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 __________________ <TABLE> <CAPTION> Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. ----------- ---------------------------- ------------------ <S> <C> <C> 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 </TABLE> 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 <TABLE> <S> <C> 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 </TABLE> 1
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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 <TABLE> <CAPTION> December 31, March 31, Assets 2002 2002 ----------- ----------- (Unaudited) (in thousands) <S> <C> <C> 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 =========== =========== </TABLE> 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 <TABLE> <CAPTION> December 31, March 31, Liabilities and Stockholders' Equity 2002 2002 ----------- ----------- (Unaudited) (in thousands) <S> <C> <C> 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 =========== =========== </TABLE> 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) <TABLE> <CAPTION> 2002 2001 ------------ ------------ (in thousands, except share and per share data) <S> <C> <C> 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 ============ ============ </TABLE> 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) <TABLE> <CAPTION> 2002 2001 -------- -------- (in thousands) <S> <C> <C> 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 ======== ======== </TABLE> 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) <TABLE> <CAPTION> 2002 2001 ------------ ------------ (in thousands, except share and per share data) <S> <C> <C> 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: </TABLE> 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) <TABLE> <CAPTION> 2002 2001 -------- -------- (in thousands) <S> <C> <C> 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) ======== ======== </TABLE> 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) <TABLE> <CAPTION> 2002 2001 --------- --------- (in thousands) <S> <C> <C> 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 $ -- </TABLE> 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: <TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> <C> 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 </TABLE> <TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> <C> 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 ========= ========= ========= ========= </TABLE> 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: <TABLE> <CAPTION> Year ending Lease March 31, Commitments <S> <C> <C> 2003 $ 354 2004 1,416 2005 1,416 2006 1,416 2007 1,416 Thereafter 4,749 -------- $ 10,767 ======== </TABLE> 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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) ----------- ----------- ------------ ------------ ------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== ========= ======= ======= ======= </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> <C> 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 ========== ========= ======= ======== ========= </TABLE> (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: <TABLE> <CAPTION> Moving and Storage Property and Operations Casualty Life AMERCO U-Haul Real Estate Insurance (1) Insurance (1) ----------- ----------- ----------- ------------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) Eliminations ------------ ------------ ------------ ------------- ------------- ------------ (in thousands) <S> <C> <C> <C> <C> <C> <C> 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) =========== =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Consolidated Operations Eliminations Consolidated ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> 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 =========== =========== =========== =========== </TABLE> (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 <TABLE> <CAPTION> U-Haul Moving and Property and Storage Casualty AMERCO Operations Real Estate Insurance (1) Life Insurance (1) ------------ ------------ ----------- ------------- ----------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) ------------ ------------ ------------ ------------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) ------------ ------------ ------------ ------------ ------------ (in thousands) <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) ----------- ----------- ----------- ------------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 ========= ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> <C> 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) ========= ========= ========= ========= ========= </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance (1) --------- ------------- ----------- ------------- ------------- (in thousands) <S> <C> <C> <C> <C> <C> 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 ========= ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ----------- ------------ ------------ <S> <C> <C> <C> <C> <C> 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) ========= ========= ========= ========= ========= </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty AMERCO Operations Real Estate Insurance (1) ------ ---------- ----------- ------------- (in thousands) NINE MONTHS ENDED DECEMBER 31, 2002 <S> <C> <C> <C> <C> 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 --------- --------- --------- --------- </TABLE> <TABLE> <CAPTION> SACH Moving Life AMERCO and Storage Total Insurance(1) Eliminations Consolidated Operations Consolidated ------------ ------------ ------------ ---------- ------------ <S> <C> <C> <C> <C> <C> 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 --------- --------- --------- --------- --------- </TABLE> (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: <TABLE> <CAPTION> U-Haul Moving Property and and Storage Casualty Life AMERCO Operations Real Estate Insurance (1) Insurance(1) ------ ---------- ----------- ------------- ------------ (in thousands) <S> <C> <C> <C> <C> <C> 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 -------- -------- -------- ---------- --------- </TABLE> <TABLE> <CAPTION> SACH Moving AMERCO and Storage Total Eliminations Consolidated Operations Eliminations Consolidated ------------ ------------ ------------ ----------- ------------ <S> <C> <C> <C> <C> <C> 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 -------- -------- -------- ---------- --------- </TABLE> 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 <TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> <C> <C> 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 </TABLE> 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 <TABLE> <CAPTION> 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 ----------- ----------- ----------- ----------- --------------- <S> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== </TABLE> 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. <TABLE> <S> <C> 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 </TABLE> 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