1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. ________________________________________________________________________________ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (775) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 21,417,837 shares of AMERCO Common Stock, $0.25 par value were outstanding at February 12, 2002. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at February 12, 2002. U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Consolidated Balance Sheets as of December 31, 2001 (unaudited) and March 31, 2001.............................. 4 b) Condensed Consolidated Statements of Earnings for the Nine months ended December 31, 2001 and 2000 (unaudited).......... 6 c) Condensed Consolidated Statements of Comprehensive Income for the Nine months ended December 31, 2001 and 2000 (unaudited).................................................. 7 d) Condensed Consolidated Statements of Earnings for the Quarters ended December 31, 2001 and 2000 (unaudited).................. 8 e) Condensed Consolidated Statements of Comprehensive Income for the Quarters ended December 31, 2001 and 2000 (unaudited).... 9 f) Condensed Consolidated Statements of Cash Flows for the Nine months ended December 31, 2001 and 2000 (unaudited).......... 10 g) Notes to Condensed Consolidated Financial Statements - December 31, 2001 (unaudited), March 31, 2001 and December 31, 2000 (unaudited)................................ 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 31 Item 6. Exhibits and Reports on Form 8-K................................. 32
3 PART I. FINANCIAL INFORMATION A review of the Condensed Consolidated Financial Statements herein was not completed by the Company's independent public accountant prior to the deadline for filing this Form 10-Q, as required by Rule 10-01(d) of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended.
4 ITEM 1. FINANCIAL STATEMENTS AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, March 31, Assets 2001 2001 ------------------------ (Unaudited) (in thousands) Cash and cash equivalents $ 35,716 52,778 Inventories, net 79,941 84,005 Prepaid expenses 18,324 14,416 Investments, fixed maturities 986,698 952,482 Investments, other 545,919 464,958 Other assets 485,785 452,781 ------------------------ Property, plant and equipment, at cost: Buildings and improvements 826,126 832,372 Rental trucks 1,069,769 1,037,653 Other property, plant, and equipment 661,294 660,802 ------------------------ 2,557,189 2,530,827 Less accumulated depreciation 1,218,226 1,168,183 ------------------------ Total property, plant and equipment 1,338,963 1,362,644 ------------------------ Total Assets $ 3,491,346 3,384,064 ======================== The accompanying notes are an integral part of these consolidated financial statements.
5 December 31, March 31, Liabilities and Stockholders' Equity 2001 2001 ------------------------ (Unaudited) (in thousands) Liabilities: Notes and loans payable $ 1,132,612 1,156,848 Policy benefits and losses, claims and loss expenses payable 705,745 668,830 Liabilities from premium deposits 548,948 522,207 Deferred income 15,424 24,546 Deferred income taxes 187,413 139,419 Other liabilities 238,437 256,848 ------------------------ Total liabilities 2,828,579 2,768,698 Stockholders' equity: Serial preferred stock - Series A preferred stock - - Series B preferred stock - - Serial common stock - Series A common stock 1,441 1,441 Common stock 9,122 9,122 Additional paid-in capital 321,031 312,128 Accumulated other comprehensive income (30,681) (40,709) Retained earnings 791,930 755,174 Cost of common shares in treasury, net (415,924) (406,617) Unearned ESOP shares (14,152) (15,173) ------------------------ Total stockholders' equity 662,767 615,366 Contingent liabilities and commitments ------------------------ Total Liabilities and Stockholders' Equity $ 3,491,346 3,384,064 ======================== The accompanying notes are an integral part of these consolidated financial statements.
6 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Nine months ended December 31, (Unaudited) 2001 2000 ----------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 980,095 951,058 Net sales 158,556 155,078 Premiums 308,261 210,102 Net investment and interest income 68,101 72,082 ----------------------- Total revenues 1,515,013 1,388,320 Costs and expenses Operating expenses 783,219 745,039 Cost of sales 89,116 87,600 Benefits and losses 276,260 170,678 Amortization of deferred policy acquisition costs 32,346 25,112 Lease expense 133,130 132,395 Depreciation, net 68,754 69,552 ----------------------- Total costs and expenses 1,382,825 1,230,376 Earnings from operations 132,188 157,944 Interest expense 58,842 65,287 ----------------------- Pretax earnings 73,346 92,657 Income tax expense (26,869) (32,983) ----------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 46,477 59,674 Extraordinary loss on early extinguishment of debt, net of tax of $1,160 - (2,121) ----------------------- Net earnings $ 46,477 57,553 ======================= Basic and diluted earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt 1.74 2.32 Extraordinary loss on early extinguishment of debt, net - (0.10) ----------------------- Net earnings $ 1.74 2.22 ======================= Basic and diluted average common shares outstanding: 21,092,225 21,539,821 ======================= The accompanying notes are an integral part of these consolidated financial statements.
7 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Nine months ended December 31, (Unaudited) 2001 2000 ------------------- (in thousands) Comprehensive income: Net earnings $ 46,477 57,553 Changes in other comprehensive income: Foreign currency translation (3,647) (4,683) Fair market value of cash flow hedge 153 (861) Unrealized gain on investments 13,522 3,033 ------------------- Total comprehensive income $ 56,505 55,042 =================== The accompanying notes are an integral part of these consolidated financial statements.
8 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Quarters ended December 31, (Unaudited) 2001 2000 --------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 279,114 270,775 Net sales 40,284 41,117 Premiums 105,381 88,607 Net investment and interest income 21,142 25,478 ----------------------- Total revenues 445,921 425,977 Costs and expenses Operating expense 256,496 258,200 Cost of sales 23,950 21,626 Benefits and losses 95,487 74,863 Amortization of deferred policy acquisition costs 11,413 8,554 Lease expense 42,905 45,859 Depreciation, net 27,923 25,067 ----------------------- Total costs and expenses 458,174 434,169 Loss from operations (12,253) (8,192) Interest expense 17,986 21,235 ----------------------- Pretax loss (30,239) (29,427) Income tax benefit 10,027 10,256 ----------------------- Loss from operations before extraordinary loss on early extinguishment of debt (20,212) (19,171) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 - (2,121) ----------------------- Net loss $ (20,212) (21,292) ======================= Basic and diluted loss per common share: Loss from operations before extraordinary loss on early extinguishment of debt $ (1.12) (1.05) Extraordinary loss on early extinguishment of debt, net - (0.10) ----------------------- Net loss $ (1.12) (1.15) ======================= Basic and diluted average common shares outstanding: 20,892,342 21,406,688 ======================= The accompanying notes are an integral part of these consolidated financial statements.
9 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Quarters ended December 31, (Unaudited) 2001 2000 ------------------- (in thousands) Comprehensive income: Net loss $ (20,212) (21,292) Changes in other comprehensive income: Foreign currency translation (527) (1,098) Fair market value of cash flow hedge 443 (679) Unrealized gain on investments 9,107 7,074 ------------------- Total comprehensive loss $ (11,189) (15,995) =================== The accompanying notes are an integral part of these consolidated financial statements.
10 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine months ended December 31, (Unaudited) 2001 2000 ------------------- (in thousands) Net cash provided by operating activities 131,125 100,900 ------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (144,103) (280,271) Fixed maturities (140,695) (84,808) Real estate (65,436) - Mortgage loans (561) (21,654) Proceeds from sale of investments: Property, plant and equipment 101,049 240,140 Fixed maturities 117,356 89,583 Mortgage loans 10,039 19,187 Changes in other investments (18,359) (120,313) ------------------- Net cash used by investing activities (140,710) (158,136) ------------------- Cash flows from financing activities: Net change in short-term borrowings 81,743 169,281 Principal payments on notes (102,530) (125,048) Investment contract deposits 107,855 62,947 Investment contract withdrawals (83,224) (55,763) Changes in other financing activities (11,321) (17,569) ------------------- Net cash provided (used) by financing activities (7,477) 33,848 ------------------- Decrease in cash and cash equivalents (17,062) (23,388) Cash and cash equivalents at beginning of period 52,778 48,435 ------------------- Cash and cash equivalents at end of period $ 35,716 25,047 =================== Summary of non-cash investing and financing activity: A note and other receivables were reduced in exchange for the purchase of storage properties from a related party. $ 35,196 - An investment was received in exchange for the sale of storage properties to a related party. $ 44,312 98,351 The accompanying notes are an integral part of these consolidated financial statements.
11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements December 31, 2001, March 31, 2001 and December 31, 2000 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the parent 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. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of AMERCO and its wholly-owned subsidiaries. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in AMERCO's annual financial statements and notes. The condensed consolidated balance sheet as of December 31, 2001 and the related condensed consolidated statements of earnings and the condensed consolidated statements of comprehensive income for the three and nine months ended December 31, 2001 and 2000 and the condensed consolidated cash flows for the nine months ended December 31, 2001 and 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such condensed financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There were no effects related to intervening events which would materially affect the consolidated financial position or results of operations for the financial statements presented herein, except for as described in Note 9. Certain reclassifications have been made to the financial statements for the three and nine months ended December 31, 2000 to conform with the current year's presentation.
12 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows: September 30, 2001 ------------------ Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 4,100 $ 3,626 252 - 3,878 U.S. government agency mortgage- backed securities $ 10,048 10,005 432 - 10,437 Corporate securities $ 44,522 42,758 1,791 (164) 44,385 Mortgage-backed securities $ 30,334 29,831 1,379 (35) 31,175 Redeemable preferred stocks 114,784 114,674 373 (2,988) 112,059 ---------------------------------------- 200,894 4,227 (3,187) 201,934 ---------------------------------------- September 30, 2001 ------------------ Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 42,260 $ 42,737 2,610 - 45,347 U.S. government agency mortgage- backed securities $ 27,531 27,324 1,209 (2) 28,531 Obligations of states and political subdivisions $ 15,910 16,039 698 (26) 16,711 Corporate securities $ 630,723 622,584 19,629 (17,162) 625,051 Mortgage-backed securities $ 31,300 31,238 1,205 (364) 32,079 Redeemable preferred stocks 1,228 31,022 304 (565) 30,761 Redeemable common stocks 657 8,625 - (1,301) 7,324 ---------------------------------------- 779,569 25,655 (19,420) 785,804 ---------------------------------------- Total $ 980,463 29,882 (22,607) 987,738 ========================================
13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized condensed consolidated balance sheet for RepWest is presented below: September 30, -------------------- 2001 2000 -------------------- (in thousands) Investments, fixed maturities $ 391,507 413,149 Investments, other 84,379 27,823 Receivables 223,740 147,143 Due from affiliate 53,042 28,905 Other assets 54,277 48,528 ------------------- Total assets $ 806,945 665,548 =================== Policy liabilities and accruals $ 406,072 309,887 Unearned premiums 105,120 81,679 Other policyholders' funds and liabilities 57,713 61,908 ------------------- Total liabilities 568,905 453,474 Stockholder's equity 238,040 212,074 ------------------- Total liabilities and stockholder's equity $ 806,945 665,548 =================== A summarized condensed consolidated income statement for RepWest is presented below: Quarter ended Nine months ended September 30, September 30, ----------------------------------------- 2001 2000 2001 2000 ----------------------------------------- (in thousands) Premiums $ 64,717 63,386 192,982 135,718 Net investment income 8,102 7,966 23,967 23,718 ---------------- ----------------- Total revenue 72,819 71,352 216,949 159,436 Benefits and losses 65,618 56,331 188,256 116,432 Amortization of deferred policy acquisition costs 6,207 3,770 17,837 10,130 Operating expenses 13,782 18,055 42,556 37,783 ---------------- ----------------- Total expenses 85,607 78,156 248,649 164,345 Loss from operations (12,788) (6,804) (31,700) (4,909) Income tax benefit 4,522 2,379 11,209 1,789 ---------------- ----------------- Net loss $ (8,266) (4,425) (20,491) (3,120) ================ =================
14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized condensed consolidated balance sheet for Oxford is presented below: September 30, ------------------- 2001 2000 ------------------- (in thousands) Investments, fixed maturities $ 595,191 470,772 Investments, other 198,668 167,208 Receivables 31,123 19,564 Other assets 89,865 84,626 ------------------- Total assets $ 914,847 742,170 =================== Policy liabilities and accruals $ 191,104 152,358 Premium deposits 548,948 469,393 Other policyholders' funds and liabilities 50,739 30,501 ------------------- Total liabilities 790,791 652,252 Stockholder's equity 124,056 89,918 ------------------- Total liabilities and stockholder's equity $ 914,847 742,170 =================== A summarized condensed consolidated income statement for Oxford is presented below: Quarter ended Nine months ended September 30, September 30, ---------------------------------------- 2001 2000 2001 2000 ---------------------------------------- (in thousands) Premiums $ 42,198 26,750 119,736 78,274 Net investment income 5,791 5,807 18,975 18,170 ---------------- ----------------- Total revenue 47,989 32,557 138,711 96,444 Benefits and losses 29,869 18,532 88,004 54,246 Amortization of deferred policy acquisition costs 5,217 4,784 14,509 14,982 Operating expenses 10,771 6,626 30,207 19,857 ---------------- ----------------- Total expenses 45,857 29,942 132,720 89,085 Income from operations 2,132 2,615 5,991 7,359 Income tax expense (555) (753) (1,787) (1,878) ---------------- ----------------- Net income $ 1,577 1,862 4,204 5,481 ================ =================
15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 4. CONTINGENT LIABILITIES AND COMMITMENTS During the nine months ended December 31, 2001, a subsidiary of U-Haul entered into five transactions whereby the subsidiary sold rental trucks, which were subsequently leased back. AMERCO has guaranteed $13,571,000 of residual values at December 31, 2001 for these assets at the end of the respective lease terms. Following are the lease commitments for the leases executed during the nine months ended December 31, 2001, and subsequently which have a term of more than one year (in thousands): Net activity Year ended Lease subsequent to March 31, Commitments period end Total -------------------------------------------------------- 2002 $ 657 - 657 2003 2,625 - 2,625 2004 2,625 - 2,625 2005 2,300 - 2,300 2006 2,192 - 2,192 Thereafter 7,305 - 7,305 ------------------------------------ $ 17,704 - 17,704 ==================================== In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean- up of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving AMERCO, individually, or in the aggregate, are expected to result in a material loss. 5. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories, investment, other and accounts payable and accrued liabilities net of other operating and investing activities follows: Nine months ended December 31, 2001 2000 ---------------------- (in thousands) Receivables $ (14,911) 9,686 ====================== Inventories $ 4,064 3,221 ====================== Accounts payable and accrued expenses $ (20,730) (30,618) ======================
16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 6. EARNINGS PER SHARE The following table reflects the calculation of the earnings per share: <TABLE> <CAPTION> Weighted Average Common Shares Income Outstanding Per Share (Numerator) (Denominator) Amount ------------- -------------- --------- (in thousands, except share and per share data) <S> <C> <C> <C> Quarter ended December 31, 2001: Loss from operations $ (20,212) Less: preferred stock dividends 3,241 ------ Basic and diluted loss per common share (23,453) 20,892,342 $ (1.12) ====== ========== ==== Quarter ended December 31, 2000: Loss from operations before extraordinary loss on early extinguishment of debt $ (19,171) Less: preferred stock dividends 3,241 ------ Loss from operations before extraordinary loss on early extinguishment of debt available to common stockholders (22,412) 21,406,688 $ (1.05) Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) ------ ---- Basic and diluted loss per common share (24,533) 21,406,688 $ (1.15) ====== ========== ==== Nine months ended December 31, 2001: Earnings from operations $ 46,477 Less: preferred stock dividends 9,722 ------ Basic and diluted earnings per common share 36,755 21,092,225 $ 1.74 ====== ========== ==== Nine months ended December 31, 2000: Earnings from operations before extraordinary loss on early extinguishment of debt $ 59,674 Less: preferred stock dividends 9,722 ----- Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 49,952 21,539,821 $ 2.32 Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) ------ ---- Basic and diluted earnings per common share 47,831 21,539,821 $ 2.22 ====== ========== ==== </TABLE>
17 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 7. RELATED PARTIES During the nine months ended December 31, 2001, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO. AMERCO's subsidiaries received interest payments of $20,899,000 and principal payments of $33,952,000 from SAC Holdings during the nine months ended December 31, 2001. The terms of the notes with SAC Holdings are similar to the terms of notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are reflected in Investments, other of the condensed consolidated balance sheet. During the nine months ended December 31, 2001, a subsidiary of AMERCO funded through a note the purchase of properties and construction costs for SAC Holdings of approximately $33,279,000. This amount is reflected in Investments, other of the condensed consolidated balance sheet. U-Haul currently manages the self-storage properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $5,495,000 and $4,523,000 were received during the nine months ended December 31, 2001 and 2000, respectively. The management fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. In December 2001, Real Estate completed the sale of fourteen storage properties to Eighteen SAC Self-Storage Corporation, subsidiary of SAC Holding Corporation, for $43,782,000. Real Estate received cash and notes from the sale. The gain is reflected in the equity section of the condensed consolidated balance sheet. In August 2001, Real Estate completed the sale of one storage property to SAC Holdings, for $530,000. Real Estate received notes from the sale. In June 2000, Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation, Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for $98,351,000. Real Estate received cash and notes from the sale. The gain is reflected in the equity section of the condensed consolidated balance sheet. In September 2001, the Company purchased nine storage properties from Five SAC Self-Storage Corporation, a subsidiary of SAC Holdings at a purchase price of $35.2 million for fair value. These properties were not previously owned by the consolidated company. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. During September 2001 the Company consummated a legal transfer of cash in the amount of $7.5 million and real estate properties in the amount of $65.5 million from Real Estate and other subsidiaries to Oxford and RepWest. The transferred assets were recorded by RepWest and Oxford at their original book value and no gain or loss was recorded. See Note 9 for additional discussion.
18 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations", and No. 142 (SFAS 142), "Goodwill and Other Intangible Assets". SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations". The most significant changes made by SFAS 141 are: (1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) establishing specific criteria for the recognition of intangible assets separately from goodwill, and (3) requiring unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS 142 supercedes APB 17, "Intangible Assets". SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. SFAS No. 141 and 142 are not expected to affect the consolidated financial position or results of operations. SFAS 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 and depreciated over the remaining life of the long-lived asset. The Statement 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 December 15, 2002. Management has not yet determined the total likely effects of adopting this Statement on the financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses issues relating to the implementation of FASB Statement No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and develops a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The Company is in the process of determining the extent to which this statement will impact its results of operations or financial position.
19 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate (AREC), Property and Casualty Insurance (RepWest) and Life Insurance (Oxford). Information concerning operations by industry segment follows: <TABLE> <CAPTION> Moving and Property/ Adjustments Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> <C> <C> Quarter ended December 31, 2001 ----------------- Revenues: Outside $ 319,027 7,619 71,692 47,583 - 445,921 Intersegment - 11,947 1,127 406 (13,480) - --------- ------- ------- ------- -------- --------- Total revenues $ 319,027 19,566 72,819 47,989 (13,480) 445,921 Depreciation/ amortization $ 26,404 2,985 6,322 5,241 - 40,952 Interest expense $ 17,986 8,229 - - (8,229) 17,986 Pretax earnings (loss) $ (28,010) 8,427 (12,788) 2,132 - (30,239) Income tax benefit (expense) $ 9,009 (2,949) 4,522 (555) - 10,027 Identifiable assets $1,493,042 714,819 806,945 904,547 (428,007) 3,491,346 Quarter ended December 31, 2000 ----------------- Revenues: Outside $ 320,572 3,025 70,191 32,189 - 425,977 Intersegment - 17,754 1,161 368 (19,283) - --------- ------- ------- ------- -------- --------- Total revenues $ 320,572 20,779 71,352 32,557 (19,283) 425,977 Depreciation/ amortization $ 29,034 2,760 3,453 4,824 - 40,071 Interest expense $ 21,235 10,626 - - (10,626) 21,235 Pretax earnings (loss) $ (27,593) 2,355 (6,804) 2,615 - (29,427) Income tax benefit (expense) $ 9,454 (824) 2,379 (753) - 10,256 Extraordinary loss on early extinguishment of debt, net $ (2,121) - - - - (2,121) Identifiable assets $1,451,906 761,149 665,548 731,627 (338,700) 3,271,530 </TABLE>
20 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued <TABLE> <CAPTION> Moving Property/ Adjustments and Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ----------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> <C> <C> Nine months ended December 31, 2001 ----------------- Revenues: Outside $1,152,824 10,986 213,677 137,526 - 1,515,013 Intersegment - 48,264 3,272 1,185 (52,721) - ---------- ------- ------- ------- -------- --------- Total revenues $1,152,824 59,250 216,949 138,711 (52,721) 1,515,013 Depreciation/ amortization $ 78,824 8,535 18,584 14,652 - 120,595 Interest expense $ 58,842 27,953 - - (27,953) 58,842 Pretax earnings (loss) $ 67,935 31,120 (31,700) 5,991 - 73,346 Income tax benefit (expense) $ (25,399) (10,892) 11,209 (1,787) - (26,869) Identifiable assets $1,493,042 714,819 806,945 904,547 (428,007) 3,491,346 Nine months ended December 31, 2000 ----------------- Revenues: Outside $1,126,987 9,343 156,609 95,381 - 1,388,320 Intersegment - 52,599 2,827 1,063 (56,489) - ---------- ------- ------- ------- -------- --------- Total revenues $1,126,987 61,942 159,436 96,444 (56,489) 1,388,320 Depreciation/ amortization $ 77,721 8,144 10,208 15,449 - 111,522 Interest expense $ 65,287 32,870 - - (32,870) 65,287 Pretax earnings (loss) $ 79,752 10,455 (4,909) 7,359 - 92,657 Income tax benefit (expense) $ (29,235) (3,659) 1,789 (1,878) - (32,983) Extraordinary loss on early extinguishment of debt, net $ (2,121) - - - - (2,121) Identifiable assets $1,451,906 761,149 665,548 731,627 (338,700) 3,271,530 </TABLE>
21 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 9. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued <TABLE> <CAPTION> Geographic Area Data - United United (All amounts are in States Canada Consolidated States Canada Consolidated U.S. $'s) ------------------------------------------------------------------ Quarter ended Nine months ended ------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> <C> <C> December 31, 2001 ----------------- Total revenues $ 437,993 7,928 445,921 1,483,503 31,510 1,515,013 Depreciation/ amortization $ 40,010 942 40,952 117,904 2,691 120,595 Interest expense $ 18,066 (80) 17,986 58,883 (41) 58,842 Pretax earnings (loss) $ (29,603) (636) (30,239) 68,164 5,182 73,346 Income tax benefit (expense) $ 10,027 - 10,027 (26,869) - (26,869) Identifiable assets $3,432,399 58,947 3,491,346 3,432,399 58,947 3,491,346 December 31, 2000 ----------------- Total revenues $ 418,421 7,556 425,977 1,357,483 30,837 1,388,320 Depreciation/ amortization $ 38,963 1,108 40,071 108,244 3,278 111,522 Interest expense $ 21,229 6 21,235 65,274 13 65,287 Pretax earnings (loss) $ (28,439) (988) (29,427) 88,430 4,227 92,657 Income tax benefit (expense) $ 10,256 - 10,256 (32,977) (6) (32,983) Extraordinary loss, net $ (2,121) - (2,121) (2,121) - (2,121) Identifiable assets $3,220,947 50,583 3,271,530 3,220,947 50,583 3,271,530 </TABLE> During September 2001 the Company consummated a legal transfer of cash in the amount of $7.5 million and real estate properties in the amount of $65.5 million from its subsidiaries and Real Estate to Oxford and RepWest. The transferred assets were recorded by the RepWest and Oxford at their original book value; however, because the operating results and financial position of Oxford and RepWest are reflected on a one-quarter lag, the amounts have not been reflected within the identifiable assets line of the Property/Casualty or Life Insurance segments above. Since the Moving and Storage and Real Estate operations are not reported on a one-quarter lag, the assets have been removed from the Real Estate industry segment identifiable assets and are reflected as an adjustment and elimination within the above table. 10. SUBSEQUENT EVENTS In January 2002, Real Estate completed the sale of thirty-seven storage properties to Twenty SAC Self-Storage Corporation, Twenty-One SAC Self-Storage Corporation, Twenty-Two SAC Self-Storage Corporation and Twenty-Three SAC Self- Storage Corporation, subsidiaries of SAC Holding Corporation, for $93,679,000. Real Estate received cash and notes from the sale. On February 6, 2002, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of February 18, 2002.
22 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. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe-harbor provisions. Such statements may include, but not be limited to, projections of revenues, income or loss, estimates of capital expenditures, the anticipated results of legal proceedings against the Company, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. 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; changes in government regulations, particularly environmental regulations; our credit ratings; changes in demand for our products; changes in the general domestic economy; degree and nature of our competition; and other factors described in this Quarterly Report on Form 10-Q or the other documents we file with the Securities and Exchange Commission. As a result of these factors AMERCO's stock price may fluctuate dramatically. GENERAL Information on industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 9 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. For a discussion of new accounting standards please refer to Note 8 of the Consolidated Financial Statements. RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 2001 VERSUS NINE MONTHS ENDED DECEMBER 31, 2000 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenue was $976.1 million and $949.6 million for the nine months ended December 31, 2001 and 2000, respectively. Net revenues from the rental of moving equipment increased by $18.9 million. The increase was primarily attributable to higher truck and trailer rental revenues and storage revenues, caused by increases in prices and improvements in fleet utilization and storage occupancy. Net sales revenues were $158.5 million and $155.0 million for the nine months ended December 31, 2001 and 2000, respectively. Revenue growth resulted from an increase in the sale of moving support items and an increase in the sale of propane. Cost of sales was $89.1 million and $87.6 million for the nine months ended December 31, 2001 and 2000, respectively. Operating expenses before intercompany eliminations were $768.0 million and $743.8 million for the nine months ended December 31, 2001 and 2000, respectively. Increased expenditure levels for personnel and rental equipment maintenance, due to an increase in truck rental transactions, were primarily responsible. Net depreciation expense was $73.1 million and $59.8 million for the nine months ended December 31, 2001 and 2000, respectively. The increase reflects depreciation on the rental truck fleet. Operating profit before tax and intercompany elimination was $94.2 million and $102.5 million for the nine months ended December 31, 2001 and 2000, respectively.
23 Real Estate Operations Rental revenue before intercompany eliminations was $52.3 million and $54.1 million for the nine months ended December 31, 2001 and 2000, respectively. Intercompany revenue was $48.3 million and $52.6 million for the nine months ended December 31, 2001 and 2000, respectively. Net investment and interest income was $6.9 million and $7.8 million for the nine months ended December 31, 2001 and 2000, respectively. Net depreciation expense (income) was $(4.3) million and $9.7 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease is due to an increase in the gain from the sale of property plant and equipment. Operating profit before tax and intercompany elimination was $31.1 million and $10.5 million for the nine months ended December 31, 2001 and 2000, respectively. The increase mainly reflects a gain of $12.5 million on sales of property plant and equipment and a decrease in net lease cost. Property and Casualty RepWest's premiums were $193.0 million and $135.7 million for the nine months ended September 30, 2001 and 2000, respectively. General agency premiums were $86.5 million and $37.5 million for the nine months ended September 30, 2001 and 2000, respectively. The change from 2000 to 2001 was the result of two agency programs, Non-Standard Auto and Transportation, which are responsible for $35.7 million of the increase. In addition, commercial agency business increased by $11.7 million for the same period. Assumed treaty reinsurance premium was $52.0 million and $50.5 million for the nine months ended September 30, 2001 and 2000, respectively. Of this increase, $8.1 million is associated with two Non-Standard Auto treaties, offset by a $5.1 million decrease in Crop Hail Premiums along with an additional $1.4 million decrease resulting from the non-renewal of numerous treaties in 2001. Direct Multiple Peril premiums were $26.0 million and $19.5 million for the nine months ended September 30, 2001 and 2000, respectively. The change from 2000 is a result of rate increases across the entire book of business. Rental industry revenue was $28.5 million and $28.2 million for the nine months ended September 30, 2001 and 2000, respectively. Net investment income was $24.0 million and $23.7 million for the nine months ended September 30, 2001 and 2000, respectively. Benefits and losses were $188.3 million and $116.4 million for the nine months ended September 30, 2001 and 2000, respectively. This increase is due to the Non-Standard Auto, Transportation and commercial agency programs, as well as to the assumed treaty reinsurance and Direct Multiple Peril business. The amortization of deferred acquisition costs (DAC) was $17.8 million and $10.1 million for the nine months ended September 30, 2001 and 2000, respectively. The increase is mainly due to the premium growth and resultant deferral of acquisition expenses in 2000 for the assumed treaty and general agency programs. Operating expenses were $42.6 million and $37.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase is a result of commissions on new agency business premium and premium taxes resulting from increased premium writings. Operating loss before tax and intercompany elimination was $31.7 million and $4.9 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is mainly attributable to a significant increase in incurred losses associated with Direct Multiple Peril, assumed treaty business and increased operating expense, offset by an increase in earned premiums.
24 Life Insurance Net premiums were $119.7 million and $78.3 million for the nine months ended September 30, 2001 and 2000, respectively. Medicare Supplement premiums increased by $41.3 million; driven by new business, rate increases, and the acquisition of Christian Fidelity Life Insurance Company (CFLIC). Net investment income before intercompany eliminations was $19.0 million and $18.2 million for the nine months ended September 30, 2001 and 2000, respectively. The increase was primarily due to realized gains, offset by decreasing market interest rates. Benefits incurred were $88.0 million and $54.2 million for the nine months ended September 30, 2001 and 2000, respectively. This increase is primarily due to a greater volume of Medicare supplement business in force from the acquisition of CFLIC and new business, which accounts for $27.2 million and $6.2 million, respectively. Amortization of DAC and the value of business acquired (VOBA) was $14.5 million and $15.0 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is primarily due to a smaller volume of credit insurance written. Operating expenses were $30.2 million and $19.9 million for the nine months ended September 30, 2001 and 2000, respectively. Commissions and premium taxes have increased $7.0 million and personnel and other operating expenses, net of fees collected, increased by $2.8 million primarily due to the increase in Medicare supplement business, of which the acquisition of CFLIC accounts for the majority of the increase. Operating profit before tax and intercompany eliminations was $6.0 million and $7.4 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease is primarily due to smaller spreads from the deferred annuity business and higher loss ratios for the credit insurance business; offset by loss ratio improvements in Medicare supplement. Interest Expense Interest expense was $58.8 million and $65.3 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease can be attributed to lower cost of funds on borrowed money. Consolidated Group As a result of the foregoing, pretax earnings totaled $73.3 million and $92.7 million for the nine months ended December 31, 2001 and 2000, respectively. After providing for income taxes, net earnings were $46.5 million and $59.7 million for the nine months ended December 31, 2001 and 2000, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net earnings were $46.5 million and $57.6 million for the nine months ended December 31, 2001 and 2000, respectively.
25 QUARTER ENDED DECEMBER 31, 2001 VERSUS QUARTER ENDED DECEMBER 31, 2000 Moving and Storage Operations Revenues consist of rental revenues and net sales. Total rental revenue was $273.7 million and $270.5 million for the quarters ended December 31, 2001 and 2000, respectively. Net revenues from the rental of moving related equipment increased by $2.8 million. This increase is primarily attributable to higher truck and trailer rental revenues and storage revenues, caused by increases in prices and improvements in fleet utilization and storage occupancy. Net sales revenues were $40.3 million and $41.0 million for the quarters ended December 31, 2001 and 2000, respectively. Cost of sales was $23.9 million and $21.6 million for the quarters ended December 31, 2001 and 2000, respectively. Operating expenses before intercompany elimination were $247.0 million and $252.0 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease reflects lower rental equipment and building maintenance expenditures. Net depreciation expense was $26.2 million and $20.7 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects an increase in depreciation recognized on the rental truck fleet. Operating loss before tax and intercompany elimination was $18.0 million and $19.1 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects increases in revenues over increases in operating expenses. Real Estate Operations Rental revenue before intercompany eliminations was $17.4 million and $18.0 million for the quarters ended December 31, 2001 and 2000, respectively. Intercompany revenue was $12.0 million and $17.8 million for the quarters ended December 31, 2001 and 2000, respectively. Net investment and interest income was $2.1 million and $2.7 million for the quarters ended December 31, 2001 and 2000, respectively. Net depreciation expense was $1.7 million and $4.4 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease reflects the gain realized from the sale of property plant and equipment. Operating profit before tax and intercompany elimination was $8.4 million and $2.4 million for the quarters ended December 31, 2001 and 2000, respectively. The increase reflects increases in the sale of property plant and equipment and a decrease in net lease cost.
26 Property and Casualty RepWest's premiums were $64.7 million and $63.4 million for the quarters ended September 30, 2001 and 2000, respectively. General agency premiums were $23.7 million and $17.3 million for the quarters ended September 30, 2001 and 2000, respectively. The change from 2000 to 2001 was the result of Non-Standard Auto, Transportation and commercial agency programs, which are responsible for $6.0 million of the increase. Assumed treaty reinsurance premium were $20.3 million and $27.5 million for the quarters ended September 30, 2001 and 2000, respectively. This decrease is mainly attributable to a $4.4 million decrease in Crop Hail premiums from 2000 to 2001. Direct Multiple Peril Premiums were $10.0 million and $7.4 million for the quarters ended September 30, 2001 and 2000, respectively. This increase is a result of rate increases that took effect in the third quarter of 2001. Net investment income was $8.1 million and $8.0 million for the quarters ended September 30, 2001 and 2000, respectively. Benefits and losses incurred were $65.6 million and $56.3 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is a result of Non-Standard Auto and Transportation general agency and Direct Multiple Peril programs, offset by a decrease in Crop Hail business. The amortization of DAC was $6.2 million and $3.8 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is due to the increase in premium writings. Operating expenses were $13.8 million and $18.0 million for the quarters ended September 30, 2001 and 2000, respectively. The change is due to decreased commission expense resulting from a commission cap that was reached on Non- Standard Auto business, the non-renewal of numerous assumed reinsurance treaties and a decrease in DAC, offset by an increase in general and administrative expenses resulting from taxes associated with increased premium writings. Operating loss before tax and intercompany elimination was $12.8 million and $6.8 million for the quarters ended September 30, 2001 and 2000, respectively. The decrease is mainly attributable to an increase in incurred losses associated with Direct Multiple Peril business, along with a decrease in the capitalization of DAC, offset by an increase in earned premiums and a decrease in operating expenses.
27 Life Insurance Net premiums were $42.2 million and $26.8 million for the quarters ended September 30, 2001 and 2000, respectively. Medicare Supplement premiums increased by $15.0 million from new business, rate increases and the acquisition of CFLIC. Net investment income before intercompany eliminations was $5.8 million for the quarters ended September 30, 2001 and 2000. Benefits were $29.9 million and $18.5 million for the quarters ended September 30, 2001 and 2000, respectively. $11.7 million of the increase is due to a greater volume of Medicare supplement business in force, of which the acquisition of CFLIC accounts for the majority. Amortization of DAC and VOBA was $5.2 million and $4.8 million for the quarters ended September 30, 2001 and 2000, respectively. The increase is due primarily to annuity DAC amortization. Operating expenses were $10.8 million and $6.6 million for the quarters ended September 30, 2001 and 2000, respectively. Commissions and premium taxes have increased by $2.4 million primarily due to the increase in Medicare supplement premiums. Personnel and other operating expenses, net of fees collected, increased by $1.2 million primarily from the acquisition of CFLIC. Operating profit before tax and intercompany eliminations was $2.1 million and $2.6 million for the quarters ended September 30, 2001 and 2000, respectively. The decrease is primarily due to smaller spreads on the deferred annuity business and higher loss ratios on the credit disability business offset by improved loss ratios for the Medicare supplement business. Interest Expense Interest expense was $18.0 million and $21.2 million for the quarters ended December 31, 2001 and 2000, respectively. The decrease can be attributed to lower cost of funds on borrowed money. Consolidated Group As a result of the foregoing, pretax loss was $30.2 million and $29.4 million for the quarters ended December 31, 2001 and 2000, respectively. After providing for income taxes, net loss was $20.2 million and $19.2 million for the quarters ended December 31, 2001 and 2000, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net loss was $20.2 million and $21.3 million for the quarters ended December 31, 2001 and 2000, respectively.
28 LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul maintains a large inventory of rental items. In the nine months ended December 31, 2001 and 2000, capital expenditures were $144.1 million and $280.3 million, respectively (See note 7 for additional discussion). These expenditures primarily reflect the renewal of the rental truck fleet. The capital required to fund these acquisitions was obtained through internally generated funds from operations and through lease financings. Cash provided by operating activities was $82.3 million and $27.5 million for the nine months ended December 31, 2001 and 2000, respectively. The increase resulted primarily from a decrease in accounts receivable and an increase in accrued liabilities. At December 31, 2001, total outstanding notes and loans payable was $1,132.6 million as compared to $1,156.8 million at March 31, 2001. Real Estate Operations Cash provided (used) by operating activities was $(36.4) million and $77.6 million for the nine months ended December 31, 2001 and 2000, respectively. The decrease resulted from a decrease in accrued liabilities. Property and Casualty Cash provided (used) by operating activities was $(32.0) million and $20.3 million for nine months ended September 30, 2001 and 2000, respectively. This change resulted from increased accounts receivable, other assets, unearned premium reserve and decreased net income from December 2000 to September 2001, offset by an increase in loss and loss adjusting expense reserves and reinsurance payables from December 2000 to September 2001. RepWest's cash and cash equivalents and short-term investment portfolio were $6.3 million and $12.0 million at September 30, 2001 and 2000, respectively. The decrease is a result of an increase in claim payments. RepWest maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 87.0% of the fixed-income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong with current invested assets equal to 83.7% of total liabilities. The liability for reported and unreported losses is based upon company historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted. 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 $4.8 million and $(0.3) million for the nine months ended September 30, 2001 and 2000, respectively. The increase in cash flows from operating activities relates to increased premium writings and the timing of a settlement offset by higher claim payments. Cash provided by financing activities was $32.1 million and $7.2 million for the nine months ended September 30, 2001 and 2000, respectively. Cash flows from deferred annuity sales increase investment contract deposits, which are a component of financing activities. The increase in investment contract deposits over 2000 is due to growth in new deposits offset by withdrawals and terminations of existing deposits. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. Short-term investments were $74.0 million and $59.7 million for the nine months ended September 30, 2001 and 2000, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs.
29 Consolidated Group During each of the fiscal years ended March 31, 2002, 2003 and 2004, AMERCO estimates gross capital expenditures will average approximately $200 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with a potential range of $150 - $300 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $350 - $500 million. The Company plans to meet these needs through the cash flows, asset sales and various current and future sources of credit (See Credit Agreements discussion below). AMERCO has historically enjoyed a substantial and predictable level of cashflow (EBITDAR) from its non-insurance subsidiaries. These cashflows are dependent on revenues and expenses that can be impacted by economic trends. In the past, the Company has not been as affected by these economic trends as other businesses. Cashflow (defined as EBITDAR) is anticipated to range approximately from $400 million to $425 million annually. The sale of assets is less predictable and substantially lower than the cashflows. The sale of assets is dependant upon economic conditions, the amount and nature of sale and leaseback transactions and AMERCO's fleet rotation program. In many cases, a decline in asset sales is accompanied by a decrease in capital expenditures. The Company intends to meet these needs through cash flows, existing lines of credit, additional borrowings and sale of assets. We may be unable to secure such additional borrowings on satisfactory terms or in a timely manner. Depending on the results of our operations, and general and economic competitive conditions, many of which we cannot control, we may take certain actions, including delaying or reducing capital expenditures. 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 the properties from Real Estate and in general, its willingness to engage in such transactions. Credit Agreements AMERCO's 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 Company's fleet of trucks and trailers. As of December 31, 2001, AMERCO had $1,132.6 million in total notes and loans payable outstanding and total unutilized lines of credit of approximately $95.0 million. The Company is in the process of refinancing its' $400 million revolving credit facility. The Company is also in the process of completing a private unsecured debt placement. In addition to the economic pressures, there has been a reduction in leasing companies and banks, which has had a negative impact on the financial markets. This has led to less availability and higher prices. Management of AMERCO believes there are enough leasing companies and banks to meet Company's financing needs. Certain of AMERCO's 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 and placing certain additional liens on its properties, assets and restricting the issuance of certain types of preferred stock. At December 31, 2001, AMERCO was in compliance with these covenants. AMERCO's various credit and financing arrangements are affected by its credit ratings such that were AMERCO to experience a credit downgrade, the interest rates that it is charged might be increased, which would result in an increase in the Company's interest expense and its ability to obtain addtional financing. Reference is made to Note 5 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001 for additional information about AMERCO's credit agreements.
30 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2001.
31 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss.
32 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation 3.2 Restated By-Laws of AMERCO as of August 27, 1997 (1) 10.1 Management Agreement between Eighteen SAC Self Storage Corporation and subsidiaries of AMERCO 10.2 Management Agreement between Twenty SAC Self Storage Corporation and subsidiaries of AMERCO 10.3 Management Agreement between Twenty-One SAC Self Storage Corporation and subsidiaries of AMERCO 10.4 Management Agreement between Twenty-Two SAC Self Storage Corporation and subsidiaries of AMERCO 10.5 Management Agreement between Twenty-Three SAC Self Storage Corporation and subsidiaries of AMERCO (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended December 31, 2001. _________________ (1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255.
33 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 15, 2002 By: /S/ GARY B. HORTON ____________________________________ Gary B. Horton, Treasurer (Principal Financial Officer)