per share: Weighted Average Common Shares Income Outstanding Per Share (Numerator) (Denominator) Amount ------------ ---------------- --------- (in thousands, except share and per share data) Quarter ended June 30, 2001: Net earnings $ 25,003 Less: preferred stock dividends 3,241 ------ Basic and diluted earnings per common share 21,762 21,280,361 $ 1.02 ====== ========== ==== Quarter ended June 30, 2000: Net earnings $ 37,612 Less: preferred stock dividends 3,241 ------ Basic and diluted earnings per common share 34,371 21,718,988 $ 1.58 ====== ========== ==== 7. RELATED PARTIES During the quarter ended June 30, 2001, subsidiaries of AMERCO held various senior and junior notes issued by SAC Holding Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO. AMERCO's subsidiaries received interest payments of $5,702,000 from SAC Holdings during the quarter ended June 30, 2001. The terms of the notes receivable with SAC Holdings are consistent with the terms of notes receivable held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. During the quarter ended June 30, 2001, a subsidiary of AMERCO funded through a note receivable the purchase of properties and construction costs for SAC Holdings of approximately $17,661,000. U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $1,717,000 and $1,104,000 were received during the quarters ended June 30, 2001 and 2000, respectively. The management fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. In June 2000, Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation, Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for $98,351,000. Real Estate received cash and notes from the sale. The gain is reflected in the Consolidated Statement of Changes in Stockholders' Equity. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations", and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets". SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations". The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill, and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS 142 supercedes APB 17, "Intangible Assets". SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. We have not yet determined the effect SFAS No. 141 and 142 will have on our consolidated financial position or results of operation. During the quarter ended June 30, 2000, AMERCO adopted Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements", which provides guidance on the recognition, presentation and disclosure of revenue in the financial statements filed with the Securities and Exchange Commission. The adoption of SAB 101 was not material to AMERCO's consolidated financial statements.
16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate (AREC), Property and Casualty Insurance (RepWest) and Life Insurance (Oxford). Information concerning operations by industry segment follows: Moving and Property/ Adjustments Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------- (in thousands) Quarter ended June 30, 2001 ------------- Revenues: Outside $ 402,513 2,415 69,485 45,469 - 519,882 Intersegment - 17,329 1,109 372 (18,810) - -------------------------------------------------------------- Total revenues $ 402,513 19,744 70,594 45,841 (18,810) 519,882 Depreciation/ amortization $ 29,951 2,815 5,286 4,794 - 42,846 Interest expense $ 21,120 10,207 - - (10,207) 21,120 Pretax earnings $ 36,501 4,608 (5,583) 2,683 - 38,209 Income tax $ (12,612) (1,613) 1,979 (960) - (13,206) Identifiable assets $1,465,077 713,085 741,791 847,039 (362,998) 3,403,994 Quarter ended June 30, 2000 ------------- Revenues: Outside $ 388,222 2,516 37,828 30,996 - 459,562 Intersegment - 17,743 587 337 (18,667) - -------------------------------------------------------------- Total revenues $ 388,222 20,259 38,415 31,333 (18,667) 459,562 Depreciation/ amortization $ 24,306 2,752 3,457 5,069 - 35,584 Interest expense $ 22,810 11,333 - - (11,333) 22,810 Pretax earnings $ 48,926 3,910 2,341 3,255 - 58,432 Income tax $ (17,512) (1,376) (863) (1,069) - (20,820) Identifiable assets $1,420,411 744,519 659,266 721,198 (331,713) 3,213,681
17 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Geographic Area Data United (All amounts are in U.S. $'s) States Canada Consolidated ----------------------------- (in thousands) Quarter ended June 30, 2001 ------------- Total revenues $ 508,740 11,142 519,882 Depreciation/amortization $ 41,833 1,013 42,846 Interest expense $ 21,068 52 21,120 Pretax earnings $ 35,703 2,506 38,209 Income tax $ (13,206) - (13,206) Identifiable assets $ 3,348,071 55,923 3,403,994 Quarter ended June 30, 2000 ------------- Total revenues $ 448,975 10,587 459,562 Depreciation/amortization $ 34,516 1,068 35,584 Interest expense $ 22,804 6 22,810 Pretax earnings $ 56,131 2,301 58,432 Income tax $ (20,820) - (20,820) Identifiable assets $ 3,164,500 49,181 3,213,681 10. SUBSEQUENT EVENTS On August 7, 2001, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of August 17, 2001.
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe- harbor provisions. Such statements may include, but not be limited to, projections of revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services and financing needs or plans, 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. The following disclosures, as well as other statements in AMERCO's report and in the Notes to AMERCO's Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences, or that could affect AMERCO's stock price. GENERAL Information on industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 10 of Notes to 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. RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2001 VERSUS QUARTER ENDED JUNE 30, 2000 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenue was $335.4 million and $322.3 million for the quarters ended June 30, 2001 and 2000, respectively. Net revenues from the rental of moving related equipment increased by $10.0 million. This increase is primarily attributable to higher truck rental revenues. The growth in truck rental revenue primarily reflects higher truck rental inventory. Storage revenues increased $1.0 million due to increases in rates and in the number of storage rooms rented. Net sales revenues were $62.4 million and $60.1 million for the quarters ended June 30, 2001 and 2000, respectively. Revenue growth resulted from a 3.9% increase in the sale of moving support items and a 15.7% increase in the sale of propane. Cost of sales was $33.8 million and $33.2 million for the quarters ended June 30, 2001 and 2000, respectively. A higher sales volume contributed to the increase. Operating expenses before intercompany eliminations were $252.1 million and $235.6 million for the quarters ended June 30, 2001 and 2000, respectively. Increased expenditure levels for personnel and rental equipment maintenance, due to an increase in truck rental transactions and in fleet size, were primarily responsible. Lease expense was $42.1 million and $37.7 million for the quarters ended June 30, 2001 and 2000, respectively. This increase reflects additional leasing activity over the past twelve months. Net depreciation expense was $27.0 million and $20.1 million for the quarters ended June 30, 2001 and 2000, respectively. The increase reflects an increase in depreciation recognized on the rental truck fleet. Operating profit before tax and intercompany elimination was $48.8 million and $61.4 million for the quarters ended June 30, 2001 and 2000, respectively. The decrease reflects increases in operating expenses over increases in revenues.
19 Real Estate Operations Rental revenue before intercompany eliminations was $17.9 million and $18.2 million for the quarters ended June 30, 2001 and 2000, respectively. Intercompany revenue was $17.3 million and $17.7 million for the quarters ended June 30, 2001 and 2000, respectively. Net investment and interest income was $1.9 million and $2.1 million for the quarters ended June 30, 2001 and 2000, respectively. This decrease correlates to a reduction in Real Estate's average note and mortgage receivables balance outstanding. Lease expense was $4.1 million and $2.6 million for the quarters ended June 30, 2001 and 2000, respectively. The increase reflects payments under a synthetic lease facility being utilized to develop storage properties. These expenses are reimbursed by the Moving and Storage Operations through intercompany rent. Net depreciation expense was $3.2 million and $2.6 million for the quarters ended June 30, 2001 and 2000, respectively. The increase primarily reflects a $0.5 million decrease in gains from the disposition of property. Operating profit before tax and intercompany elimination was $14.8 million and $15.2 million for the quarters ended June 30, 2001 and 2000, respectively. The decrease reflects increases in lease expenses. Property and Casualty RepWest's premiums were $62.2 million and $30.4 million for the quarters ended March 31, 2001 and 2000, respectively. General agency premium were $29.6 million and $7.6 million for the quarters ended March 31, 2001 and 2000, respectively. The increase from 2000 to 2001 was the result of two agency programs that grew significantly in the second half of 2000. Assumed treaty reinsurance premium was $15.7 million and $9.8 million for the quarters ended March 31, 2001 and 2000, respectively. Rental industry earnings were $8.5 million and $7.4 million for the quarters ended March 31, 2001 and 2000, respectively. Net investment income was $8.4 million and $8.0 million for the quarters ended March 31, 2001 and 2000, respectively. The increase is attributed to increased invested assets and increased gains. Benefits and losses incurred were $60.3 million from $24.6 million for the quarters ended March 31, 2001 and 2000, respectively. This increase is due to agency programs in non standard auto and transportation that grew significantly in the second half of 2000, as well as assumed treaty reinsurance, direct multiple peril business and rental industry. The amortization of deferred acquisition costs (DAC) was $5.0 million and $3.2 million for the quarters ended March 31, 2001 and 2000, respectively. The increase from 2000 to 2001 is mainly due to the premium growth and resultant deferral of acquisition expenses in 2000 for the assumed treaty and general agency programs. Operating expenses were $10.9 million and $8.3 million for the quarters ended March 31, 2001 and 2000, respectively. The increase is a result of commissions on new agency business premium writings as well as assumed reinsurance treaties and taxes resulting from increased premium writings. Operating (loss)/profit before tax and intercompany elimination was $(5.6) million and $2.3 million for the quarters ended March 31, 2001 and 2000, respectively. The decrease is the result of additional incurred losses and operating expense, offset by an increase in earned premiums.
20 Life Insurance Net premiums were $39.6 million from $25.5 million for the quarters ended March 31, 2001 and 2000, respectively. Oxford increased Medicare supplement premiums by $14.6 million through direct writings and the acquisition of Christian Fidelity Life Insurance Company (CFLIC). Other business segments had premium decreases totaling $0.5 million. Net investment income before intercompany eliminations increased $0.4 million to $6.2 million from $5.8 million for the quarters ended March 31, 2001 and 2000, respectively, due to a larger invested asset base. Benefits incurred were $31.2 million and $17.7 million for the quarters ended March 31, 2001 and 2000, respectively. This increase is primarily due to a greater volume of Medicare supplement business in force after the acquisition of CFLIC, which accounts for $13.0 million. Credit insurance and health benefits increased $1.4 million from 2000 as loss ratios were higher quarter over quarter. Life insurance and annuity benefits decreased $0.8 million for the quarter. Amortization of DAC and the value of business acquired (VOBA) was $4.8 million and $4.7 million for the quarters ended March 31, 2001 and 2000, respectively. Operating expenses were $7.2 million and $5.7 million for the quarters ended March 31, 2001 and 2000, respectively. Commissions have increased $0.6 million from 2000 primarily due to the increase in Medicare supplement premiums. General and administrative expenses net of fees collected increased $1.0 million from 2000 primarily due to the acquisition of CFLIC. Operating profit before tax and intercompany eliminations was $2.7 million and $3.3 million for the quarters ended March 31, 2001 and 2000, respectively. The decrease from 2000 is due primarily to loss experience in the health and credit insurance segments. Interest Expense Interest expense was $21.1 million and $22.8 million for the quarters ended June 30, 2001 and 2000, respectively. The decrease can be attributed to a reduction in average cost of funds. Consolidated Group As a result of the foregoing, pretax earnings totaled $38.2 million and $58.4 million for the quarters ended June 30, 2001 and 2000, respectively. After providing for income taxes, net earnings were $25.0 million and $37.6 million for the quarters ended June 30, 2001 and 2000, respectively.
21 LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At June 30, 2001, net property, plant and equipment represented approximately 63.8% of total assets from non-insurance operations and approximately 40.9% of consolidated assets. In the quarters ended June 30, 2001 and 2000, capital expenditures were $46.5 million and $143.0 million, respectively. These expenditures primarily reflect the expansion of the rental truck fleet. Cash provided by operating activities was $71.0 million and $21.1 million for the quarters ended June 30, 2001 and 2000, 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 decreased earnings. At June 30, 2001, total outstanding notes and loans payable was $1,143.3 million as compared to $1,156.8 million at March 31, 2001. Real Estate Operations Cash provided (used) by operating activities was $(20.8) million and $3.2 million for the quarters ended June 30, 2001 and 2000, respectively. The decrease mainly resulted from a decrease in the intercompany payable balance. Property and Casualty Cash used by operating activities was $17.8 million and $5.8 million for quarters ended March 31, 2001 and 2000, respectively. This change resulted from increased accounts receivable and decreased unearned premium, net income and funds withheld from December 2000 to March 2001, offset by an increase in loss and loss adjusting expense reserves and reinsurance losses payable from December 2000 to March 2001. RepWest's cash and cash equivalents and short-term investment portfolio were $4.3 million and $1.2 million at March 31, 2001 and 2000, respectively. The increase is a result of increased cash and cash equivalents on hand to fund claim payments generated by new business. RepWest maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 88.0% 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 strong with current invested assets equal to 78.4% of total liabilities. The liability for reported and unreported losses are based upon company historical 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.
22 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 $(5.6) million and $1.5 million for the quarters ended March 31, 2001 and 2000, respectively. The decrease in cash flows from operating activities in 2001 relates to paid loss experience. Cash flows provided by financing activities were $1.8 million and $3.1 million for the quarters ended March 31, 2001 and 2000, respectively. Cash flows from deferred annuity sales increase investment contract deposits, which are a component of financing activities. The decrease in 2001 from 2000 is due to a higher ratio of annuity withdrawals versus deposits on our CFLIC annuity contracts. 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 March 31, 2001 and 2000, short-term investments were $67.0 million and $65.1 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Consolidated Group During each of the fiscal years ended March 31, 2002, 2003 and 2004, U-Haul estimates gross capital expenditures will average approximately $232 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with a potential range of $77.5 - $175 million in annual long-term debt maturities, are expected to create annual average funding needs of approximately $310 - $407 million. Management estimates that U-Haul will fund 100% of these requirements with leases and internally generated funds, including proceeds from the disposition of older trucks and other asset sales. Credit Agreements AMERCO's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes and revolving lines of credit with domestic and foreign banks. Principally to finance its fleet of trucks and trailers, AMERCO routinely enters into sale and leaseback transactions. As of June 30, 2001, AMERCO had $1,143.3 million in total notes and loans payable outstanding and unutilized lines of credit of approximately $96.4 million. Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At June 30, 2001, AMERCO was in compliance with these covenants. AMERCO is further restricted in the issuance of certain types of preferred stock. AMERCO is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment, or mandatory prepayment, or that allow the holders thereof to require AMERCO or any subsidiary of AMERCO to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. Reference is made to Note 5 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 for additional information about AMERCO's credit agreements.
23 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 for the fiscal year ended March 31, 2001.
24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. Reference is made to Part I, Item 1, Business, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 for a discussion of certain environmental proceedings and to Note 15 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 for a discussion of the California overtime litigation.
25 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) (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended June 30, 2001. _________________ (1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, 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.
26 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: August 10, 2001 By: /S/ GARY B. HORTON ____________________________________ Gary B. Horton, Treasurer (Principal Financial Officer)