-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PgV0A4KPm2RPSuWFqNe61xQmIW16z5Ta7Nzm/uZpR4Fcy0R2+nKfKVBeGlOyCnjb Pwn62s0FeeY7xf3mRjBUhA== 0000950153-02-001266.txt : 20020719 0000950153-02-001266.hdr.sgml : 20020719 20020717103125 ACCESSION NUMBER: 0000950153-02-001266 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11255 FILM NUMBER: 02704420 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7756886300 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U HAUL INTERNATIONAL INC CENTRAL INDEX KEY: 0000004458 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 860663060 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-38498 FILM NUMBER: 02704421 BUSINESS ADDRESS: STREET 1: 2727 N CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022636645 MAIL ADDRESS: STREET 1: P.O. BOX 21502 CITY: PHOENIX STATE: AZ ZIP: 85036-1502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO INC DATE OF NAME CHANGE: 19770301 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED MANAGEMENT ENGINEERING & RESEAR DATE OF NAME CHANGE: 19730830 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO INC /OR/ DATE OF NAME CHANGE: 19790319 10-K 1 p66760e10vk.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K - Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2002 ------------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- -----------------------
Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Suite 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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Registrant Title of Class on Which Registered - ---------- -------------- --------------------- AMERCO Series A 8 1/2% New York Stock Exchange Preferred Stock U-Haul International, Inc. None
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Class ---------- -------------- AMERCO Common U-Haul International, Inc. None
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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 21,375,037 shares of AMERCO common stock, $0.25 par value, were outstanding at July 12, 2002. The aggregate market value of AMERCO common stock held by non-affiliates (i.e., stock held by persons other than officers, directors and 5% shareholders of AMERCO) was $93,315,111. The aggregate market value was computed using the closing price for the common stock trading on NASDAQ on July 12, 2002. 5,385 shares of U-Haul International, Inc. common stock, $0.01 par value, were outstanding at July 12, 2002. None of these shares were held by non-affiliates. U-Haul International, Inc. meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. Portions of AMERCO's Proxy Statement relating to its Annual Meeting of Stockholders to be held on August 30, 2002, are incorporated by reference in Part III hereof. TABLE OF CONTENTS
PAGE NO. PART I ITEM 1. BUSINESS...................................... 3 A. AMERCO AND SAC HOLDINGS.................. 3 B. HISTORY.................................. 4 C. MOVING AND STORAGE OPERATIONS............ 4 D. REAL ESTATE OPERATIONS................... 5 E. INSURANCE OPERATIONS..................... 6 ITEM 2. PROPERTIES.................................... 9 ITEM 3. LEGAL PROCEEDINGS............................. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............... 10 ITEM 6. SELECTED FINANCIAL DATA....................... 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................... 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ................................... 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS............................... 27 ITEM 11. EXECUTIVE COMPENSATION........................ 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 27 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............. 28
2 PART I ITEM 1. BUSINESS A. AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATION AND CONSOLIDATED SUBSIDIARIES AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (RepWest) and Oxford Life Insurance Company (Oxford). Throughout this Form 10-K, unless the context otherwise requires, the term "AMERCO" includes all of its subsidiaries. AMERCO's executive offices are located at 1325 Airmotive Way, Suite 100, Reno, Nevada 89502-3239, and the telephone number is (775) 688-6300. As used in this Form 10-K, all references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. RepWest and Oxford are consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 2001, 2000 and 1999 correspond to AMERCO's fiscal years 2002, 2001 and 2000, respectively. AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (RepWest) and Life Insurance (Oxford). See Note 21 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the industry segments. SAC Holding Corporations, Nevada corporations (SAC Holdings), are the holding companies for several individual corporations that own storage properties. SAC Holdings is owned by Mark V. Shoen. Mark V. Shoen is the beneficial owner of 15.6% of AMERCO's common stock and is an executive of AMERCO. AMERCO has no (and has never had any) equity ownership interest in SAC Holdings or any of SAC Holdings' subsidiaries. U-Haul currently manages the properties owned by SAC Holdings under management agreements and receives a management fee. SAC Holdings has one business segment - moving and storage operations. The accounts of AMERCO and SAC Holdings are presented as consolidated due to a revised interpretation of EITF 90-15 by AMERCO's independent public accountants. AMERCO agrees with this interpretation. The accompanying consolidated financial statements as of and for the periods ending March 31, 2001 and 2000 have been restated to reflect such consolidation. The following table presents the impact of such consolidation at March 31, 2001:
March 31, 2001 March 31, 2000 ---------------------------- ---------------------------- As reported(1) As restated As reported(1) As restated (in thousands) (in thousands) Assets $3,384,064 3,638,439 $3,125,225 3,291,292 Liabilities $2,768,698 3,126,175 $2,539,931 2,758,838 Stockholders' equity $ 615,366 512,264 $ 585,294 532,454 Net income $ 12,965 1,012 $ 65,491 63,184
(1) As reported in the Company's March 31, 2001 form 10-K, filed on July 2, 2001 prior to the consolidation of SAC Holdings described above. The reduction in stockholders' equity is due to the elimination of gains previously recorded in connection with sales of properties from AMERCO to SAC Holdings. Such gains had been previously recognized as a component of stockholders' equity in the AMERCO financial statements. The reduction in net income is primarily due to the recognition of SAC Holdings' losses for the periods presented. See Note 21 of Notes to Consolidated Financial Statements in Item 8 for financial information regarding the industry segments. MOVING AND STORAGE OPERATIONS Moving and self-storage operations consist of the rental of trucks and trailers, the sale of moving aids such as boxes and the rental of self-storage spaces to the do-it-yourself mover. Operations are conducted using the registered tradename U-Haul(R) throughout the United States and Canada. REAL ESTATE OPERATIONS Real Estate owns approximately 90% of AMERCO's real estate assets, including U-Haul Center and Storage locations. The remainder of the real estate assets are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all the dispositions (sale or lease) of unused real estate. 3 PROPERTY AND CASUALTY INSURANCE RepWest originates and reinsures property and casualty-type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. As of December 31, 2001, RepWest has recognized $2.6 million of assumed incurred losses from the events of September 11, 2001. Republic Western's maximum retention level of $2.0 million has been met and the company will not incur any additional losses. LIFE INSURANCE Oxford originates and reinsures annuities, credit life and disability, single premium whole life, group life and disability coverage, and Medicare supplement insurance. Oxford also administers the self-insured employee health and dental plans for AMERCO. On November 13, 2000, Oxford acquired all of the issued and outstanding shares of Christian Fidelity Life Insurance Company (CFLIC) in an exchange of cash for stock. CFLIC is a Texas-based insurance company specializing in providing supplemental health insurance and is licensed in 31 states. The acquisition was accounted for using the purchase method of accounting and, accordingly, CFLIC's results of operations have been included in the consolidated financial statements since the date of acquisition. Oxford funded the acquisition from available cash and short-term funds. B. HISTORY U-Haul was founded in 1945 under the name "U-Haul Trailer Rental Company". From 1945 to 1974, U-Haul rented trailers and, starting in 1959, trucks on a one-way and In-Town(R) basis through independent dealers. Since 1974, U-Haul has developed a network of Company managed rental centers (U-Haul Centers) through which U-Haul rents its trucks and trailers and provides related products and services (e.g., the sale and installation of hitches, as well as the sale of boxes and moving supplies). At March 31, 2002, U-Haul's distribution network included 1,345 Company operated centers and 14,905 independent dealers. C. MOVING AND STORAGE OPERATIONS BUSINESS STRATEGIES The U-Haul business strategy remains focused on do-it-yourself moving and self-storage customers. U-Haul believes that customer access, in terms of truck or trailer availability and proximity of rental locations, is critical to its success. Under the U-Haul name, our strategy is to offer, in an integrated manner over an extensive and geographically diverse network of 16,250 Company operated Centers and independent dealers, a wide range of products and services to do-it-yourself moving and self-storage customers. MOVING OPERATIONS U-Haul has a variety of product offerings. Rental trucks are designed with do-it-yourself customers in mind. U-Haul trailers are suited to the low profile of many newly manufactured automobiles. As of March 31, 2002, the U-Haul rental equipment fleet consisted of 97,000 trucks, 87,000 trailers and 21,000 tow dollies. Additionally, U-Haul provides support rental items such as furniture pads, utility dollies and handtrucks. Approximately 90% of U-Haul's rental revenue is from do-it-yourself movers. Moving rentals include: (i) In-Town(R) rentals, where the equipment is returned to the originating U-Haul location and (ii) one-way rentals, where the equipment is returned to a U-Haul location in Another city. U-Haul's truck and trailer rental business tends to be seasonal, with proportionally more transactions and revenues generated in the spring and summer months than during the balance of the year. U-Haul sells a wide selection of moving supplies that include boxes, tape and packaging materials. U-Haul Centers also sell and install hitches and towing systems, and sell propane. U-Haul offers protection packages such as: (i) Safemove(R) - which provides moving customers with a damage waiver, cargo protection and medical and life coverage; and, (ii) Safestor(R) - which provides self-storage rental customers with various types of protection for their goods in storage. 4 Independent dealers receive U-Haul equipment on a consignment basis and are paid a commission on gross revenues generated from their rentals. U-Haul maintains contracts with its independent dealers that may typically be terminated upon 30 days written notice by either party. U-Haul designs and manufactures its truck van boxes, trailers and various other support rental equipment items. Truck chassis are manufactured by both foreign and domestic truck manufacturers. These chassis receive certain post-delivery modifications and are joined with van boxes at strategically located Company-owned manufacturing and assembly facilities in the United States. U-Haul services and maintains its trucks and trailers through an extensive preventive-maintenance program, generally performed at Company-owned facilities located at or near U-Haul Centers. Major repairs are performed either by the chassis manufacturers' dealers or by Company-owned repair shops. COMPETITION A highly competitive industry exists within the moving truck and trailer rental market. U-Haul believes that the principal competitive factors are convenience of rental locations, availability of quality rental equipment and price. U-Haul's major competitors in the rental market are Budget and Penske. There are two distinct users of rental trucks: commercial users and do-it-yourself users. U-Haul focuses on the do-it-yourself mover. SELF-STORAGE BUSINESS U-Haul entered the self-storage business in 1974 and continues to increase its presence in the industry through the acquisition of existing facilities and new construction. In addition, U-Haul has entered into management agreements to manage self-storage properties owned by others, including SAC Holdings. U-Haul has also entered into a strategic and financial partnership with Private Mini Storage Realty, L.P., a Texas-based operator of self-storage properties. Through 1,023 owned, managed or participating self-storage locations in the United States and Canada, U-Haul offers for rent more than 361,600 self-storage spaces at March 31, 2002. This is an increase of 1,955,688 square feet over the prior year. U-Haul's self-storage facility locations range in sizes up to 152,600 square feet of storage space, with individual storage units in sizes from 15 square feet to 400 square feet. The primary market for storage rooms is the storage of household goods. With the addition of 18,833 storage rooms during fiscal year 2002, the average occupancy rate of same store facilities operating over one year was 82.85%, with modest seasonal variations. During fiscal years 2002 and 2001, delinquent rentals as a percentage of total storage rentals were approximately 7.7%. U-Haul considers this rate to be satisfactory. COMPETITION The primary competition for a U-Haul self-storage location is other storage facilities within a trade area offering a comparable level of convenience to the customer. EMPLOYEES As of March 31, 2002, U-Haul's non-seasonal work force consisted of 16,100 full and part-time employees. D. REAL ESTATE OPERATIONS REAL ESTATE OPERATIONS Real Estate has responsibility for actively marketing properties available for sale or lease. Real Estate is also responsible for managing any environmental risks associated with AMERCO's real estate. ENVIRONMENTAL MATTERS 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 $43.7 million. See also Item 3. Legal Proceedings. 5 E. INSURANCE OPERATIONS BUSINESS STRATEGIES RepWest's principal business strategy is to provide insurance for commercial and reinsurance markets. RepWest focuses on selected regional and under-served customers through managing general agents, independent agents, brokers and direct sales. Oxford's business strategy is long-term capital growth through direct writing and reinsuring of annuity, credit life and disability and Medicare supplement products. Oxford is pursuing a growth strategy of increased direct writing via acquisitions of insurance companies, expanded distribution channels and product development. The acquisitions of North American Insurance Company and Safe Mate Life Insurance Company in 1997 and Christian Fidelity Life Insurance Company in 2000 represent a significant movement toward this long-term goal. Oxford has significantly expanded product offerings, distribution channels and administrative capabilities through these acquisitions. INVESTMENTS RepWest and Oxford investments must comply with the insurance laws of the state of domicile. These laws prescribe the type, quality and concentration of investments that may be made. Moreover, in order to be considered an acceptable reinsurer by cedents and intermediaries, a reinsurer must offer financial security. The quality and liquidity of invested assets are important considerations in determining such security. The investment philosophies of RepWest and Oxford emphasize protection of principal through the purchase of investment grade fixed-income securities. Approximately 88.0% of RepWest's and 93.2% of Oxford's fixed-income securities consist of investment grade securities (NAIC-2 or greater). The maturity distributions are designed to provide sufficient liquidity to meet future cash needs. REINSURANCE RepWest and Oxford assume and cede insurance from and to other insurers and members of various reinsurance pools and associations. Reinsurance arrangements are utilized to provide greater diversification of risk and to minimize exposure to large risks. However, the original insurer retains primary liability to the policyholder should the assuming insurer not be able to meet its obligations under the reinsurance agreements. REGULATION RepWest and Oxford are subject to regulation and supervision throughout the United States. The regulation extends to such matters as licensing companies and agents, restricting the types, quality or quantity of investments, regulating capital and surplus and actuarial reserve maintenance, setting solvency standards, filing of annual and other reports on financial position, and regulating trade practices. State laws also regulate transactions and dividends between an insurance company and its parent or affiliates, and generally require prior approval or notification for any change in control of the insurance subsidiary. RepWest's unpaid losses and loss expenses are certified annually by an independent actuarial consulting firm as required by state regulation. In the past few years, the insurance and reinsurance regulatory framework has been subjected to increased scrutiny by the National Association of Insurance Commissioners (NAIC), federal and state legislatures and insurance regulators. These regulators are considering increased regulations, with an emphasis on insurance company investment and solvency issues. It is not possible to predict the future impact of changing state and federal regulations on the operations of RepWest and Oxford. RepWest and Oxford are in compliance with NAIC minimum risk-based capitalization requirements for insurance companies as of December 31, 2001. COMPETITION The highly competitive insurance industry includes a large number of property and casualty insurance companies and life insurance companies. In addition, the marketplace now includes financial service firms offering both insurance and financial products. Some of the insurance companies are owned by stockholders and others are owned by policyholders. Many competitors have been in business for a longer period of time or possess substantially greater financial resources. RepWest and Oxford compete in the insurance business based upon price, product design and services rendered to producers and policyholders. 6 EMPLOYEES RepWest's non-seasonal work force consists of 397 full and part-time employees. Oxford's non-seasonal work force consists of 159 full and part-time employees. LIFE INSURANCE Oxford offers annuities, credit life and disability, critical illness insurance, single premium whole life, group life and disability coverage, and Medicare supplement insurance. Oxford also administers the self-insured group health and dental plans for AMERCO. Reinsurance arrangements are entered into with unaffiliated reinsurers. PROPERTY AND CASUALTY RepWest's business activities consist of three basic areas: U-Haul, direct and assumed reinsurance underwriting. U-Haul underwritings include coverage for U-Haul customers, independent dealers, fleet owners and employees of AMERCO. For the year ended December 31, 2001, approximately 19.6% of RepWest's written premiums resulted from U-Haul underwriting activities. RepWest's direct underwriting is done through Company-employed underwriters and selected general agents. The products provided include liability coverage for rental vehicle lessees, storage rental properties, coverage for commercial multiple peril, commercial auto, mobile homes and excess workers' compensation. RepWest's assumed reinsurance underwriting is done via broker markets. In an effort to decrease risk, RepWest has entered into various catastrophe cover policies to limit its exposure. The liability for reported and unreported losses is based on both RepWest's historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. The liability for unpaid losses and loss adjustment expenses is based on estimates of the amount necessary to settle all claims as of the statement date. Both reported and unreported losses are included in the liability. RepWest updates the liability estimate as additional facts regarding claim costs become available. These estimates are subject to uncertainty and variation due to numerous factors. In estimating reserves, no attempt is made to isolate inflation from the combined effect of other factors including inflation. Unpaid losses and loss adjustment expense are not discounted. Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
2001 2000 1999 --------------------------- (in thousands) Balance at January 1 $ 369,292 334,857 344,748 Less reinsurance recoverable 80,599 58,403 68,135 --------------------------- Net balance at January 1 288,693 276,454 276,613 Incurred related to: Current year 232,984 155,073 121,861 Prior years 36,132 35,387 16,052 --------------------------- Total incurred 269,116 190,460 137,913 Paid related to: Current year 106,395 61,196 55,136 Prior years 130,471 117,025 82,936 --------------------------- Total paid 236,866 178,221 138,072 Net balance at December 31 320,943 288,693 276,454 Plus reinsurance recoverable 128,041 80,599 58,403 --------------------------- Balance at December 31 $ 448,984 369,292 334,857 ===========================
As a result of changes in estimates of insured events in prior years, the provision for unpaid losses and loss adjustment expenses (net of reinsurance recoveries of $53.1 million) increased by $36.1 million in 2001. The following table illustrates the change in unpaid loss and loss adjustment expenses. First line - reserves as originally reported at the end of the stated year. Second section, reading down, - cumulative amounts paid as of the end of successive years with respect to that reserve. Third section, reading down, - revised estimates of the original recorded reserve as of the end of successive years. Last section - compares the latest revised estimated reserve amount to the reserve amount as originally established. This last section is cumulative and should not be summed. 7 Unpaid Loss and Loss Adjustment Expenses
December 31 - ------------------------------------------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------------------------------------------------------------------------------------------------------------------------- (in thousands) Unpaid Loss and Loss Adjustment Expenses: $236,019 238,762 314,482 329,741 341,981 332,674 384,816 344,748 334,857 369,292 448,984 Paid (Cumulative) as of: One year later 65,532 83,923 70,382 86,796 89,041 89,336 103,752 82,936 117,025 130,471 Two years later 105,432 123,310 115,467 139,247 150,001 161,613 174,867 164,318 186,193 Three years later 126,390 153,030 146,640 173,787 195,855 208,168 216,966 218,819 Four years later 143,433 173,841 166,068 198,434 226,815 232,726 246,819 Five years later 153,730 181,677 181,174 219,425 243,855 250,312 Six years later 160,875 191,938 194,652 231,447 254,204 Seven years later 168,975 200,281 203,535 237,118 Eight years later 175,364 207,719 207,834 Nine years later 182,235 211,075 Ten years later 184,822 Reserve Reestimated as of: One year later 231,779 251,450 321,058 338,033 353,508 354,776 357,733 339,602 377,096 433,222 Two years later 224,783 254,532 323,368 340,732 369,852 342,164 361,306 371,431 419,268 Three years later 223,403 253,844 309,936 349,459 328,445 346,578 369,598 407,285 Four years later 214,854 231,536 317,687 302,808 331,897 349,810 397,046 Five years later 198,320 239,888 267,005 300,180 339,665 362,049 Six years later 210,872 263,843 262,517 307,306 341,207 Seven years later 231,407 259,798 267,948 310,005 Eight years later 227,603 265,285 269,874 Nine years later 230,851 265,423 Ten years later 229,325
Cumulative Redundancy (Deficiency) $ 6,694 (26,661) 44,608 19,736 774 (29,375) (12,230) (62,537) (84,411) (63,930) Retro Premium Recoverable $ 3,175 (66) 6,983 6,632 11,147 12,754 12,390 21,488 27,231 33,471 Reestimated Reserve: Amount (Cumulative) $ 9,869 (26,727) 51,591 26,368 11,921 (16,621) 160 (41,049) (57,180) (30,459)
8 ITEM 2. PROPERTIES AMERCO's subsidiaries own property, plant and equipment that are utilized in the manufacture, repair and rental of U-Haul equipment and that provide office space for the Company. Such facilities exist throughout the United States and Canada. U-Haul also manages storage facilities owned by others. In addition, U-Haul owns certain real estate not currently used in its operations. U-Haul operates 1,345 U-Haul Centers (including Company-owned storage locations), and operates 10 manufacturing and assembly facilities. U-Haul also operates 102 repair facilities located at or near a U-Haul Center. SAC Holdings owns property, plant and equipment that is utilized in the rental of self-storage rooms and U-Haul equipment. Such facilities exist throughout the United States and Canada. The majority of land and buildings are encumbered by note debt. The debt is held by unrelated third parties or by AMERCO subsidiaries in the normal course of business. U-Haul manages the storage facilities under management agreements whereby the fees are consistent with fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. ITEM 3. 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. See "Item 1. Business - Environmental Matters". In the normal course of business, SAC Holding is a defendant in a number of suits and claims. It is the opinion of management that none of the suits, claims or proceedings involving SAC Holding, individually or in the aggregate, are expected to result in a material loss. 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. Kocher purchased the policy in conjunction with the purchase of a $7,800 used pick-up truck. Although Oxford violated no pretrial discovery order and had never been on notice of the possibility of sanctions for its pretrial conduct, immediately prior to trial, the court sanctioned Oxford by directing a verdict against Oxford on liability for compensatory and punitive damages. Therefore, the only issue presented to the jury was the amount of compensatory and punitive damages. On March 22, 2002, the jury returned a verdict of $5 million in compensatory damages and $34 million in punitive damages. On June 10, 2002, the trial court heard argument on Oxford's "Motion for New Trial Or, in The Alternative, Remittitur." On June 28, 2002 the parties submitted proposed draft orders from which the trial court will fashion its Final Judgment. Management does not believe that the sanction imposed against Oxford is sustainable and expects the sanction to be overturned. Accordingly, no amounts have been recorded with respect to this matter. Moreover, Management does not believe that the jury award has any reasonable nexus to the actual harm suffered by Kocher and, therefore, is not sustainable. 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 liable 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 the federal bankruptcy laws in May of 2001. Although it is not probable that a loss has occurred the potential liability to INW could be in the range of $2.0 million to $5.5 million. Based upon the information currently available to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO's financial position or operating results. Reference is made to Note 15 in Notes to Consolidated Financial Statements in Item 8 for a discussion of the final payments made in connection with stockholder litigation and California overtime litigation. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report, through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of July 12, 2002, there were approximately 1,150 holders of record of AMERCO's common stock. AMERCO's common stock has been traded on NASDAQ National Market (NASDAQ) since November 1994 under the symbol "UHAL". The following table sets forth the high and low closing prices of the common stock of AMERCO trading on NASDAQ for the periods indicated.
For the Years Ended March 31, -------------------------------------------- 2002 2001 -------------------------------------------- High Low High Low -------------------------------------------- First quarter 22.30 16.98 20.00 16.25 Second quarter 22.50 17.90 21.13 18.31 Third quarter 19.70 17.00 24.38 18.56 Fourth quarter 19.10 14.75 22.38 17.22
AMERCO has not declared any cash dividends to common stockholders for the two most recent fiscal years. AMERCO does not have a formal dividend policy. AMERCO's Board of Directors periodically considers the advisability of declaring and paying dividends in light of existing circumstances. AMERCO does not intend to pay dividends in the foreseeable future. See Note 20 of Notes to Consolidated Financial Statements in Item 8 for a discussion of certain statutory restrictions on the ability of the insurance subsidiaries to pay dividends to AMERCO. See Note 16 of Notes to Consolidated Financial Statements in Item 8 for a discussion of AMERCO's non-cash dividends. See Note 6 of Notes to Consolidated Financial Statements in Item 8 for a discussion of changes to common shares outstanding. The common stock of U-Haul is wholly-owned by AMERCO. As a result, no active trading market exists for the purchase and sale of such common stock. U-Haul has not declared cash dividends to AMERCO during the two most recent fiscal years. 10 ITEM 6. SELECTED FINANCIAL DATA AS RESTATED AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES
For the Years Ended March 31, ------------------------------------------------------------------------------- 2002 2001 2000 1999(11) 1998(11) ------------------------------------------------------------------------------- (in thousands, except share, per share data and ratios) Summary of Operations: Rental revenue and net sales $ 1,566,838 1,497,774 1,410,121 1,299,956 1,225,196 Premiums, net investment and interest income 501,172 390,268 325,750 291,811 225,721 ---------------------------------------------------------------------------- 2,068,010 1,888,042 1,735,871 1,591,767 1,450,917 ---------------------------------------------------------------------------- Operating expenses and cost of sales (4) 1,232,306 1,173,735 1,064,699 1,006,991 934,574 Benefits, losses and amortization of deferred acquisition costs 430,196 319,312 244,579 208,281 189,770 Lease expense 175,501 173,078 130,951 118,742 89,879 Depreciation, net (3) 108,683 101,508 96,090 77,429 72,404 ---------------------------------------------------------------------------- 1,946,686 1,767,632 1,536,319 1,411,443 1,286,627 ---------------------------------------------------------------------------- 121,324 120,410 199,552 180,324 164,290 Interest expense 116,345 114,576 99,859 85,611 89,333 ---------------------------------------------------------------------------- Pretax earnings 4,979 5,834 99,693 94,713 74,957 Income tax expense (2,258) (2,701) (36,175) (35,542) (26,550) ---------------------------------------------------------------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 2,721 3,133 63,518 59,171 48,407 Extraordinary loss on early extinguishment of debt, net -- (2,121) (334) -- (13,672) ---------------------------------------------------------------------------- (2)(7)(8)(9)(10) Net earnings $ 2,721 1,012 63,184 59,171 34,735 ============================================================================ Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt per common share (2) $ (0.49) (0.46) 2.27 1.90 1.26 Net earnings (2)(7)(8)(9)(10) (0.49) (0.56) 2.26 1.90 0.64 Weighted average common shares outstanding 21,022,712 21,486,370 21,934,390 21,937,686 21,896,101 Cash dividends declared: Preferred stock $ 12,961 12,963 13,641 17,414 20,766 Common stock -- -- -- -- -- Ratio of earnings to fixed charges (1) 1.29 1.19 1.83 1.80 1.62
11 ITEM 6. SELECTED FINANCIAL DATA AS RESTATED, CONTINUED AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES
For the Years Ended March 31, ------------------------------------------------------------------------------ 2002 2001 2000(11) 1999(11) 1998(11) ------------------------------------------------------------------------------ (in thousands, except share, per share data and ratios) Balance Sheet Data: Property, plant and equipment, net $1,914,903 1,898,627 1,704,483 1,532,239 1,424,042 Total assets 3,773,455 3,638,439 3,291,292 3,142,609 2,992,261 AMERCO's notes and loans payable 1,045,802 1,170,041 1,137,840 1,114,748 1,025,323 SAC Holdings' notes and loans payable 557,761 373,326 230,776 115,609 76,934 Stockholders' equity (9) 499,106 512,264 532,454 565,068 583,241 Other information: EBITDAR (5) 446,182 430,941 461,580 408,216 340,767 Operating profit margin (6) 8.7% 9.4% 14.0% 13.8% 13.4%
(1) For purposes of computing the ratio of earnings to fixed charges, "earnings" consists of pretax earnings from operations plus total fixed charges excluding interest capitalized during the period and "fixed charges" consists of interest expense, preferred stock dividends, capitalized interest, amortization of debt expense and discounts and one-third of AMERCO'S stand alone annual rental expense (which AMERCO believes is a reasonable approximation of the interest factor of such rentals). (2) Earnings and net earnings per common share were computed after giving effect to the dividends on the Company's Series B floating rate stock for all years presented. (3) Reflects the change in estimated residual values during the year ended March 31, 1998. (4) Reflects the adoption of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" during the year ended March 31, 1998. (5) EBITDAR is defined as earnings before interest expense, taxes, depreciation, amortization and lease expense (100%). EBITDAR is presented because the Company believes it is a widely accepted financial indicator of an entity's ability to incur and service debt. (6) Operating profit margin - Earnings from operations plus 1/3 lease expense divided by total revenues. (7) Reflects the early extinguishment of debt with notional amounts totaling $76.0 million and $255.0 million during fiscal year 1998. (8) Reflects the early extinguishment of Medium-Term Notes and Bond Backed Asset Trust certificates with notional amounts totaling $50.0 million and $100.0 million, respectively, during fiscal year 2000. (9) Reflects the redemption of $25 million, $50 million and $25 million of Series B Preferred Stock in fiscal years 2000, 1999 and 1998, respectively. (10) Reflects the early extinguishment of Medium-Term Notes and Bond Backed Asset Trust certificates with notional amounts totaling $25.0 million and $100.0 million, respectively, during fiscal year 2001. (11) The accounts of AMERCO and SAC Holding Corporations are presented as consolidated due to a revised interpretation of EITF 90-15 during fiscal year 2002. The balance sheet at March 31, 2000, and the income statement for the two years ended March 31, 1999 were restated to conform with the current year's presentation, but were not audited. The amounts include the audited AMERCO information as well as unaudited SAC Holdings information. Such unaudited SAC Holdings information was not material to the financial position or results of operations of the consolidated financial statements for such periods. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe-harbor provisions. Such statements may include, but are not limited to, projections of revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. 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; changes in accounting standards and other factors described in this report 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 AMERCO's Consolidated Financial Statements, could contribute to or cause such differences, or could cause AMERCO's stock price to fluctuate dramatically. GENERAL Information on fiscal year, industry segments and AMERCO and SAC Holdings is incorporated by reference to "Item 8. Financial Statements and Supplementary Data - Notes 1, 20, and 21 of Notes to Consolidated Financial Statements". The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographic area data. 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. The preparation of these 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 revalued, 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, revenue earning vehicles and buildings, self-insured liabilities, income taxes and commitments and contingencies. The 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 are believed 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. Accounting policies are considered critical when they are significant and involve difficult, subjective or complex judgments or estimates. Of the accounting policies discussed in "Item 8. Financial Statements and Supplementary Data - Note 1 of Notes to Consolidated Financial Statements", the following are considered 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 its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. AMERCO has not had any equity ownership interest in SAC Holdings or any of SAC Holdings' subsidiaries. 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, historical disposal experience 13 and holding periods, and trends in the market for vehicles are reviewed. 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 - The carrying value is reviewed 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 an unexpected non-compliance with significant debt agreements. Investments - In determining if and when a decline in market value below amortized cost is other than temporary, quoted market prices, dealer quotes or discounted cash flows are reviewed. 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 when due. 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. DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Payments due by Period Contractual Obligations Total Less than 1-3 4-5 After 5 1 year years years years --------------------------------------------------- AMERCO's notes and loans $1,045,802 240,642 600,057 30,248 174,855 payable SAC Holdings' notes and loans payable including lease financings $ 557,761 137,313 128,185 13,040 279,223 Leases obligations $ 464,296 152,816 115,090 162,176 34,214 -------------------------------------------------- Total Contractual Obligations $2,067,859 530,771 843,332 205,464 488,292 ==================================================
LIQUIDITY AND CAPITAL RESOURCES AMERCO'S MOVING AND STORAGE OPERATIONS To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. In fiscal year 2002, capital expenditures were $275.8 million, as compared to $448.2 million and $476.8 million in fiscal years 2001 and 2000, respectively. 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 lease financings. 14 During each of the fiscal years ending March 31, 2003, 2004 and 2005, U-Haul estimates gross capital expenditures will average approximately $289.0 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with a potential range of $150-$205 million in annual long-term debt maturities, are expected to create annual average funding needs of approximately $466.0 million. Management estimates that U-Haul will fund these requirements with leases, internally generated funds, including the proceeds from the disposition of older trucks and other asset sales, and to a lesser extent refinance of a portion of existing indebtedness. The sale of assets is dependent upon economic conditions, the amount and nature of sale-leaseback transactions, and AMERCO's fleet rotation program. Operating leases on rental equipment were the result of sale-lease back transactions, whereby as part of the agreement residual value guarantees were provided. AMERCO believes the market value of the trucks upon the lease maturity will be greater than the residual value guarantees. In many cases, a decline in asset sales is accompanied by a decrease in capital expenditures. Depending on the results of our operations and general economic and competitive conditions, many of which we cannot control, we may take certain actions, including delaying or reducing capital expenditures. Real Estate has sold storage properties, from time to time, to SAC Holdings. These sales have in the past provided significant cash flows to AMERCO. The ability of Real Estate 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 acquisitions of properties from Real Estate and in general, its willingness to engage in such transactions. Also, Real Estate continues to sell surplus properties to third parties primarily for cash at current levels. At March 31, 2002, total outstanding notes and mortgages payable for AMERCO and consolidated subsidiaries was $1,045.8 million compared to $1,170.0 million at March 31, 2001. On June 28, 2002, AMERCO entered into an agreement replacing an existing revolver agreement with a 3 year revolver for $205.0 million. At March 31, 2002, total outstanding notes and mortgages payable for SAC Holdings and consolidated subsidiaries, before intercompany eliminations of $399.6 million was $957.4 million compared to $504.2 million at March 31, 2001. SAC Holdings' creditors have no recourse to AMERCO. AMERCO is not liable for the debts of SAC Holdings. Further, there are no cross default provisions on indebtedness between AMERCO and SAC Holdings. Lease financing included in the above totals approximated $117.1 million and $114.0 million at March 31, 2002 and March 31, 2001, respectively. AMERCO has no (and has never had any) ownership interest in SAC Holdings or its subsidiaries. The presentation of the consolidated statements has no bearing or consideration to the credit agreements or the operations of each company. The accounts of AMERCO and SAC Holdings are presented as consolidated due to a revised interpretation of EITF 90-15 by the Company's independent public accountants. The company agrees with the revised interpretations. CREDIT AGREEMENTS AMERCO's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes and revolving lines of credit with domestic and foreign banks. To finance its fleet of trucks and trailers, U-Haul routinely enters into sale and leaseback transactions. As of March 31, 2002, AMERCO had $1,045.8 million in total notes and loans outstanding. We believe there are enough leasing companies, banks and other forms of financing to meet our 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 and assets and restricting the issuance of certain types of preferred stock. At March 31, 2002, AMERCO was in compliance with these covenants. AMERCO's various credit and financing arrangements are affected by its credit ratings such that if AMERCO experiences a credit downgrade, the interest rates that it is charged might be increased, which would result in an increase in AMERCO's interest expense and hinder its ability to obtain additional financing on terms acceptable to it, if at all. Subsequent to year-end, the Company executed a $205 million revolver credit agreement and an existing agreement expired. 15 SAC HOLDINGS SAC Holdings intends to meet its current debt obligations through cash flows, generated from its operating activities. SAC Holdings intends to continue to purchase storage properties during the next year using financing arrangements. Reference is made to "Item 8 - Note 5 of Notes to Consolidated Financial Statements". CONSOLIDATED NET CASH PROVIDED BY OPERATING ACTIVITIES Net cash provided by operating activities was $130.5 million, $280.5 million and $224.1 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follows: AMERCO MOVING AND STORAGE OPERATIONS Cash provided by operating activities was $185.3 million, $39.7 million and $147.5 million in fiscal years 2002, 2001 and 2000, respectively. The increase in the current year is due to an increase in earnings and an increase in intercompany payable with Real Estate operations. The decrease from fiscal year 2000 to fiscal year 2001 is mainly due to a decrease in intercompany payable. REAL ESTATE OPERATIONS Cash provided (used) by operating activities was $(227.9) million, $50.5 million and $24.8 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal year 2002 is due to a decrease in the intercompany payable with AMERCO Moving and Storage operations. The increase in fiscal year 2001 is due to an increase in intercompany payable. This is due to dividends paid related to the sale of property. PROPERTY AND CASUALTY Cash provided (used) by operating activities was $(54.9) million, $21.1 million and $(11.1) million for the years ended December 31, 2001, 2000 and 1999, respectively. The 2000 to 2001 change resulted from decreased unearned premiums, increased premium receivables and intercompany due from affiliates, and an increase in federal income tax recoverable. The 1999 to 2000 change resulted from increased premium collections and funds withheld, offset by increased loss and loss adjustment expense payments and policy acquisition costs associated with new business production. RepWest's cash and cash equivalents and short-term investment portfolio were $18.3 million, $17.0 million and $6.0 million at December 31, 2001, 2000 and 1999, respectively. This balance reflects funds in transition from maturity proceeds to long-term investments. This level of liquid assets, combined with anticipated operating cash flow, is adequate to meet periodic needs. Capital and operating budgets allow RepWest to schedule cash needs in accordance with investment and underwriting proceeds. During fiscal 2002, RepWest realized a write-down of investments due to other than temporary declines approximating $4.3 million. LIFE INSURANCE Cash provided (used) by operating activities was $(3.1) million, $3.7 million and $22.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. The decrease in cash flows from operating activities in 2000 relates to paid loss experience. Cash flows provided by financing activities were $58.1 million, $13.9 million and $3.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. Cash flows from deferred annuity sales increase investment contract deposits, which are a component of financing activities, as well as the purchase of fixed maturities, which is a component of investing activities. The increase in investment contract deposits in 2001 over 2000 is due to growth in new deposits offset by withdrawals and terminations of existing deposits. 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. 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 amounted to $53.5 million, $45.0 million and $30.7 million at December 31, 16 2001, 2000 and 1999, respectively. Oxford believes that the overall sources of liquidity will continue to meet foreseeable cash needs. During fiscal 2002, Oxford realized a write-down of investments due to other than temporary declines approximating $2.3 million. SAC HOLDINGS Cash provided by operating activities was $6.7 million, $2.8 million and $0.7 million in fiscal years 2002, 2001 and 2000, respectively. At March 31, 2002, total outstanding notes and mortgages payable before intercompany eliminations of $399.6 million were $957.4 million compared to $504.2 million at March 31, 2001. CONSOLIDATED STOCKHOLDERS' EQUITY Consolidated stockholders' equity was $499.1 million, $512.3 million and $532.5 million as of March 31, 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS U-Haul's stockholders' equity was $538.9 million, $495.7 million and $420.7 million as of March 31, 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is mainly the result of increased additional paid in capital due to the sale of property to a related party. Such amounts are eliminated in consolidation. The increase in fiscal year 2001 was due to earnings. REAL ESTATE OPERATIONS Real Estate stockholders' equity was $198.4 million, $89.1 million and $96.1 million as of March 31, 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is due to the sale of storage properties. The decrease in fiscal year 2001 relates to the payment of a dividend to U-Haul partially offset by increased earnings. PROPERTY AND CASUALTY RepWest maintains a diversified securities investment portfolio, primarily in bonds at varying maturity levels with 88.0% of the fixed-income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Liquidity remains strong, with invested assets equal to 75.3% of total liabilities. The liability for reported and unreported losses are based upon both RepWest's 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. RepWest's stockholder's equity was $214.0 million, $192.1 million and $208.5 million at December 31, 2001, 2000 and 1999, respectively. The increase from 2000 to 2001 was the result of a $60.2 million capital contribution from the RepWest's parent AMERCO, offset by operating losses in 2001. The decrease from 1999 to 2000 is a result of operating losses and a change in market value for the available for sale investment portfolio. RepWest considers current stockholder's equity to be adequate to support future growth and absorb unforeseen risk events. RepWest does not use debt or equity issues to increase capital and therefore has no exposure to capital market conditions. RepWest did not pay dividends to its parent during 2001, 2000 or 1999. LIFE INSURANCE Oxford's stockholder's equity was $128.8 million, $99.8 million and $88.1 million as of December 31, 2001, 2000 and 1999, respectively. The increase from 2000 to 2001 is a result of earnings and changes in market value for the available for sale investment portfolio and a $15.4 million contribution from AMERCO. Oxford did not pay dividends to its parent during 2001, 2000 or 1999. SAC HOLDINGS SAC Holdings' stockholders' deficit was $(19.5) million, $(31.7) million and $(11.5) million as of March 31, 2002, 2001 and 2000, respectively. Stockholder's deficit for fiscal 2002 decreased due to a $27.0 million contribution of stock by the owner recorded to additional paid-in capital, offset by a net loss of $14.8 million. 17 INSURANCE OPERATIONS Applicable laws and regulations of the State of Arizona require RepWest and Oxford to maintain minimum capital determined in accordance with statutory accounting practices. Such amount is $1.0 million and $0.4 million, for RepWest and Oxford, respectively. In addition, the amount of dividends that can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends without regulatory approval is $15.2 million and $0.1 million for RepWest and Oxford, respectively at December 31, 2001. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. Oxford issued a surplus note to AMERCO on December 31, 1998 for $10.0 million. Approval by the Arizona Department of Insurance is required prior to payment of principal and interest. The Regulatory authorities impose minimum risk-based capital ("RBC") requirements that were developed by the NAIC, on insurance enterprises. The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on perceived degree of risk. Regulatory compliance is determined by a ratio of the enterprise's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The RBC measures of the Company, NAI and CFLIC as of December 31, 2001 were all above the minimum standards. RESULTS OF OPERATIONS - CONSOLIDATED CONSOLIDATED RENTAL REVENUE Rental revenue, net of commission expense was $1,344.0 million, $1,285.5 million, and $1,208.8 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Rental revenue was $1,243.4 million, $1,202.4 million and $1,148.2 million fiscal years 2002, 2001 and 2000, respectively. The increase from fiscal year 2001 to fiscal year 2002 is due to an increase in one-way transactions with an improved average dollar per transaction on one-way rentals as well as growth in transactions in trailer rentals and support rental items. The increase from fiscal year 2000 to fiscal year 2001 was primarily due to the growth in truck rental revenues, which benefited from transactional growth and reflects higher average revenue per transaction. REAL ESTATE OPERATIONS Rental revenue, before intercompany eliminations, were $78.7 million, $71.9 million and $73.4 million in fiscal years 2002, 2001 and 2000, respectively. Intercompany rental revenue was $75.0 million, $71.1 million and $71.0 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal year 2002 is related to the sale of properties to a related party while rental revenue was consistent between fiscal year 2000 and fiscal year 2001. SAC HOLDINGS Rental revenue was $111.1 million, $88.6 million and $64.9 million in fiscal years 2002, 2001 and 2000, respectively. Increased facility capacity through the acquisition of new locations and increased storage rates accounted for the increase. The occupancy of existing storage locations has remained stable. CONSOLIDATED NET SALES Net sales revenues were $222.8 million, $212.2 million and $201.4 million in fiscal years 2002, 2001 and 2000, respectively. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in the increase for each year. AMERCO'S MOVING AND STORAGE OPERATIONS Net sales revenues were $198.3 million, $194.3 million and $188.8 million in fiscal years 2002, 2001 and 2000, respectively. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in the increase for each year. 18 SAC HOLDINGS Net sales revenues were $24.4 million, $17.9 million and $12.5 million in fiscal years 2002, 2001 and 2000, respectively. Revenue growth was due to the addition of new locations. CONSOLIDATED PREMIUMS Premium revenues, after intercompany eliminations, were $433.6 million, $323.2 million and $262.1 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: PROPERTY AND CASUALTY Premium revenues, before intercompany eliminations, were $274.0 million, $218.1 million and $173.8 million for the years ended December 31, 2001, 2000 and 1999, respectively. General agency premiums were $107.4 million, $64.3 million and $17.8 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase from 2000 to 2001 was the result of trucking, commercial lines business, and the non-standard auto program. Assumed treaty reinsurance premiums were $73.0 million, $83.2 million and $80.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. Rental industry revenues were $59.6 million, $43.3 million and $50.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase from 2000 was the result of an increase in premiums of a retrospectively rated policy on the U-Haul industry liability policy. LIFE INSURANCE Premium revenues, before intercompany eliminations, were $160.1 million, $112.6 million and $96.4 million for the years ended December 31, 2001, 2000 and 1999, respectively. Oxford increased Medicare supplement premiums through direct writings and the acquisition of Christian Fidelity Life Insurance Company (CFLIC); these actions increased premiums by $49.6 million from 2000 and $61.8 million from 1999. Premiums from Oxford's life insurance lines increased $1.2 million from 2000 and decreased $0.4 million from 1999 due to production fluctuations from year to year. In the area of credit insurance, Oxford had cancelled accounts in specific states and has experienced an industry-wide reduction in new premium production. These factors contributed to a $3.7 million decrease in premium from 2000 and a $0.4 million decrease from 1999. Annuitizations decreased by $1.9 million from 2000 and $0.8 million from 1999. Other health insurance premiums increased $2.3 million from 2000 and $3.5 million from 1999 due to a higher reinsurance retention level. CONSOLIDATED NET INVESTMENT AND INTEREST INCOME Net investment and interest income was $67.6 million, $67.1 million and $63.7 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO MOVING AND STORAGE OPERATIONS Interest income, before consolidating entries, was $24.2 million, $27.9 million and $19.5 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal year 2002 is mainly related to decrease average investment balance. The increase in interest during fiscal year 2001 reflects higher average storage note receivable balances. REAL ESTATE OPERATIONS Net investment and interest income was $8.7 million, $11.0 million and $7.0 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal 2002 is related to increased investments. The increase in fiscal 2001 is due to interest income received on notes receivable. PROPERTY AND CASUALTY Net investment income was $27.6 million, $29.1 million and $33.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. The reductions are attributable to lower invested asset balance, lower interest rates, as well as the write down of $4.1 million of fixed maturity investments during 2001. LIFE INSURANCE Net investment income was $27.0 million, $22.2 million and $21.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. This increase is due to a larger invested asset base in 2001 and net realized capital gains in 2001. 19 CONSOLIDATED OPERATING EXPENSES Operating expenses were $1,109.4 million, $1,047.2 million and $949.3 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Operating expenses, before intercompany eliminations, were $1,001.8 million, $986.5 million and $931.1 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is due to increased personnel costs and higher repair expense. The increased expense in fiscal year 2001 is due to increased personnel costs, higher repair expense, a substantial lawsuit settlement and other administrative costs. Also, the addition of storage rooms will initially cause an increase in operating expenses without corresponding increases in earnings until the properties reach a stabilized level of occupancy. REAL ESTATE OPERATIONS Operating expenses, before intercompany eliminations, were $6.0 million, $0.4 million and $4.0 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is due to an increase in the maintenance costs, including insurance and property taxes. Real Estate benefited from a reduction in intercompany management fees charged by an affiliated segment company during fiscal year 2001 compared to the prior two years. PROPERTY AND CASUALTY Operating expenses, before intercompany eliminations, were $78.7 million, $56.7 million and $35.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase is due to a change in estimate on an aggregate stop loss treaty in which RepWest had originally recorded the treaty as if it would be commuted. Estimates in 2001 have changed and the treaty will not be commuted. The original amount was a reduction to commissions of $17.7 million of which RepWest had to recognize back through commissions in 2001. Commission expenses were $51.2 million, $33.1 million and $19.1 million for the years ended December 2001, 2000 and 1999, respectively. Lease expenses were $1.7 million, $2.1 million and $1.9 million for the years ended December 2001, 2000 and 1999, respectively. All other underwriting expenses consisted of $22.8 million, $21.4 million and $13.9 million for the years ended December 2001, 2000 and 1999, respectively. LIFE INSURANCE Operating expenses, before intercompany eliminations, were $37.0 million, $29.0 million and $23.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. Commissions have increased $3.9 million and $11.2 million from 2000 and 1999, respectively, primarily due to the increases in Medicare supplement premiums. General and administrative expenses net of fees collected increased $4.1 million and $2.8 million from 2000 and 1999, respectively. Increases due to the acquisition of CFLIC were $3.3 million and $3.9 million from 2000 and 1999, respectively. The remaining increases are due to increases in the volume of business and the expenses associated with the administration. SAC HOLDINGS Operating expenses, before intercompany eliminations, were $62.2 million, $51.5 million and $34.2 million in fiscal years 2002, 2001 and 2000, respectively. Reimbursed personnel expenses, liability insurance, property taxes and utility expenses all increased proportionately in relation to the increased revenues from the acquisition of new locations. CONSOLIDATED COST OF SALES Cost of sales was $122.9 million, $126.6 million and $115.4 million in fiscal years 2002, 2001 and 2000, respectively. Increased material costs and a higher sales volume related to moving support items contributed to the increases in both fiscal years 2002 and 2001. AMERCO'S MOVING AND STORAGE Cost of sales was $111.6 million, $116.7 million and $110.6 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal year 2002 is due to the lower costs associated with the sale of propane and other materials. The increase in fiscal year 2001 is due to increased material costs and a higher sales volume related to moving support items. 20 SAC HOLDINGS Cost of sales was $11.3 million, $9.9 million and $4.8 million in fiscal years 2002, 2001 and 2000, respectively. Increased material costs and a higher sales volume related to moving support items contributed to the increases in both fiscal years 2002 and 2001. CONSOLIDATED BENEFITS AND LOSSES Benefits and losses were $389.5 million, $283.4 million and $209.6 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: PROPERTY AND CASUALTY Benefits and losses incurred were $269.1 million, $204.1 million and $150.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase from 2000 to 2001 resulted from increased earned premium in three general agency programs and continued reserve strengthening in assumed reinsurance treaty segment. The increase from 1999 to 2000 resulted from two new general agency programs, and reserve strengthening in existing rental industry, assumed treaty reinsurance, and general agency programs. LIFE INSURANCE Benefits incurred were $120.4 million, $79.2 million and $59.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase is primarily due to Medicare supplement benefits incurred, which accounts for $38.8 million and $55.5 million of benefit increases from 2000 and 1999, respectively. These increases are due to the acquisition of CFLIC and poor experience on legacy blocks, which are no longer actively marketed. Credit insurance benefits increased $0.8 million and $2.9 million from 2000 and 1999, respectively, due to increased mortality and morbidity experience. Benefits from other health lines increased $3.1 million and $5.6 million from 2000 and 1999, respectively, as retained volume increased and loss experience worsened. These lines have been terminated. Annuity and life benefits decreased $1.5 million and $2.6 million from 2000 and 1999, respectively, due to fluctuations in life insurance production and annuitizations of annuity contracts. CONSOLIDATED AMORTIZATION OF DEFERRED ACQUISITION COSTS AND OTHER Amortization of deferred acquisition costs (DAC) and the value of business acquired (VOBA) was $40.7 million, $35.9 million and $35.0 million in fiscal years 2002, 2001 and 2000, respectively. DAC consists of commissions and other policy acquisition costs, which vary with, and are primarily related to, the production of new business. The prior year end commissions and other related expenses are recognized ratably over the remainder of the policy year. Details by material segment follow: PROPERTY AND CASUALTY Amortization expense was $22.1 million, $16.3 million and $13.4 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase from 2000 to 2001 is due to the amortization of higher commissions deferred in the 2000 year. The increase from 1999 to 2000 is mainly due to the amortization of Assumed Treaty expenses that were deferred in the 2000 year. LIFE INSURANCE The VOBA asset relates to the future profits of insurance policies in force at the date of the North American Insurance and CFLIC acquisitions. Amortization of DAC and VOBA was $18.6 million, $19.6 million and $21.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. These costs are amortized as the premium is earned over the term of the policy. Amortization decreased $1.0 million and $3.0 million from 2000 and 1999, respectively, due to the annuity and credit segments. CONSOLIDATED LEASE EXPENSE Lease expense was $175.5 million, $173.1 million and $131.0 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Lease expense before intercompany elimination was $170.8 million, $166.2 million and $132.4 million in fiscal years 2002, 2001 and 2000, respectively. The increase in 2002 is due property leases, with a decrease in rental equipment lease expense. 21 REAL ESTATE OPERATIONS Lease expense before intercompany eliminations, for real estate operations was $11.2 million, $11.6 million and $3.0 million for the fiscal years 2002, 2001 and 2000, respectively. The lease expense in fiscal year 2002 was virtually unchanged over the fiscal year 2001. The continued increase in fiscal year 2001 over 2000 reflects payments under an operating lease facility with a number of financial institutions. CONSOLIDATED DEPRECIATION EXPENSE, NET Depreciation expense, net was $108.7 million, $101.5 million and $96.1 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Depreciation expense, net was $97.3 million, $82.7 million and $79.0 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal years 2002 and 2001 reflects an increase in depreciation expense on the rental truck fleet. REAL ESTATE OPERATIONS Depreciation expense, net was $(2.0) million, $5.3 million and $8.6 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal years 2002 reflects an increase in gains from the disposition of property, plant and equipment. The decrease in fiscal year 2001 reflects an increase in gains from the disposition of property, plant and equipment and a decrease in depreciation on buildings and non-rental equipment. SAC HOLDINGS Depreciation expense, net was $14.2 million, $11.7 million and $7.9 million in fiscal years 2002, 2001 and 2000, respectively. The increase is attributed to the acquisition of new locations. CONSOLIDATED EARNINGS FROM OPERATIONS Earnings from operations were $121.3 million, $120.4 million and $199.6 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Earnings from operations, before intercompany eliminations, were $69.5 million, $54.5 million and $96.0 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is due to increased revenue from rental operations offset by the slight increase in operating expenses and a decrease in lease expense. The decrease in fiscal year 2001 is due to increased transactions, offset by increased operating and lease expenses. REAL ESTATE OPERATIONS Earnings from operations, before intercompany eliminations, were $72.3 million, $65.8 million and $64.7 million in fiscal years 2002, 2001 and 2000, respectively. The increase in fiscal year 2002 is mainly related to higher net investment interest income. A decrease in intercompany management fees charged contributed to the earnings increase for fiscal year 2001. PROPERTY AND CASUALTY Earnings (loss) from operations were $(68.2) million, $(29.9) million and $7.9 million for the years ended December 31, 2001, 2000 and 1999, respectively. The decrease in 2001 was due to the increase in commissions due to the commutation write-off, reserve strengthening, and development in older years on the assumed treaty reinsurance business. The 1999 to 2000 decrease was due to reserve strengthening and losses on two new general agency programs as well as the write downs of fixed maturity investments whose declines in value were determined to be other than temporary. LIFE INSURANCE Earnings from operations were $11.1 million, $6.9 million and $14.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase from 2000 is due primarily to improved net investment income, while the decrease from 1999 is primarily due to poor experience in the Other Health and Credit insurance lines. 22 SAC HOLDING Earnings from operations were $47.8 million, $33.4 million and $30.5 million for the years ended March 31, 2002, 2001 and 2000, respectively. The increase is due to the addition of storage locations. CONSOLIDATED INTEREST EXPENSE Interest expense was $116.3 million, $114.6 million and $99.9 million in fiscal years 2002, 2001 and 2000, respectively. Details by material segment follow: AMERCO'S MOVING AND STORAGE OPERATIONS Interest expense was $76.1 million, $87.8 million and $81.5 million in fiscal years 2002, 2001 and 2000, respectively. The decrease in fiscal year 2002 can be attributed to interest rate reductions. The increase in fiscal year 2001 over fiscal year 2000 can be attributed to an increase in the average cost of debt. SAC HOLDING Interest expense before intercompany elimination was $61.1 million, $51.3 million and $36.8 million in fiscal years 2002, 2001 and 2000, respectively The average debt level outstanding continued to increase due to the acquisition of storage properties in fiscal year 2002 compared to fiscal years 2001 and 2000. CONSOLIDATED EXTRAORDINARY LOSS ON THE EXTINGUISHMENT OF DEBT During fiscal year 2001, AMERCO extinguished $100.0 million of 6.89% Bond Backed Asset Trust certificates (BATs) originally due in fiscal year 2011 and $25.0 million of 6.71% Medium-Term notes originally due in fiscal year 2009. This resulted in an extraordinary loss of $2.1 million, net of tax of $1.2 million ($0.10 per share). During fiscal year 2000, AMERCO extinguished $100.0 million of 6.65% Bond Backed Asset Trust certificates (BATs) originally due in fiscal year 2030 and $50.0 million of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $0.3 million, net of tax of $0.2 million ($0.02 per share). CONSOLIDATED EARNINGS As a result of the foregoing, pretax earnings totaled $5.0 million, $5.8 million and $99.7 million in fiscal years 2002, 2001 and 2000, respectively. After providing for income taxes, earnings from operations were $2.7 million, $3.1 million and $63.5 million in fiscal years 2002, 2001 and 2000, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt and the elimination of SAC Holdings, net earnings were $2.7 million, $1.0 million and $63.2 million in fiscal years 2002, 2001 and 2000, respectively. QUARTERLY RESULTS The table on the following page presents unaudited quarterly results for the eight quarters in the period beginning April 1, 2000 and ending March 31, 2002. The quarters presented reflect the restatements due to the consolidation of SAC Holding Corporations. AMERCO believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements incorporated herein by reference. U-Haul moving and storage operations are seasonal and proportionally more of AMERCO's revenues and net earnings from its U-Haul moving and storage operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period. 23
Quarter Ended ------------------------------------------------------------------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 2001 2001 2001 2002 As reported As adjusted As reported As adjusted As reported As adjusted ------------------------------------------------------------------------------------ (in thousands, except share and per share data) Total revenues $ 542,553 533,403 572,379 563,229 467,410 458,260 513,118 Earnings from operations net of tax $ 25,324 20,901 41,131 36,593 (22,389) (23,926) (30,847) Net earnings (loss) $ 25,003 20,901 41,686 36,593 (20,212) (23,926) (30,847) Weighted average common shares outstanding basic and diluted 21,280,361 21,280,361 21,106,343 21,106,343 20,892,342 20,892,342 21,022,712 Earnings (loss) from operations before extraordinary loss on early extinguishment of debt per common share (1) $ 1.02 .83 1.82 1.58 (1.12) (1.30) (1.60) Earnings (loss) per common share basic and diluted $ 1.02 .83 1.82 1.58 (1.12) (1.30) (1.60)
Quarter Ended ------------------------------------------------------------------------------ Jun 30 Sep 30 Dec 31 2000 2000 2000 As reported As adjusted As reported As adjusted As reported As adjusted ------------------------------------------------------------------------------ (in thousands, except share and per share data) Total revenues $ 472,350 464,331 520,132 512,113 444,620 436,601 Earnings from operations before extraordinary loss on early extinguishment of debt net of tax (2) $ 35,876 36,238 38,006 39,171 (24,739) (23,574) Net earnings (loss) $ 37,612 36,238 41,233 39,171 (21,292) (25,695) Weighted average common shares outstanding Basic 21,718,988 21,718,988 21,489,970 21,489,970 21,406,688 21,406,688 Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt per common share (1) (2) $ 1.58 1.52 1.77 1.67 (1.05) (1.25) Earnings (loss) per common share basic and diluted $ 1.58 1.52 1.77 1.67 (1.15) (1.35)
Quarter Ended ------------------------- Mar 31 2001 As reported As adjusted ------------------------- (in thousands, except share and per share data) Total revenues 425,318 474,997 Earnings from operations before extraordinary loss on early extinguishment of debt net of tax (2) (46,650) (48,702) Net earnings (loss) (46,650) (48,702) Weighted average common shares outstanding Basic 21,326,015 21,326,015 Earnings (loss) from operations before minority interest and extraordinary loss on early extinguishment of debt per common share (1) (2) (2.34) (2.40) Earnings (loss) per common share basic and diluted (2.34) (2.40)
24 (1) Net earnings (loss) per common share amounts were computed after giving effect to the dividends on AMERCO's Preferred Stock. (2) During fiscal year 2001, AMERCO extinguished $100.0 million of 6.89% BATs originally due in fiscal year 2011 and $25.0 million of 6.71% Medium-Term Notes originally due in fiscal year 2009. This resulted in an extraordinary loss of $2.1 million, net of tax of $1.2 million ($0.10 per share). IRS EXAMINATION In connection with the resolution of the stockholder litigation, AMERCO had deducted for income tax purposes approximately $372.0 million of the payments made to former shareholders in a stockholder lawsuit. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. The Company is currently under IRS examination for the years 1996-1997. The IRS has proposed adjustments to the 03/31/97 and 03/31/96 tax returns in the amount of $233,093,000 and $99,021,000, respectively, resulting in tax delinquencies of $9,332,000 for 1997 and $5,497,000 for 1996. Nearly all of the adjustments are attributable to denials of deductions claimed by the Company for certain payments made in resolution of the litigation with certain members of the Shoen family and their corporations. An unfavorable result could result in substantial cash payments, but is expected to have minimal, if any, impact on consolidated results of operations. The Company plans to vigorously contest the IRS adjustments. OTHER 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 at present value and accreted over the life of the asset 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 June 15, 2002. Management has not yet determined the 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 25 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. SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002, rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Management has not yet determined the effects of adopting this Statement on the financial position or results of operations, except for the need to reclassify debt extinguishments previously reported as extraordinary. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK In the normal course of business, AMERCO is exposed to fluctuations in interest rates. AMERCO manages such exposure by the use of a variety of derivative financial instruments when deemed prudent. AMERCO does not enter into leveraged financial transactions or use derivative financial instruments for trading purposes. The exposure to market risk for changes in interest rates relates primarily to debt obligations. AMERCO's objective is to mitigate the impact of changes in interest rates on its variable rate debt. AMERCO uses interest rate swap agreements to provide for matching the gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of hedged asset or liability attributable to the hedged risk or the earnings effect of the hedged forecasted transaction. See Note 5 of Notes to Consolidated Financial Statements in Item 8. A fluctuation of the interest rate by 100 basis points would change AMERCO's interest expense by $2.5 million. SAC Holdings debt is primarily fixed rate. Fluctuations in interest rates for new operations could have an impact on operations. SAC Holdings does not enter into leveraged financial transactions or use derivative financial instruments for trading purposes. FOREIGN CURRENCY EXCHANGE RATE RISK AMERCO's earnings are affected by fluctuations in the value of foreign currency exchange rates. Approximately 2.0% of AMERCO's revenue is generated in Canada. The result of a uniform 10% change in the value of the U.S. dollar relative to the Canadian dollar would not be material. AMERCO does not typically hedge any foreign currency risk since the exposure is not considered material. SAC Holdings earnings are affected by fluctuations in the value of foreign currency exchange rates. Approximately 9.8% of SAC Holdings revenue is generated in Canada. SAC Holding does not typically hedge any foreign currency risk since the exposure is not considered material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Accountants and Consolidated Financial Statements of AMERCO and SAC Holdings, including the notes to such statements and the related schedules, are set forth on pages 31 through 86 and are thereby incorporated herein. 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Registrants have had no disagreements with their independent accountants in regard to accounting and financial disclosure matters and have not changed their independent accountants during the two most recent fiscal years. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information regarding (i) directors and executive officers of AMERCO is set forth under the captions "Election of Directors" and "Executive Officers of the Company", and (ii) compliance with Section 16(a) is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in AMERCO's Proxy Statement relating to the 2002 Annual Meeting of Stockholders (the "2002 Proxy Statement") portions of which are incorporated by reference into this Form 10-K Report, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934, as amended. With the exception of the foregoing information and other information specifically incorporated by reference into this report, the 2002 Proxy Statement is not being filed as a part hereof. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is set forth under the caption "Executive Compensation" and "Other Information Regarding the Board of Directors" in the 2002 Proxy Statement, which information is incorporated herein by reference; provided, however, that the "Board Report on Executive Compensation" and the "Performance Graph" contained in the 2002 Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the 2002 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions of management is set forth under the captions "Certain Relationships and Related Transactions" in the 2002 Proxy Statement, which information is incorporated herein by reference. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: Page No. ------- 1. Financial Statements Report of Independent Accountants 31 Consolidated Balance Sheets - March 31, 2002 and 2001 32 Consolidated Statements of Earnings - Years ended March 31, 2002, 2001 and 2000 34 Consolidated Statements of Changes in Stockholders' Equity - Years ended March 31, 2002, 2001 and 2000 36 Consolidated Statements of Comprehensive Income - Years ended March 31, 2002, 2001 and 2000 38 Consolidated Statements of Cash Flows - Years ended March 31, 2002, 2001 and 2000 39 Notes to Consolidated Financial Statements 41 2. Additional Information Summary of Earnings of Independent Trailer Fleets 76 Notes to Summary of Earnings of Independent Trailer Fleets 77 3. Financial Statement Schedules required to be filed by Item 8 and Paragraph (d) of this Item 14 Condensed Financial Information of Registrant -- Schedule I 79 Supplemental Information (For Property-Casualty Insurance Underwriters) -- Schedule V 83 All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. 28 (c) Exhibits
Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3) 4.1 Debt Securities Indenture dated May 1, 1996 (1) 4.2 First Supplemental Indenture, dated as of May 6, 1996 (4) 4.3 Rights Agreement, dated as of August 7, 1998 (13) 4.5 Second Supplemental Indenture, dated as of October 22, 1997 (11) 4.6 Calculation Agency Agreement (11) 4.7 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust Certificates ("BATs") due October 15, 2000 (11) 4.8 Indenture dated September 10, 1996 (9) 4.9 First Supplemental Indenture dated September 10, 1996 (9) 4.10 Senior Indenture dated April 1, 2000 (14) 4.11 First Supplemental Indenture dated April 5, 2000 (14) 4.12 Second Supplemental Indenture dated February 4, 2001 (15) 10.1* AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.1A* First Amendment to the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.2 U-Haul Dealership Contract (5) 10.3 Share Repurchase and Registration Rights Agreement with Paul F. Shoen (5) 10.4 AMERCO Stock Option and Incentive Plan (5) 10.5 ESOP Loan Credit Agreement (6) 10.6 ESOP Loan Agreement (6) 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (6) 10.8 Amended Indemnification Agreement (6) 10.9 Indemnification Trust Agreement (6) 10.10 Promissory Note between SAC Holding Corporation and a subsidiary of AMERCO (12) 10.11 Promissory Notes between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.12 Management Agreement between Three SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.13 Management Agreement between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.14 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.15 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO (8) 10.16 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.21 Management Agreement between Five SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.22 Management Agreement between Eight SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.23 Management Agreement between Nine SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.24 Management Agreement between Ten SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.25 Management Agreement between Six-A SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.26 Management Agreement between Six-B SAC Self-Storage Corporation and a subsidiary of AMERCO (17)
* Indicates compensatory plan arrangement 29 (c) Exhibits, continued 10.27 Management Agreement between Six-C SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.28 Management Agreement between Eleven SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.29 Management Agreement between Twelve SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.30 Management Agreement between Thirteen SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.31 Management Agreement between Fourteen SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.32 Management Agreement between Fifteen SAC Self-Storage Corporation and a subsidiary of AMERCO (19) 10.33 Management Agreement between Sixteen SAC Self-Storage Corporation and a subsidiary of AMERCO (19) 10.34 Management Agreement between Seventeen SAC Self-Storage Corporation and a subsidiary of AMERCO 12 Statements Re: Computation of Ratios 21 Subsidiaries of AMERCO 23 Consent of Independent Accountants
- ---------------- (1) Incorporated by reference to AMERCO's Registration Statement on Form S-3, Registration no. 333-1195. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (3) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255. (4) Incorporated by reference to AMERCO's Current Report on Form 8-K, dated May 6, 1996, file no. 1-11255. (5) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 1-11255. (6) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 1-11255. (7) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 1-11255. (8) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 1-11255. (9) Incorporated by reference to AMERCO's Current Report on Form 8-K dated September 6, 1996, file no. 1-11255. (10) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, file no. 1-11255. (11) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. (12) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1997, file no. 1-11255. (13) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, file no. 1-11255. (14) Incorporated by reference to AMERCO's Current Report on Form 8-K dated April 5, 2000, file no. 1-11255. (15) Incorporated by reference to AMERCO's Current Report on Form 8-K dated February 4, 2001, file no. 1-11255. (16) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 2000, file no. 1-11255. (17) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 2001, file no. 1-11255. (18) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, file no. 1-11255. (19) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 2001, file no. 1-11255. 30 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AMERCO and the Board of Directors and Stockholder of Sac Holding Corporations In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in stockholders equity, comprehensive income and cash flows present fairly, in all material respects, the financial position of AMERCO and its subsidiaries and SAC Holding Corporations and its subsidiaries (collectively, the "Company") at March 31, 2002 and March 31, 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of SAC Holding Corporations, as of and for the year ended March 31, 2001, whose results are consolidated with AMERCO's, which statements reflect total assets of $520.1 million as of March 31, 2001, and total revenues of $104.8 million, for the year ended March 31, 2001. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for SAC Holding Corporation, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. The accompanying financial statements of AMERCO and its subsidiaries have been restated at March 31, 2001 and for each of the two years in the period ended March 31, 2001, to consolidate the financial statements of SAC Holding Corporation, an affiliated entity. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Summary of Earnings of Independent Trailer Fleets included on pages 76 through 78 of this Form 10-K is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. PricewaterhouseCoopers LLP Phoenix, Arizona July 12, 2002 31 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets March 31,
Assets 2002 2001 (As restated) -------------------------------------------- (in thousands) Cash and cash equivalents $ 47,651 52,788 Trade receivables, net 279,914 252,015 Notes and mortgage receivables, net 15,907 29,154 Inventories, net 76,519 84,242 Prepaid expenses 31,069 23,339 Investments, fixed maturities 994,875 952,482 Investments, other 250,458 202,879 Deferred policy acquisition costs 101,308 99,807 Other assets 60,851 43,106 ------------------------------- 1,858,552 1,739,812 ------------------------------- Property, plant and equipment, at cost: Land 425,308 370,684 Buildings and improvements 1,161,918 1,221,157 Furniture and equipment 290,470 282,620 Rental trailers and other rental equipment 176,785 181,159 Rental trucks 1,071,604 1,037,653 ------------------------------- 3,126,085 3,093,273 Less accumulated depreciation (1,211,182) (1,194,646) ------------------------------- Total property, plant and equipment 1,914,903 1,898,627 ------------------------------- Total Assets $ 3,773,455 3,638,439 ===============================
The accompanying notes are an integral part of these consolidated financial statements. 32 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets, continued March 31,
Liabilities and Stockholders' Equity 2002 2001(As restated) -------------------------------------------- (in thousands, except share and per share data) Liabilities: Accounts payable and accrued expenses $ 149,338 167,102 AMERCO'S notes and loans payable 1,045,802 1,170,041 SAC Holdings'notes and loans payable, non-recourse to AMERCO 557,761 373,326 Policy benefits and losses, claims and loss expenses payable 729,343 668,830 Liabilities from investment contracts 572,793 522,207 Cash overdraft 34,629 26,484 Other policyholders' funds and liabilities 74,048 79,172 Deferred income 7,360 36,470 Deferred income taxes 103,275 82,543 -------------------------------- Total liabilities 3,274,349 3,126,175 -------------------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares authorized; 6,100,000 shares issued and outstanding as of March 31, 2002 and 2001 -- -- Series B preferred stock, with no par value, 100,000 shares authorized; none issued and outstanding as of March 31, 2002 and 2001 -- -- Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized; 5,612,495 shares issued as of March 31, 2002 and 2001 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized; 36,487,505 issued as of March 31, 2002 and 2001 9,122 9,122 Additional paid-in capital 267,712 242,654 Accumulated other comprehensive income (32,384) (40,709) Retained earnings 716,614 726,854 Cost of common shares in treasury, net (20,850,763 and 20,321,363 shares as of March 31, 2002 and 2001, respectively) (449,247) (411,925) Unearned employee stock ownership plan shares (14,152) (15,173) -------------------------------- Total stockholders' equity 499,106 512,264 -------------------------------- Contingent liabilities and commitments -------------------------------- Total Liabilities and Stockholders' Equity $ 3,773,455 3,638,439 ================================
The accompanying notes are an integral part of these consolidated financial statements. 33 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Years ended March 31,
( As restated) 2002 2001 2000 ----------------------------------------- (in thousands) Revenues Rental revenue $ 1,344,022 1,285,532 1,208,766 Net sales 222,816 212,242 201,355 Premiums 433,593 323,198 262,057 Net investment and interest income 67,579 67,070 63,693 ----------------------------------------- Total revenues 2,068,010 1,888,042 1,735,871 ----------------------------------------- Costs and expenses Operating expenses 1,109,446 1,047,168 949,309 Cost of sales 122,860 126,567 115,390 Benefits and losses 389,522 283,366 209,592 Amortization of deferred acquisition costs 40,674 35,946 34,987 Lease expense 175,501 173,077 130,951 Depreciation, net 108,683 101,508 96,090 ----------------------------------------- Total costs and expenses 1,946,686 1,767,632 1,536,319 ----------------------------------------- Earnings from operations 121,324 120,410 199,552 Interest expense 116,345 114,576 99,859 ----------------------------------------- Pretax earnings 4,979 5,834 99,693 Income tax expense (2,258) (2,701) (36,175) ----------------------------------------- Earnings from operations before extraordinary loss on early extinquishment of debt 2,721 3,133 63,518 Extraordinary loss on early extinguishment of debt, net -- (2,121) (334) ----------------------------------------- Net earnings $ 2,721 1,012 63,184 =========================================
The accompanying notes are an integral part of these consolidated financial statements. 34 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings, continued Years ended March 31,
As restated 2002 2001 2000 ------------------------------------------------ (in thousands, except share and per share data) Basic earnings (loss) per common share: Earnings (loss) from operations before extraordinary loss on early extinguishment of debt $ (0.49) (0.46) 2.27 Extraordinary loss on early extinguishment of debt, net -- (0.10) (0.01) ------------------------------------------------ Net earnings (loss) $ (0.49) (0.56) 2.26 ================================================ Diluted earnings (loss) per common share: Earnings (loss) from operations before extraordinary loss on early extinguishment of debt $ (0.49) (0.46) 2.24 Extraordinary loss on early extinguishment of debt, net -- (0.10) (0.01) ------------------------------------------------ Net earnings (loss) $ (0.49) (0.56) 2.23 ================================================ Weighted average common shares outstanding: Basic 21,022,712 21,486,370 21,934,390 ================================================ Diluted 21,022,712 21,486,370 22,226,057 ================================================
The accompanying notes are an integral part of these consolidated financial statements. 35 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended March 31,
( As restated ) 2002 2001 2000 ----------------------------------- (in thousands, except share and per share data) Series A common stock of $0.25 par value: 10,000,000 shares authorized; 5,612,495 shares issued in 2002, 2001 and 2000 Beginning and end of year $ 1,441 1,441 1,441 ----------------------------------- Common stock of $0.25 par value: 150,000,000 shares authorized; 36,487,505 shares issued in 2002, 2001 and 2000 Beginning and end of year 9,122 9,122 9,122 ----------------------------------- Additional paid-in capital: Beginning of year 242,654 242,558 267,221 Repurchase of preferred stock -- -- (25,000) Contribution by owner 24,969 -- -- Issuance of common shares under leveraged employee stock ownership plan 89 96 337 ----------------------------------- End of year 267,712 242,654 242,558 ----------------------------------- Accumulated other comprehensive income: Beginning of year (40,709) (42,317) (17,740) Foreign currency translation (4,242) (7,252) (2,899) Fair market value of cash flow hedge 130 (1,185) 2,192 Unrealized gain (loss) on investments 12,437 10,045 (23,870) ----------------------------------- End of year (32,384) (40,709) (42,317) -----------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 36 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity, continued Years ended March 31,
(As restated) 2002 2001 2000 --------------------------------- (in thousands, except share and per share data) Retained earnings: Beginning of year 726,854 738,805 689,262 Net earnings 2,721 1,012 63,184 Preferred stock dividends paid: Series A ($2.13 per share for 2002, 2001 and 2000) (12,961) (12,963) (12,964) Series B ($27.14 per share for 2000) - - (677) --------------------------------- End of year 716,614 726,854 738,805 --------------------------------- Less Treasury stock: Beginning of year 411,925 400,790 367,747 Net increase 37,322 11,135 33,043 --------------------------------- End of year 449,247 411,925 400,790 --------------------------------- Less Unearned employee stock ownership plan shares: Beginning of year 15,173 16,366 16,492 Purchase of shares 72 46 1,002 Repayments from loan (1,093) (1,239) (1,128) --------------------------------- End of year 14,152 15,173 16,366 --------------------------------- Total stockholders' equity $ 499,106 512,264 532,453 =================================
The accompanying notes are an integral part of these consolidated financial statements. 37 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Accumulated Other Comprehensive Income Years ended March 31,
(As restated) 2002 2001 2000 -------------------------- (in thousands) Comprehensive income: Net earnings $ 2,721 1,012 63,184 Other comprehensive income Foreign currency translation (4,242) (7,252) (2,899) Fair market value of cash flow hedges 130 (1,185) 2,192 Unrealized gain (loss) on investments, net 12,437 10,045 (23,870) -------------------------- Total comprehensive income $ 11,046 2,620 38,607 ==========================
The accompanying notes are an integral part of these consolidated financial statements. 38 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years ended March 31,
(As restated) 2002 2001 2000 ---------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 2,721 1,014 63,172 Depreciation and amortization 169,440 156,801 143,992 Provision for losses on accounts receivable 4,729 3,286 4,601 Net gain on sale of real and personal property (18,833) (18,132) (11,165) Gain on sale of investments 2,841 12,931 (873) Changes in policy liabilities and accruals 7,582 54,814 15,326 Additions to deferred policy acquisition costs (39,252) (42,535) (31,804) Net change in other operating assets and liabilities 1,265 114,442 41,221 Extraordinary loss on early extinguishment of debt, net - (2,121) (341) ---------------------------- Net cash provided by operating activities 130,493 280,500 224,129 Cash flows from investing activities: Purchases of investments: Property, plant and equipment (275,852) (448,188) (476,781) Fixed maturities (257,559) (122,863) (158,304) Common stock (418) (31,773) - Preferred stock (2,072) - (369) Other asset investment (2,259) (5,915) - Real estate (35) (5,938) (70) Mortgage loans (1,351) (24,084) (27,367) Proceeds from sales of investments: Property, plant and equipment 194,830 104,352 211,873 Fixed maturities 233,716 152,761 133,915 Preferred stock 4,400 372 968 Real estate 1,335 1,557 1,672 Mortgage loans 18,690 22,463 11,555 Changes in other investments (126,774) (155,168) 45,689 ----------------------------- Net cash used by investing activities (213,349) (512,424) (257,219)
The accompanying notes are an integral part of these consolidated financial statements. 39 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended March 31,
(As restated) 2002 2001 2000 ---------------------------- (in thousands) Cash flows from financing activities: Net change in short-term borrowings (2,500) 176,427 (146,836) Proceeds from notes 275,879 361,608 444,239 Debt issuance costs (10,182) (3,745) (8,551) Leveraged Employee Stock Ownership Plan: Purchase of shares - (46) (1,002) Repayments from loan 1,019 1,239 1,128 Principal payments on notes (222,114) (299,666) (185,311) Repurchase of preferred stock - - (25,000) Proceeds from minority interest - 2,121 - Net change in cash overdraft 8,145 (3,976) 2,291 Preferred stock dividends paid (12,961) (12,963) (13,641) Treasury stock acquisitions, net (10,154) (9,617) (33,467) Dividends from subsidiaries - - - Investment contract deposits 150,432 87,687 63,978 Investment contract withdrawals (99,845) (72,953) (60,808) Proceeds from minority interest - 10,151 - --------------------------- Net cash provided by financing activities 77,719 236,267 37,020 ---------------------------- Increase (decrease) in cash and cash equivalents (5,137) 4,343 3,930 Cash and cash equivalents at beginning of year 52,788 48,445 44,515 ---------------------------- Cash and cash equivalents at end of year $ 47,651 52,788 48,445 ============================
The accompanying notes are an integral part of these consolidated financial statements. 40 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (RepWest) and Oxford Life Insurance Company (Oxford). All references to a fiscal year refer to AMERCO's fiscal year ended March 31 of that year. SAC Holding Corporations (SAC Holdings), Nevada corporations, are owned by Mark V. Shoen. Mark V. Shoen is the beneficial owner of 15.6% of AMERCO's common stock and is an executive officer of AMERCO. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of AMERCO and its wholly-owned subsidiaries and SAC Holdings and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. AMERCO has not had any equity ownership interest in SAC Holdings or any of SAC Holdings' subsidiaries. The accounts of AMERCO and SAC Holdings are presented as consolidated due to a revised interpretation of EITF 90-15 during fiscal year 2002. The financial statements as previously presented have been restated to reflect such consolidation. The following table presents the impact of such consolidation on the dates presented:
March 31, 2001 March 31, 2000 ---------------------------- ---------------------------- As reported(1) As restated As reported(1) As restated (in thousands) (in thousands) Assets $3,384,064 3,638,439 $3,125,225 3,291,292 Liabilities $2,768,698 3,126,175 $2,539,931 2,758,838 Stockholders' equity $ 615,366 512,264 $ 585,294 532,453 Net income $ 12,965 1,012 $ 65,491 63,184
(1) As reported in the Company's March 31, 2001 form 10-K, filed on July 2, 2001 prior to the consolidation of SAC Holdings described above. The reduction in stockholders' equity is due to the elimination of gains previously recorded in connection with sales of properties from AMERCO to SAC Holdings. Such gains had been previously recognized as a component of stockholders' equity. See Note 20 of Notes to Consolidated Financial Statements for additional information regarding the insurance subsidiaries, and Note 21 of Notes to Consolidated Financial Statements for financial information regarding the industry segments. RepWest and Oxford have been consolidated on the basis of calendar years ended December 31. Accordingly, all references to the years 2001, 2000 and 1999 correspond to AMERCO's fiscal years 2002, 2001, and 2000, respectively. The operating results and financial position of AMERCO's consolidated insurance operations are determined as of December 31 of each year. There were no effects related to intervening events between January 1 and March 31 of 2002, 2001, or 2000 that would materially affect the consolidated financial position or results of operations for the financial statements presented herein. 41 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Description of Business AMERCO's moving and self-storage operations consist of the rental of trucks and trailers, sale of moving supplies, trailer hitches and propane and the rental of self-storage spaces to the do-it-yourself mover. Operations are under the registered tradename U-Haul(R) throughout the United States and Canada. Real Estate owns approximately 90% of AMERCO's real estate assets, including U-Haul's Center and Storage locations. The remainder of the properties are owned by various U-Haul entities. Real Estate is responsible for managing all of the properties including the environmental risks of the properties. Real Estate is responsible for the purchase of all properties used by AMERCO or any of its subsidiaries. Real Estate also handles all of the dispositions (sale and lease) of unused real estate. RepWest originates and reinsures property and casualty type insurance products for various market participants, including independent third parties, U-Haul's customers, independent dealers and AMERCO. Oxford originates and reinsures annuities, credit life and disability, life insurance, and supplemental health products. Oxford also administers the self-insured employee health and dental plans for AMERCO. SAC Holdings owns self-storage facilities, which are managed by U-Haul under management agreements. FOREIGN CURRENCY The consolidated financial statements include the accounts of U-Haul Co. (Canada) Ltd., a subsidiary of U-Haul. The assets and liabilities, denominated in foreign currency, are translated into U.S. dollars at the exchange rate as of the balance sheet date. Revenue and expense amounts are translated at average monthly exchange rates. The related translation gains or losses are included in the Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Comprehensive Income. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS AMERCO and SAC Holdings consider liquid investments with an original maturity of three months or less to be cash equivalents. RECEIVABLES Accounts receivable include trade accounts from customers and dealers. RepWest and Oxford receivables include premiums and agents' balances due, net of commissions payable and amounts due from ceding reinsurers. Accounts receivable are reduced by amounts considered by management to be uncollectible based on historical collection loss experience and a review of the current status of existing receivables. Notes and mortgage receivables include accrued interest and are reduced by discounts and amounts considered by management to be uncollectible. INVENTORIES Inventories are valued at the lower of cost or market. Cost is primarily determined using the LIFO (last-in, first-out) method. 42 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued INVESTMENTS Fixed maturities consist of bonds and redeemable preferred stocks. Fair values for investments are based on quoted market prices, dealer quotes or discounted cash flows. Fixed maturities are classified as follows: Held-to-maturity - recorded at cost adjusted for the amortization of premiums or accretion of discounts. Available-for-sale - recorded at fair value with unrealized gains or losses reported on a net basis in the Consolidated Statements of Changes in Stockholders' Equity unless such changes are deemed to be other then temporary. Gains and losses on the sale of these securities are reported as a component of revenues using the specific identification method. Trading portfolio - AMERCO does not currently maintain a trading portfolio. Mortgage loans & notes on real estate held by AMERCO's subsidiaries - at unpaid balances, net of allowance for possible losses and any unamortized premium or discount. Real estate - at cost less accumulated depreciation. Policy loans - at their unpaid balance. Investment income is recognized as follows: Interest on bonds and mortgage loans & notes - recognized when earned. Dividends on common and redeemable preferred stocks - recognized on ex-dividend dates. Realized gains and losses on the sale of investments - recognized at the trade date and included in revenues using the specific identification method. Short-term investments consist of other securities scheduled to mature within one year of their acquisition date. See Note 4 of Notes to Consolidated Financial Statements. DEFERRED POLICY ACQUISITION COSTS Commissions and other costs, which vary with and are primarily related to the production of new business have been deferred. Oxford - costs are amortized in relation to revenue such that costs are realized as a constant percentage of revenue. RepWest - costs are amortized over the related contract period which generally do not exceed one year. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Building and non-rental equipment have estimated lives ranging from three to fifty-five years, while rental equipment have estimated lives ranging from two to twenty years. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are netted against depreciation expense when realized. Interest costs incurred as part of the initial construction of assets are capitalized. Interest of $2,032,000, $2,450,000 and $1,359,000 was capitalized during fiscal years 2002, 2001 and 2000, respectively. During fiscal year 2002 based on an in-depth market analysis, U-Haul decreased the estimated salvage value and increased the useful lives of certain rental trucks. The effect of the change increased net earnings for fiscal year 2002 by $3,088,000 ($0.15 per share) net of taxes. The adjustment reflects management's best estimate, based on information available, of the estimated salvage value and useful lives of these rental trucks. 43 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued AMERCO reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable through expected undiscounted future operating cash flows. The carrying value of AMERCO's real estate that is no longer necessary for use in its current operations, and available for sale/lease, at March 31, 2002 and 2001, was approximately $20,278,000 and $27,691,000, respectively. Such properties available for sale are carried at cost, less accumulated depreciation, which is less than fair market value. ENVIRONMENTAL COSTS Liabilities for future remediation costs are recorded when environmental assessments and remedial efforts, if applicable, are probable and the costs can be reasonably estimated. The liability is based on AMERCO's best estimate of undiscounted future costs. Certain recoverable environmental costs related to the removal of underground storage tanks or related contamination are capitalized and depreciated over the estimated useful lives of the properties. The capitalized costs improve the safety or efficiency of the property as compared to when the property was originally acquired or are incurred in preparing the property for sale. FINANCIAL INSTRUMENTS AMERCO enters into interest rate swap agreements to reduce its floating interest rate exposure and does not use the agreements for trading purposes. Although AMERCO is exposed to credit loss for the interest rate differential in the event of nonperformance by the counterparties to the agreements, it does not anticipate nonperformance by the counterparties. For the years ended March 31, 2002, 2001 and 2000, AMERCO recognized $16,000, $16,000 and $27,000 as interest income, respectively, representing the ineffectiveness of the cash flow hedging activity. AMERCO has mortgage receivables, which potentially expose AMERCO to credit risk. The portfolio of notes is principally collateralized by mini-warehouse storage facilities and other residential and commercial properties. AMERCO has not experienced losses related to the notes from individual notes or groups of notes in any particular industry or geographic area. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Fair value summary of note and mortgage receivables:
March 31, 2002 March 31, 2001 ---------------------- ---------------------- Carrying Estimated Carrying Estimated value fair value value fair value ---------------------- ---------------------- (in thousands) (in thousands) $ 14,629 17,889 $ 15,214 18,484 ====================== ======================
Other financial instruments that are subject to fair value disclosure requirements are carried in the financial statements at amounts that approximate fair value, unless elsewhere disclosed. See below, as well as Notes 4 and 5 of Notes to Consolidated Financial Statements. AMERCO's financial instruments that are exposed to concentrations of credit risk consist primarily of temporary cash investments, trade receivables and notes receivable. AMERCO places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many different industries and geographic areas. 44 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued POLICY BENEFITS AND LOSSES, CLAIMS AND LOSS EXPENSES PAYABLE Liabilities for policy benefits payable on traditional life and certain annuity policies are established in amounts adequate to meet estimated future obligations on policies in force. These liabilities are computed using mortality and withdrawal assumptions, which are based upon recognized actuarial tables and contain margins for adverse deviation. At December 31, 2001, interest assumptions used to compute policy benefits payable range from 2.5% to 9.25%. The liability for annuity contracts, which are accounted for as investment contract deposits, consists of contract account balances that accrue to the benefit of the policyholders, excluding surrender charges. Carrying value of investment contract deposits were $572,793,000 and $522,207,000 at December 31, 2001 and 2000, respectively. 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 consider current claim trends. RepWest's liability for reported and unreported losses is based on RepWest's historical and industry averages. The liability for unpaid loss adjustment expenses is based on historical ratios of loss adjustment expenses paid to losses paid. Amounts recoverable from reinsurers on unpaid losses are estimated in a manner consistent with the claim liability associated with the reinsured policy. Adjustments to the liability for unpaid losses and loss expenses as well as amounts recoverable from reinsurers on unpaid losses are charged or credited to expense in periods in which they are made. INCOME TAXES AMERCO files a consolidated federal income tax return with its subsidiaries. In addition to charging income for taxes paid or payable, the provision for income taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. SAC Holdings files a stand-alone return. To date, a valuation allowance has been provided for all of SAC Holdings notes. ADVERTISING COSTS AMERCO expenses advertising costs as incurred. Advertising expense of $37,807,000, $37,867,000 and $35,988,000 was charged to operations for fiscal years 2002, 2001 and 2000, respectively. 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). 45 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued 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 at present value and accreted over the life of the asset 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 June 15, 2002. 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. Management has not yet determined the effects of adopting Statements 143 and 144 on the financial position or results of operations, but believes the pronouncements are not expected to materially affect the consolidated financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which updates, clarifies and simplifies existing accounting pronouncements. FASB 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related tax effect was rescinded, as a result, FASB 64, which amended FASB 4, was rescinded as it was no longer necessary. FASB 145 amended FASB 13 to require certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Management has not yet determined the effects of adopting this Statement on the financial position or results of operations, except for the need to reclassify debt extinguishments previously reported as extraordinary. EARNINGS PER SHARE Basic earnings per common share are computed based on the weighted average number of shares outstanding for the year and quarterly periods, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared (i.e. contractual) or unpaid dividends of AMERCO. Net income is reduced for preferred dividends for the purpose of the calculation. The calculation of diluted earnings per share in fiscal year 2000 included assumed conversions of the Series B preferred stock into common stock. In fiscal years 2002 and 2001, the assumed conversions are not applicable due to non-existence of Series B preferred stock. In fiscal year 2000, the assumed conversions had a dilutive effect. See Notes 6 and 8 of Notes to Consolidated Financial Statements for further discussion. 46 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued COMPREHENSIVE INCOME Comprehensive income consists of net income, foreign currency translation adjustment, unrealized gains and losses on investments and fair market value of cash flow hedges. FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the financial statements for the fiscal years ended 2001 and 2000 to conform to the current year's presentation. 47 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 2. RECEIVABLES, NET A summary of trade receivables follows:
March 31, -------------------- 2002 2001 -------------------- (in thousands) Trade accounts receivable $ 23,833 20,326 Premiums and agents' balances 54,867 87,641 Reinsurance recoverable 155,775 109,596 Accrued investment income 18,039 16,541 Independent dealer receivable 1,660 2,344 Other receivables 28,036 17,698 -------------------- 282,210 254,146 Less allowance for doubtful accounts 2,296 2,131 -------------------- $ 279,914 252,015 ====================
A summary of notes and mortgage receivables follows:
March 31, -------------------- 2002 2001 -------------------- (in thousands) Notes, mortgage receivables and other, net of discount $ 15,977 29,224 Less allowance for doubtful accounts 70 70 ------------------- $ 15,907 29,154 ===================
3. INVENTORIES, NET A summary of inventory components follows:
March 31, -------------------- 2002 2001 -------------------- (in thousands) Truck and trailer parts and accessories $ 51,207 59,404 Hitches and towing components 14,020 14,393 Moving supplies and promotional items 11,292 10,445 -------------------- $ 76,519 84,242 ====================
Inventories are stated net of reserve for obsolescence of $3,396,000 and $3,321,000 at March 31, 2002 and 2001, respectively. Certain direct and indirect expenses are allocated to ending inventories. Such costs remaining in inventory are estimated at $12,076,000 and $12,077,000 at March 31, 2002 and 2001, respectively. For fiscal years 2002 and 2001, aggregate general and administrative costs were $556,750,000 and $499,606,000, respectively. LIFO inventories, which represent approximately 95% and 96% of total inventories at March 31, 2002 and 2001, respectively, would have been $4,957,000 greater at March 31, 2002 and 2001, if the consolidated group had used the FIFO (first-in, first-out) method. 48 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 4. INVESTMENTS A comparison of amortized cost to estimated market value for fixed maturities is as follows:
December 31, 2001 Gross Gross Estimated - ----------------- Amortized unrealized unrealized market Consolidated cost gains losses value Held-to-Maturity ------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 3,289 219 -- 3,508 U.S. government agency mortgage- backed securities 15,155 554 (35) 15,674 Corporate securities 42,625 1,219 (97) 43,747 Mortgage-backed securities 20,648 705 (1) 21,352 Redeemable preferred stocks 112,350 502 (2,122) 110,730 ------------------------------------------ 194,067 3,199 (2,255) 195,011 ------------------------------------------
December 31, 2001 Gross Gross Estimated - ----------------- Amortized unrealized unrealized market Consolidated cost gains losses value Available-for-Sale ------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 40,656 2,223 (128) 42,751 U.S. government agency mortgage- backed securities 20,001 843 (3) 20,841 Obligations of states and political subdivisions 10,035 344 (2) 10,377 Corporate securities 657,603 24,635 (14,792) 667,446 Mortgage-backed securities 26,520 2,128 (865) 27,783 Redeemable preferred stocks 29,976 314 (422) 29,868 Redeemable common stocks 2,434 -- (692) 1,742 ------------------------------------------- 787,225 30,487 (16,904) 800,808 ------------------------------------------ Total $ 981,292 33,686 (19,159) 995,819 ==========================================
49 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 4. INVESTMENTS, continued
December 31, 2000 Gross Gross Estimated - ----------------- Amortized unrealized unrealized market Consolidated cost gains losses value Held-to-Maturity ------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 3,627 144 (2) 3,769 U.S. government agency mortgage- backed securities 14,178 174 (130) 14,222 Corporate securities 53,422 739 (333) 53,828 Mortgage-backed securities 40,093 650 (191) 40,552 Redeemable preferred stocks 115,174 46 (9,736) 105,484 ---------------------------------------- 226,494 1,753 (10,392) 217,855 ----------------------------------------
December 31, 2000 Gross Gross Estimated - ----------------- Amortized unrealized unrealized market Consolidated cost gains losses value Available-for-Sale ------------------------------------------- (in thousands) U.S. treasury securities and government obligations $ 43,522 1,494 (141) 44,875 U.S. government agency mortgage- backed securities 33,644 557 (87) 34,114 Obligations of states and political subdivisions 16,678 448 (142) 16,984 Corporate securities 562,187 10,714 (15,127) 557,774 Mortgage-backed securities 33,378 761 (402) 33,737 Redeemable preferred stocks 32,969 141 (1,860) 31,250 Redeemable common stocks 8,166 -- (912) 7,254 ------------------------------------------- 730,544 14,115 (18,671) 725,988 ---------------------------------------- Total $ 957,038 15,868 (29,063) 943,843 ========================================
Fixed maturities estimated market values are based on publicly quoted market prices at the close of trading on December 31, 2001 or December 31, 2000, as appropriate. 50 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 4. INVESTMENTS, continued The amortized cost and estimated market value of debt securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Consolidated December 31, 2001 December 31, 2000 - ------------ ----------------------- ---------------------- Held-to-Maturity Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less $ 22,428 22,979 4,786 4,810 Due after one year through five years 19,457 20,159 46,496 46,513 Due after five years through ten years 1,358 1,461 248 304 After ten years 4,447 4,481 5,519 5,970 -------------------- -------------------- 47,690 49,080 57,049 57,597 Mortgage-backed securities 34,027 35,201 54,271 54,774 Redeemable preferred stock 112,350 110,730 115,174 105,484 -------------------- -------------------- 194,067 195,011 226,494 217,855 -------------------- --------------------
Consolidated December 31, 2001 December 31, 2000 - ------------ --------------------- ---------------------- Available-for-Sale Amortized Estimated Amortized Estimated cost market value cost market value ----------------------- ---------------------- (in thousands) (in thousands) Due in one year or less 58,768 59,787 34,801 34,813 Due after one year through five years 259,659 266,002 313,162 310,656 Due after five years through ten years 251,413 254,002 197,027 198,592 After ten years 138,454 140,783 77,397 75,572 -------------------- -------------------- 708,294 720,574 622,387 619,633 Mortgage-backed securities 46,521 48,624 67,022 67,851 Redeemable preferred stock 29,976 29,868 32,969 31,250 Redeemable common stock 2,434 1,742 8,166 7,254 -------------------- -------------------- 787,225 800,808 730,544 725,988 -------------------- -------------------- Total $ 981,292 995,819 957,038 943,843 ==================== ====================
Proceeds from sales of investments in debt securities for the years ended December 31, 2001, 2000 and 1999 were $175,970,000, $52,814,000 and $29,889,000, respectively. Gross gains of $3,821,000, $733,000 and $912,000 and gross losses of $256,000, $646,000 and $315,000 were realized on those sales for the years ended December 31, 2001, 2000 and 1999, respectively. During fiscal 2002, the company realized a write-down of investments due to other than temporary declines approximating $6,647,000. At December 31, 2001 and 2000 fixed maturities include bonds with an amortized cost of $18,529,000 and $18,283,000, respectively, on deposit with insurance regulatory authorities to meet statutory requirements. 51 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 4. INVESTMENTS, continued Investments, other consists of the following:
March 31, ---------------------- 2002 2001 ---------------------- (in thousands) Short-term investments $ 65,870 58,860 Mortgage loans 85,458 102,571 Real estate, foreclosed properties 71,900 1,023 Policy loans 6,205 6,763 Other 21,025 33,662 ---------------------- $ 250,458 202,879 ======================
A summary of net investment and interest income follows:
Year ended March 31, ----------------------------- 2002 2001 2000 ----------------------------- (in thousands) Fixed maturities $ 68,215 61,003 66,993 Real estate 2,690 2,974 2,419 Policy loans 1,092 250 285 Mortgage loans 8,797 7,262 5,447 Short-term, amounts held by ceding reinsurers, net and other investments 6,804 7,364 7,140 ---------------------------- Investment income 87,598 78,853 82,284 Less investment expenses 31,823 25,673 26,325 ---------------------------- Net investment income 55,775 53,180 55,959 Interest income 11,804 13,890 7,734 ---------------------------- Net investment and interest income $ 67,579 67,070 63,693 ============================
Short-term investments consist primarily of fixed maturities of three months to one year from acquisition date. Mortgage loans, representing first lien mortgages held by the insurance subsidiaries, are carried at unpaid balances, less allowance for possible losses and any unamortized premium or discount. Equity investments and real estate obtained through foreclosures and held for sale are carried at the lower of cost or fair value. Policy loans are carried at their unpaid balance. Investment expenses include costs incurred in the management of the investment portfolio and interest credited on annuity policies. At December 31, 2001 and 2000, mortgage loans held as investments with a carrying value of $85,458,000 and $102,571,000, respectively, were outstanding. The estimated fair value of the mortgage loans at December 31, 2001 and 2000 aggregated $86,433,000 and $94,669,000, respectively. The estimated fair values were determined using the discounted cash flow method, using interest rates currently offered for similar loans to borrowers with similar credit ratings. Investments in mortgage loans, included as a component of investments, are reported net of allowance for possible losses of $323,000 and $402,000 in 2001 and 2000, respectively. In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self-storage corporation. RepWest invested $13,500,000 and has a 38% limited partnership interest and Oxford invested $11,000,000 and has a 27% limited partnership interest. U-Haul is a 50% owner of a corporation, which is a general partner in the Texas-based self-storage corporation. AMERCO has no operating control of the Texas-based self-storage corporation and the minority holders have substantial participation rights. During 1997, the corporation secured a line of credit in the amount of $225,000,000 with a financing institution. Under the terms of this credit facility, AMERCO entered into a support party agreement with the corporation whereby upon default or noncompliance with debt covenants by the corporation, AMERCO assumes responsibility in fulfilling all obligations related to this credit facility. At March 31, 2002, there was no default on non-compliance under the terms of the credit facility. 52 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 5. NOTES AND LOANS PAYABLE AMERCO's notes and loans payable consist of the following:
March 31, ---------------------- 2002 2001 ---------------------- (in thousands) Short-term borrowings, 2.85% interest rate $ 12,500 15,000 Notes payable to banks under commercial paper agreements, unsecured, -- 119,570 Notes payable to banks under revolving lines of credit, unsecured, 2.00% to 4.75% interest rates 283,000 185,000 Medium-term notes payable, unsecured, 7.23% to 8.08% interest rates, due through 2027 109,500 212,000 Notes payable under Bond Backed Asset Trust, unsecured, 7.14% interest rate, due through 2032 100,000 100,000 Notes payable to public, unsecured, 7.85% interest rate, due through 2003 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 150,000 Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 200,000 Fair Market Value SWAP 775 -- Other notes payable, secured and unsecured, 7.00% to 11.25% interest rate, due through 2005 234 278 -------------------- 1,031,009 1,156,848 Financed lease obligations 14,793 13,193 -------------------- $ 1,045,802 1,170,041 ======================
Other notes payable are secured by land and buildings at various locations with a net carrying value of $5,503,735 and $6,473,962 at March 31, 2002 and 2001, respectively. At March 31, 2002, AMERCO had a revolving credit loan (long-term) available from participating banks under an agreement, which provided for a credit line of $400,000,000 through June 30, 2002. Depending on the form of borrowing elected, interest will be based on the London Interbank Offering Rate (LIBOR), prime rate, the federal funds effective rate, or rates determined by a competitive bid. LIBOR loans include a spread based upon the senior debt rates of AMERCO. Facility fees paid are based upon the amount of credit line. As of March 31, 2002, loans outstanding under the revolving credit line totaled $283,000,000. The revolver was refinanced in June 2002. See Note 22. 53 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 5. NOTES AND LOANS PAYABLE, continued At March 31, 2002, AMERCO had borrowed $12,500,000, representing short-term borrowings, from its total uncommitted lines of credit of $59,694,000.
Revolving credit activity Short-term borrowing Year ended Year ended --------------------------- -------------------------- 2002 2001 2000 2002 2001 2000 --------------------------- -------------------------- (in thousands, except interest rates) Weighted average interest rate during the year 3.53% 6.36% 5.90% 3.59% 6.67% 6.13% Interest rate at year end 2.44% 5.68% 6.26% 2.63% 5.96% 6.32% Maximum amount outstanding during the year $ 283,000 258,000 365,000 33,553 41,500 52,000 Average amount outstanding during the year $ 224,667 86,000 235,500 23,531 18,458 13,542 Facility fees $ 507 507 508 N/A N/A N/A
AMERCO has entered into interest rate swap agreements (SWAPS) to potentially mitigate the impact of changes in interest rates on its floating rate debt. These agreements effectively change AMERCO's interest rate exposure on $45,000,000 of floating rate notes to a weighted average fixed rate of 8.63%. The SWAPS mature at the time the related notes mature. Incremental interest expense associated with SWAP activity was $2,381,000, $1,027,000 and $1,935,000 during 2002, 2001 and 2000, respectively. At March 31, 2002, interest rate swap agreements with an aggregate notional amount of $45,000,000 were outstanding. Management estimates that at March 31, 2002 and 2001, AMERCO would be required to pay $2,872,000 and $3,696,000, respectively, to terminate the agreements. Such amounts were determined from current treasury rates combined with SWAP spreads on agreements outstanding. During fiscal year 2002, AMERCO paid down $102,500,000 of 7.44% to 7.52% Medium Term Notes. During fiscal year 2001, AMERCO extinguished $100,000,000 of BATs with interest of 6.89% originally due in fiscal year 2011, and $25,000,000 of 6.71% Medium-Term notes originally due in fiscal year 2009. This resulted in an extraordinary loss of $2,121,000, net of tax of $1,160,000 ($0.10 per share). During fiscal year 2000, AMERCO extinguished $100,000,000 of BATs with interest of 6.65% originally due in fiscal year 2030, and $50,000,000 of 7.05% to 7.10% Medium-Term notes originally due in fiscal year 2007. This resulted in an extraordinary loss of $334,000, net of tax of $213,000 ($0.02 per share). Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At March 31, 2002, AMERCO was in compliance with these covenants. 54 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 5. NOTES AND LOANS PAYABLE, continued The annual maturities of long-term debt, excluding short-term borrowings, of AMERCO for the next five years adjusted for subsequent activity (if the revolving credit lines are outstanding to maturity), are presented in the table below:
Year Ended -------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter -------------------------------------------------------------- (in thousands) Mortgages $ 30 32 23 26 28 65 Capital Lease -- -- 14,793 -- -- -- Fair Market Value SWAP 97 97 97 97 97 290 Medium-Term and Other Notes 150,015 175,015 205,000 -- 30,000 174,500 Revolving Credit 78,000 -- 205,000 -- -- -- --------------------------------------------------------------- $ 228,142 175,144 424,913 123 30,125 174,855 ===============================================================
Interest paid in cash amounted to $77,902,000, $92,622,000 and $77,529,000 for fiscal years 2002, 2001 and 2000, respectively. SAC Holdings'notes and loans payable, non-recourse to AMERCO consist of the following:
March 31, ---------------------- 2002 2001 ---------------------- (in thousands) Notes payable, secured, bearing interest rates ranging from 7.50% to 8.82%, due between 2009 and 2032 $ 566,243 375,533 Less discounts on notes payable $ (8,482) ( 2,207) --------------------- $ 557,761 373,326 =====================
Secured notes payable are secured by deeds of trusts on the collateralized land and buildings. Principal and interest payments on notes payable to third-party lenders are due monthly. Certain notes payable contain provisions whereby the loans may not be prepaid at any time prior to the maturity date without payment to the lender of a Yield Maintenance Premium, as defined in the loan agreements. The loans on a portfolio of sixteen properties are cross-collateralized and cross-defaulted. At June 30, 2002, certain subsidiaries of SAC Holdings were in technical default of certain covenants related to the failure to deliver timely financial statements pursuant to certain of its agreements. Such amounts have been reflected as current in the table below. AMERCO is neither a guarantor nor a party to the borrowings of SAC Holdings or any of its subsidiaries. The annual maturities of long-term debt for the next five years adjusted for subsequent activity (if the revolving credit lines are outstanding to maturity), are presented in the table below:
Year Ended ------------------------------------------------------------ 2003 2004 2005 2006 2007 Thereafter ------------------------------------------------------------ (in thousands) Notes payable, secured $137,313 5,317 122,868 6,255 6,785 279,233 ============================================================
Interest paid in cash amounted to $33,803,000, $23,694,000 and $17,571,000 for fiscal years 2002, 2001 and 2000, respectively. 55 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 6. STOCKHOLDERS' EQUITY AMERCO has authorized capital stock consisting of 150,000,000 shares of common stock, 150,000,000 shares of Serial common stock and 50,000,000 shares of Serial preferred stock. The Board of Directors (the Board) may authorize the Serial common stock to be issued in such series and on such terms as the Board shall determine. Serial preferred stock issuance may be with or without par value. AMERCO has issued 6,100,000 shares of 8.5% cumulative, no par, non-voting Series A preferred stock (Series A). The Series A is not convertible into, or exchangeable for, shares of any other class or classes of stock of AMERCO. Dividends are payable quarterly in arrears and have priority as to dividends over AMERCO's common stock. On or after December 1, 2000, AMERCO, at its option, may redeem all or part of the Series A, for cash at $25.00 per share plus accrued and unpaid dividends to the redemption date. 56 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 7. ACCUMULATED OTHER COMPREHENSIVE INCOME A summary of accumulated comprehensive income components follows:
Unrealized Fair market Accumulated Foreign gain/(loss) value of other currency on cash flow comprehensive translation investments hedge income ------------------------------------------------- (in thousands) Balance at March 31, 2001 $ (35,562) (2,523) (2,624) (40,709) Foreign currency translation (4,242) - - (4,242) Fair market value of cash flow hedge, net of taxes of $(336) - - 130 130 Unrealized gain on investments, net of taxes of $8,029 - 12,437 - 12,437 -------------------------------------------- Balance at March 31, 2002 $ (39,804) 9,914 (2,494) (32,384) ============================================ Balance at March 31, 2000 $ (28,310) (12,568) (1,439) (42,317) Foreign currency translation (7,252) - - (7,252) Fair market value of cash flow hedge, net of taxes of $(638) - - (1,185) (1,185) Unrealized loss on investments, net of taxes of $4,369 - 10,045 - 10,045 -------------------------------------------- Balance at March 31, 2001 $ (35,562) (2,523) (2,624) (40,709) ============================================
8. EARNINGS PER SHARE The following table reflects the calculation of earnings per share:
Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------ (in thousands, except share and per share data) Year ended March 31, 2002 Earnings from operations before extraordinary loss on early extinguishment of debt $ 2,721 Less: preferred stock dividends (12,961) ------ Basic loss per share Loss from operations before extraordinary loss on early extinguishment of debt available to common stockholders (10,240) 21,022,712 $ (0.49) Extraordinary loss on early extinguishment of debt, net -- -- ----- ---- Net loss (10,240) (0.49) Effects of dilutive securities preferred stock conversion -- -- ------ ---------- Diluted loss per share Net loss $ (10,240) 21,022,712 $ (0.49) ====== ========== ====
57 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 8. EARNINGS PER SHARE, continued
Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------ (in thousands, except share and per share data) Year ended March 31, 2001 Earnings from operations before extraordinary loss on early extinguishment of debt $ 1,012 Less: preferred stock dividends (12,963) ------ Basic earnings per share Loss from operations before extraordinary loss on early extinguishment of debt available to common stockholders (9,830) 21,486,370 $ (0.46) Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) ----- ---- Net loss (11,951) (0.56) Effects of dilutive securities preferred stock conversion -- -- Diluted loss per share Net loss $ (11,951) 21,486,370 $ (0.56) ====== ========== ==== Year ended March 31, 2000 Earnings from operations before extraordinary loss on early extinguishment of debt $ 63,184 Less: preferred stock dividends (13,641) ------ Basic earnings per share Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 49,877 21,934,390 $ 2.27 Extraordinary loss on early extinguishment of debt, net (334) (0.01) ------ ---- Net earnings 49,543 2.26 Effects of dilutive securities Preferred stock conversion 537 291,667 ------ ---------- Diluted earnings per share Net earnings $ 50,080 22,226,057 $ 2.25 ====== ========== ====
58 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 9. INCOME TAXES The components of the consolidated expense for income taxes applicable to operations are as follows:
Year ended ------------------------------------------------------- 2002 2001 2000 ------------------------------------------------------- (in thousands) Current: Federal $ 18,607 - 1,192 State 5,637 951 1,068 Foreign 923 1,042 - Deferred: Federal (20,235) 689 31,953 State (2,674) 19 2,293 Foreign - - (331) --------------------------------------------------------- $ 2,258 2,701 36,175 =========================================================
Income taxes paid in cash amounted to $4,856,000, $3,450,000 and $1,522,000 for fiscal years 2002, 2001 and 2000, respectively. Actual tax expense reported on earnings from operations differs from the "expected" tax expense amount (computed by applying the United States federal corporate tax rate of 35% in 2002, 2001 and 2000) as follows:
Year ended ----------------------------------------------- 2002 2001 2000 ----------------------------------------------- (in thousands) Computed "expected" tax expense $ 1,876 2,220 34,956 Increases (reductions) in taxes resulting from: Tax-exempt interest income (178) (55) (145) Dividends received deduction (1) (1) Canadian subsidiary (income)loss (1,286) (402) (536) Federal tax benefit of state and local taxes (814) (1,031) (1,064) Other (1,225) (42) (66) ------------------------------------------------ Actual federal tax expense (1,628) 689 33,145 State and local income tax expense 3,886 2,012 3,030 ------------------------------------------------ Actual tax expense of operations $ 2,258 2,701 36,175 ===============================================
59 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 9. INCOME TAXES, continued Deferred tax assets and liabilities are comprised as follows:
March 31, -------------------- 2002 2001 -------------------- (in thousands) Deferred tax assets Benefit of tax net operating loss and credit carryforwards $ 42,349 72,452 Accrued expenses 16,018 22,728 Deferred revenue from sale/leaseback 8,348 9,001 Policy benefits and losses, claims and loss expenses payable, net 7,215 7,807 Other 1,549 1,550 -------------------- Sub-Total deferred tax assets 75,479 113,538 Less Valuation Allowance (14,048) (8,927) Total deferred tax assets 61,431 104,611 -------------------- Deferred tax liabilities Property, plant and equipment 156,274 179,580 Deferred policy acquisition costs 8,432 7,574 -------------------- Total deferred tax liabilities 164,706 187,154 -------------------- Net deferred tax liability $ 103,275 82,543 ====================
The deferred tax asset was reduced by use of a portion of the net operating loss carryforward to offset a related party gain that increased additional paid in capital. In light of AMERCO's history of profitable operations, management has concluded that it is more likely than not that AMERCO will ultimately realize the full benefit of its deferred tax assets. Accordingly, AMERCO believes that a valuation allowance is not required at March 31, 2002 and 2001. See also Note 15 of Notes to Consolidated Financial Statements. Under the provisions of the Tax Reform Act of 1984 (the Act), the balance in Oxford's account designated "Policyholders' Surplus Account" is frozen at its December 31, 1983 balance of $19,251,000. Federal income taxes (Phase III) will be payable thereon at applicable current rates if amounts in this account are distributed to the stockholder or to the extent the account exceeds a prescribed maximum. Oxford did not incur a Phase III liability for the years ended December 31, 2001, 2000 and 1999. The Company is currently under IRS examination for the years 1996 and 1997. The IRS has proposed adjustments to the 03/31/97 and 03/31/96 tax returns in the amount of $233,093,000 and $99,021,000, respectively, resulting in tax delinquencies of $9,332,000 for 1997 and $5,497,000 for 1996. Nearly all of the adjustments are attributable to denials of deductions claimed by the Company for certain payments made in resolution of the litigation with certain members of the Shoen family and their corporations. An unfavorable result could result in substantial cash payments, but is expected to have have minimal, if any, impact on consolidated results of operations. The Company plans to vigorously contest the IRS adjustments. At March 31, 2002, AMERCO and RepWest have non-life net operating loss carryforwards available to offset federal taxable income in future years of $89,005,000 for tax purposes. These carryforwards expire in 2011 through 2012. AMERCO has alternative minimum tax credit carryforwards of $20,327,000 which do not have an expiration date, but may only be utilized in years in which regular tax exceeds alternative minimum tax. The use of certain carryforwards may be limited or prohibited if a reorganization or other change in corporate ownership were to occur. 60 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 9. INCOME TAXES, continued During 1994, Oxford distributed its investment in RepWest common stock as a dividend to its parent at book value. As a result of such dividend, a deferred intercompany gain arose due to the difference between the book value and fair value of such common stock. However, such gain can only be triggered if certain events occur. To date, no events have occurred which would trigger such gain recognition. No deferred taxes have been provided in the accompanying consolidated financial statements as management believes that no events have occurred to trigger such gain. 10. TRANSACTIONS WITH FLEET OWNERS AND OTHER RENTAL EQUIPMENT OWNERS Independent rental equipment owners (fleet owners) own approximately 5% of all U-Haul rental trailers and 0.01% of certain other rental equipment. There are approximately 1,363 fleet owners, including certain officers, directors, employees and stockholders of AMERCO. All rental equipment is operated under contract with U-Haul whereby U-Haul administers the operations and marketing of such equipment and in return receives a percentage of rental fees paid by customers. Based on the terms of various contracts, rental fees are distributed to U-Haul (for services as operators), to the fleet owners (including certain subsidiaries and related parties of U-Haul) and to Rental Dealers (including Company-operated U-Haul Centers). RepWest insures and reinsures certain risks of U-Haul customers and independent fleet owners. Premiums earned on these policies were $17,800,000, $17,300,000 and $22,700,000 during the years ended December 31, 2001, 2000 and 1999, respectively. 61 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 11. EMPLOYEE BENEFIT PLANS AMERCO employees participate in the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (the Plan) which is designed to provide all eligible employees with savings for their retirement and to acquire a proprietary interest in AMERCO. The Plan has three separate features: a profit sharing feature (the Profit Sharing Plan) under which the Employer may make contributions on behalf of participants; a savings feature (the Savings Plan) which allows participants to defer income under Section 401(k) of the Internal Revenue Code of 1986; and an employee stock ownership feature (the ESOP) under which AMERCO may make contributions of AMERCO common stock or cash to acquire such stock on behalf of participants. Generally, employees of AMERCO are eligible to participate in the Plan upon completion of a one year service requirement. No contributions were made to the profit sharing plan in fiscal year 2002, 2001, or 2000. AMERCO has arranged financing to fund the ESOP trust (ESOT) and to enable the ESOT to purchase shares. Below is a summary of the financing arrangements:
Amount outstanding Financing as of Interest Payments Date March 31, 2002 2002 2001 2000 - ----------------------------------------------------------------------------------- (in thousands) May 1990 - - 8 16 June 1991 13,022 1,210 1,113 1,192 March 1999 163 14 16 - February 2000 967 74 - -
Shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the plan year. Contributions to the ESOT charged to expense were $1,535,000, $1,627,000 and $1,771,000 for fiscal years 2002, 2001 and 2000, respectively. 62 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 11. EMPLOYEE BENEFIT PLANS, continued The shares held by ESOP as of March 31 were as follows:
Shares issued Shares issued prior to subsequent to December 31, 1992 December 31, 1992 -------------------------------------------- 2002 2001 2002 2001 -------------------------------------------- (in thousands) Allocated shares 1,397 1,467 277 239 Shares committed to be released - - 11 12 Unreleased shares 258 293 588 628 Fair value of unreleased shares $ 3,581 3,812 10,237 13,341 ===============================================
For purposes of the schedule, fair value of unreleased shares issued prior to December 31, 1992 is defined as the historical cost of such shares. Fair value of unreleased shares issued subsequent to December 31, 1992 is defined as the March 31 trading value of such shares for 2002 and 2001. Oxford insures various group life and group disability insurance plans covering employees of the consolidated group. Premiums earned were $1,600,000, $1,424,000 and $1,276,000 during the years ended December 31, 2001, 2000 and 1999, respectively, and were eliminated in consolidation. 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS AMERCO provides medical and life insurance benefits to retired employees and eligible dependents over age 65 if the employee meets specified age and service requirements. AMERCO uses the accrual method of accounting for postretirement benefits. AMERCO continues to fund medical and life insurance benefit costs as claims are incurred. The components of net periodic postretirement benefit cost for 2002, 2001 and 2000 are as follows:
2002 2001 2000 ------------------------------ (in thousands) Service cost for benefits earned during the period $ 259 228 330 Interest cost on accumulated postretirement benefit 302 276 338 Other components (315) (340) (239) ------------------------------ Net periodic postretirement benefit cost $ 246 164 429 ==============================
63 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS, continued The 2002 and 2001 postretirement benefit liability included the following components:
2002 2001 -------------------- (in thousands) Beginning of year $ 4,097 3,615 Service cost 259 228 Interest cost 302 276 Benefit payments and expense (81) (86) Actuarial loss 405 64 -------------------- Accumulated postretirement benefit obligation 4,982 4,097 Unrecognized net gain 4,107 4,827 -------------------- $ 9,089 8,924 ====================
The discount rate assumptions in computing the information above were as follows:
2002 2001 2000 -------------------------- Accumulated postretirement benefit obligation 7.25% 7.50% 7.75%
The year-to-year fluctuations in the discount rate assumptions primarily reflect changes in U.S. interest rates. The discount rate represents the expected yield on a portfolio of high-grade (AA-AAA rated or equivalent) fixed-income investments with cash flow streams sufficient to satisfy benefit obligations under the plans when due. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 5.8% in 2002, declining annually to an ultimate rate of 4.20% in 2015. If the health care cost trend rate assumptions were increased by 1.00%, the accumulated postretirement benefit obligation as of March 31, 2002 would be increased by approximately $219,000 and a decrease of 1.00% would reduce the accumulated postretirement benefit obligation by $241,000. Postemployment benefits, other than retirement, provided by AMERCO are not material. 64 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 13. REINSURANCE In the normal course of business, RepWest and Oxford assume and cede reinsurance on both a coinsurance and risk premium basis. RepWest and Oxford obtain reinsurance for that portion of risks exceeding retention limits. The maximum amount of life insurance retained on any one life is $150,000. A summary of reinsurance transactions by business segment follows:
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net --------------------------------------------- ---------- (in thousands) Year ended December 31, 2001 - ---------------------------- Life insurance in force $ 2,088,898 925,608 1,732,122 2,895,412 60% ================================================== Premiums earned: Life $ 21,437 8,889 14,083 26,631 53% Accident and health 116,445 18,265 28,051 126,231 22% Annuity 1,651 - 3,939 5,590 70% Property - casualty 237,644 55,301 91,699 274,042 33% -------------------------------------------------- Total $ 377,177 82,455 137,772 432,494 ==================================================
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------- ---------- (in thousands) Year ended December 31, 2000 - ---------------------------- Life insurance in force $ 1,736,332 923,472 1,812,548 2,625,408 69% ================================================== Premiums earned: Life $ 23,666 2,493 8,232 29,405 28% Accident and health 72,593 15,195 16,884 74,282 23% Annuity 574 - 6,932 7,506 92% Property - casualty 154,998 33,182 96,281 218,097 44% -------------------------------------------------- Total $ 251,831 50,870 128,329 329,290 ==================================================
Percentage Ceded Assumed of amount Direct to other from other Net assumed to amount companies companies amount net ---------------------------------------------- ---------- (in thousands) Year ended December 31, 1999 - ---------------------------- Life insurance in force $ 1,508,961 932,004 1,930,832 2,507,789 77% ============================================== Premiums earned: Life $ 26,745 2,527 6,480 30,698 21% Accident and health 43,833 15,121 29,377 58,089 51% Annuity 69 3 6,269 6,335 99% Property - casualty 111,488 27,004 89,319 173,803 51% ---------------------------------------------- Total $ 182,135 44,655 131,445 268,925 ==============================================
65 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 13. REINSURANCE, continued RepWest is a reinsurer of municipal bond insurance through an agreement with MBIA, Inc. Premiums generated through this agreement are recognized on a pro rata basis over the contract coverage period. Unearned premiums on this coverage were $4,300,000 as of December 31, 2001 and 2000, respectively. RepWest's share of case loss reserves related to this coverage was insignificant at December 31, 2001. RepWest's aggregate exposure for Class 1 municipal bond insurance was $849,000,000 as of December 31, 2001. To the extent that a reinsurer is unable to meet its obligation under the related reinsurance agreements, RepWest would remain liable for the unpaid losses and loss expenses. Pursuant to certain of these agreements, RepWest holds letters of credit of $8,400,000 from reinsurers. RepWest has issued letters of credit of approximately $18,000,000 in favor of certain ceding companies. RepWest insures and reinsures general liability, auto liability and workers' compensation coverage for member companies of the consolidated group. Premiums earned by RepWest on these policies were $12,829,000, $6,091,000 and $6,878,000 during the years ended December 31, 2001, 2000 and 1999, respectively, and were eliminated in consolidation. 14. CONTINGENT LIABILITIES AND COMMITMENTS AMERCO uses certain equipment and occupies certain facilities under operating lease commitments with terms expiring through 2079. Lease expense was $174,973,000, $178,458,000 and $136,044,000 for the years ended 2002, 2001 and 2000, respectively. During the year ended March 31, 2002, a subsidiary of U-Haul entered into six transactions, whereby AMERCO sold rental trucks, which were subsequently leased back. AMERCO has guaranteed $203,013,000 of residual values at March 31, 2002, for these assets at the end of the respective lease terms. Certain leases contain renewal and fair market value purchase options as well as mileage and other restrictions similar to covenants disclosed in Note 5 of Notes to Consolidated Financial Statements for notes payable and loan agreements. See also Note 13. Following are the lease commitments for leases having terms of more than one year:
March 31, 2002 --------------------------- Property, plant Rental Year ended and other equipment fleet Total ------------------------------------------------------ (in thousands) 2003 $ 1,231 151,585 152,816 2004 982 62,316 63,298 2005 928 50,864 51,792 2006 917 88,690 89,607 2007 771 71,798 72,569 Thereafter 524 33,690 34,214 ----------------------------------- $ 5,353 458,943 464,296 ===================================
The Company, at the expiration of the lease, has the option to renew the lease, purchase the units for fair market value, or sell the units to a third party on behalf of the lessor. On or before a specific date prior to the expiration date of the lease, the Company has the ability to exercise a TRAC option. Under this provision the Company has the right to purchase the units at a specified price. At March 31, 2002, U-Haul exercised one purchase option totaling $972,000. 66 AMERICO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 14. CONTINGENT LIABILITIES AND COMMITMENTS, continued The Company maintains credit facilities and leasing agreements, collectively the Lease Facilities. Under these Lease Facilities, the lessor acquires land to be developed for storage locations with advances of funds (the Advances) made by certain parties to the facilities. AMERCO separately leases the land and improvements, including completed locations (the Properties) under the facilities and respective lease supplements. In December of 1996, AMERCO executed a $100,000,000 Lease Facility with a number of financial institutions, which was amended and restated in July 1999 to $170,000,000. This credit facility related to this LeaseFacility terminated in July of 2001, however the leasing agreement under which AMERCO leases the Properties does not terminate until July of 2004. In September 1999, and April of 2001, AMERCO entered into additional Lease Facilities for available credit of $125,000,000 and $61,739,000, respectively. Both the Credit Facility and the Leasing Agreement for the respective facilities expire in September 2004 and April 2004, respectively. Available credit under the Lease Facilities totaled $80,761,000 and $63,334,000 at March 31, 2002 and 2001 respectively. As of March 31, 2002 the Company leased property valued at $255,032,000 under the Lease Facilities, of this, $118,002,000 represents properties qualifying as operating leases and $137,030,000 has been financed by the Company through the Lease Facility. The facilities contain certain restrictions similar to those contained in Note 5. Upon occurrence of any event of default, the lessor may rescind or terminate any or all leases and, among other things, require AMERCO to repurchase any or all of the properties. The facilities have a three-year term, with options for successive one-year renewal terms subject to consent of other parties. Upon the expiration of the facilities, AMERCO may either purchase all of the properties based on a purchase price equal to all amounts outstanding under the Advances, including the interest and yield thereon, or remarket all of the properties to a third party purchaser who may become a subsequent lessor to AMERCO. 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 such suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. Also see Notes 13 and 15 of Notes to Consolidated Financial Statements. 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 $43.7 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 liable 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 the 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 to Real Estate, compliance with the environmental laws and its share of the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse effect on AMERCO's financial position or operating results. 67 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 15. LEGAL PROCEEDINGS On October 1, 1996, AMERCO made the final payment of approximately $448,100,000 to the plaintiffs (non-management shareholders and their affiliates) in the full settlement of a legal dispute related to control of AMERCO. As a result, the plaintiffs that owned AMERCO stock were required to transfer all of their shares of common stock to AMERCO. The total number of shares transferred was 18,254,976. AMERCO has deducted for income tax purposes approximately $372,000,000 of payments previously made to the former shareholders. While AMERCO believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. See Note 9. Pursuant to the $7.5 million settlement of a class action lawsuit relating to overtime compensation and brought on behalf of current and former Moving Center General Managers in California, Sarah Saunders, et al. vs. U-Haul Company of California, Inc., final payment was made on April 5, 2002. 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. Kocher purchased the policy in conjunction with the purchase of a $7,800 used pick-up truck. Although Oxford violated no pretrial discovery order and had never been on notice of the possibility of sanctions for its pretrial conduct, immediately prior to trial, the court sanctioned Oxford by directing a verdict against Oxford on liability for compensatory and punitive damages. Therefore, the only issue presented to the jury was the amount of compensatory and punitive damages. On March 22, 2002, the jury returned a verdict of $5 million in compensatory damages and $34 million in punitive damages. On June 10, 2002, the trial court heard argument on Oxford's "Motion for New Trial Or, in The Alternative, Remittitur." On June 28, 2002 the parties submitted proposed draft orders from which the trial court will fashion its Final Judgment. Management does not believe that the sanction imposed against Oxford is sustainable and expects the sanction to be overturned. Accordingly, no amounts have been recorded related to this matter. Moreover, Management does not believe that the jury award has any reasonable nexus to the actual harm suffered by Kocher and, therefore, is not sustainable. 16. PREFERRED STOCK PURCHASE RIGHTS AMERCO's Board of Directors adopted a stockholder-rights plan in July 1998. The rights were declared as a dividend of one preferred share purchase right for each outstanding share of AMERCO's common stock. The dividend distribution was payable on August 17, 1998 to the stockholders of record on that date. When exercisable, each right will entitle its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participating Preferred Stock (Series C), no par value per share of AMERCO, at a price of $132.00 per one one-hundredth of a share of Series C, subject to adjustment. AMERCO has created a series of 3,000,000 shares of authorized but unissued preferred stock for the Series C stock authorized in this stockholder-rights plan. The rights will become exercisable if a person or group of affiliated or associated persons acquire or obtain the right to acquire beneficial ownership of 10% or more of the common stock without approval of a majority of the Board of Directors of AMERCO. The rights will expire on August 7, 2008 unless earlier redeemed or exchanged by AMERCO. In the event AMERCO is acquired in a merger or other business combination transaction after the rights become exercisable, each holder of a right would be entitled to receive that number of shares of the acquiring company's common stock equal to the result obtained by multiplying the then current Purchase Price by the number one one-hundredths of a share of Series C for which a right is then exercisable and dividing that product by 50% of the then current market price per share of the acquiring company. 68 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 17. STOCK OPTION PLAN AMERCO's stockholders approved a ten year incentive plan entitled the AMERCO Stock Option and Incentive Plan (the Plan) for officers and key employees in October 1992. No stock options or awards have been granted under this plan to date. The aggregate numbers of shares of stock subject to award under the Plan may not exceed 3,000,000. The stock subject to the Plan is AMERCO common stock unless prior to the date the first award is made under the Plan, a Committee of at least two Board members determines, in its discretion, to utilize another class of AMERCO stock. The features of the Plan are: Incentive Stock Options (ISO's) - as defined under the Internal Revenue Code and Non-qualified Stock Options under such terms and conditions as the Committee determines in its discretion. The ISO's may be granted at prices not less than one-hundred percent of the fair market value at the date of grant with a term not exceeding ten years. Stock Appreciation Right (SAR's) - subject to certain conditions and limitations to holders of options under the Plan. SAR's permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. Restricted Stock Award - a specified number of common shares may be granted subject to certain restrictions. Restriction violations during a specified period result in forfeiture of the stock. The Committee may, at its discretion, impose any restrictions on a Restricted Stock award. Dividend Equivalents - in connection with options. Dividend Equivalents are rights to receive additional shares of stock at the time of exercise of the option to which such Dividend Equivalents apply. Performance Share - deemed to be the equivalent of one share of stock and credited to a Performance Share account to be maintained for each Holder. The value of the shares at time of award or payment is the fair market value of an equivalent number of shares of stock. At the end of the award period, payment may be made subject to certain predetermined criteria and restrictions. 18. RELATED PARTY TRANSACTIONS AMERCO has related party transactions with certain major stockholders, directors and officers of the consolidated group as disclosed in Notes 2, 6, 10 and 16 of Notes to Consolidated Financial Statements and below. Management believes that the transactions described in the related notes and below were consummated on terms equivalent to those that would prevail in arm's-length transactions. During the year ended 2001, AMERCO sold $10,510,000 of remanufactured engines and small automotive parts and purchased $53,671,000 of automotive parts and tools from a company wherein a major stockholder, director and officer of AMERCO formerly had a beneficial minority ownership interest. The related party interest ceased to exist as of December 31, 2000. During the year ended 2001, AMERCO purchased $1,090,000 of rebuilt torque converters and other related transmission parts from a company wherein an owner was a family member of a major stockholder, director and officer of AMERCO. The related party interest ceased to exist as of December 31, 2000. During the years ended 2002, 2001 and 2000, AMERCO purchased $3,238,000, $3,460,000 and $3,371,000, respectively, of printing services from a company wherein an owner is related to a major stockholder, director and officer of AMERCO. 69 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 19. SUPPLEMENTAL CASH FLOW INFORMATION The (increase) decrease in receivables, and inventories and increase (decrease) in accounts payable and accrued expenses net of other operating and investing activities follows: Year ended
Year ended ------------------------------------------- 2002 2001 2000 ------------------------------------------- (in thousands) Receivables $ 27,899 (54,369) (24,769) =========================================== Inventories $ 7,723 (289) (3,794) =========================================== Accounts payable and accrued expenses $ (17,763) (9,479) (19,109) ===========================================
20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized consolidated balance sheet for RepWest is presented below:
December 31, ------------------------- 2001 2000 ------------------------- (in thousands) Investments, securities $ 362,569 409,535 Investments, other 95,918 34,062 Receivables 230,228 200,651 Deferred policy acquisition costs 16,209 21,637 Due from affiliate 89,939 43,121 Deferred federal income taxes 12,048 13,167 Other assets 12,909 11,961 ------------------------ Total assets $ 819,820 734,134 ======================== Policy liabilities and accruals $ 459,867 372,328 Unearned premiums 91,725 107,768 Other policyholders' funds and liabilities 54,203 61,952 ------------------------ Total liabilities 605,795 542,048 Stockholder's equity 214,025 192,086 ------------------------ Total liabilities and stockholder's equity $ 819,820 734,134 ========================
A summarized consolidated income statement for RepWest is presented below:
Year ended December 31, ---------------------------- 2001 2000 1999 ---------------------------- (in thousands) Premiums $ 274,042 218,097 173,803 Net investment income 27,614 29,103 33,004 --------------------------------- Total revenue 301,656 247,200 206,807 Benefits and losses 269,115 204,133 150,543 Amortization of deferred policy acquisition costs 22,068 16,308 13,358 Operating expenses 78,656 56,653 34,972 --------------------------------- Total expenses 369,839 277,094 198,873 Income from operations (68,183) (29,894) 7,934 Income tax benefit (expense) 23,802 10,494 (2,611) --------------------------------- Net income(loss) $ (44,381) (19,400) 5,323 =================================
70 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized consolidated balance sheet for Oxford is presented below:
December 31, ----------------- 2001 2000 ----------------- (in thousands) Investments, fixed maturities $ 632,306 542,947 Investments, other 172,281 171,684 Receivables 26,689 27,430 Deferred policy acquisition costs 85,099 78,170 Deferred federal income taxes - 304 Other assets 12,996 29,776 ------------------------ Total assets $ 929,371 850,311 ======================== Policy liabilities and accruals $ 177,751 185,038 Premium deposits 572,793 522,207 Other policyholders' funds and liabilities 27,718 21,525 Due to affiliate 10,660 10,942 Deferred federal income taxes 11,642 10,793 ------------------------ Total liabilities 800,564 750,505 Stockholder's equity 128,807 99,806 ------------------------ Total liabilities and stockholder's equity $ 929,371 850,311 ========================
A summarized consolidated income statement for Oxford is presented below:
Year ended December 31, ---------------------------- 2001 2000 1999 ---------------------------- (in thousands) Premiums $ 160,052 112,616 96,406 Net investment income 26,980 22,166 21,540 --------------------------------- Total revenue 187,032 134,782 117,946 Benefits and losses 120,407 79,233 59,049 Amortization of deferred policy acquisition costs 18,583 19,638 21,629 Operating expenses 36,992 28,962 23,078 --------------------------------- Total expenses 175,982 127,833 103,756 Income from operations 11,050 6,949 14,190 Income tax expense (3,847) (2,298) (4,117) --------------------------------- Net income $ 7,203 4,651 10,073 =================================
71 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 20. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued Applicable laws and regulations of the State of Arizona require maintenance of minimum capital determined in accordance with statutory accounting practices in the amount of $450,000 for Oxford and $1,000,000 for RepWest. In addition, the amount of dividends which can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends is $82,000 for Oxford and $15,200,000 for RepWest at December 31, 2001. The Regulatory authorities impose minimum risk-based capital ("RBC") requirements that were developed by the NAIC, on insurance enterprises. The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on perceived degree of risk. Regulatory compliance is determined by a ratio of the enterprise's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC. Enterprises below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The RBC measures of the Company, NAI and CFLIC as of December 31, 2001 were all above the minimum standards. Audited statutory net income(loss) for RepWest for the years ended December 31, 2001, 2000 and 1999 was $(36,615,000), $(28,116,000) and $9,907,000, respectively; audited statutory capital and surplus was $151,604,000 and $117,430,000 at December 31, 2001 and 2000, respectively. Audited statutory net income (loss) for Oxford for the years ended December 31, 2001, 2000 and 1999 was $(1,289,000), $6,626,000 and $1,599,000, respectively; audited statutory capital and surplus was $77,956,000 and $53,473,000 at December 31, 2001 and 2000, respectively. On November 13, 2000, Oxford acquired all of the issued and outstanding shares of Christian Fidelity Life Insurance Company (CFLIC)in an exchange of cash for stock, for $37,586,000. CFLIC's premium volume is primarily from the sale of Medicare Supplement products. 72 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Information concerning operations by industry segment follows:
Moving Property/ Adjustments and Storage Real Casualty Life and Operations(1) Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------------------------- (in thousands) Fiscal year 2002 - ---------------- Revenues: Outside $1,584,952 8,800 288,826 185,432 -- 2,068,010 Intersegment -- 78,649 12,830 1,600 (93,079) -- ---------------------------------------------------------------------------------- Total revenue $1,584,952 87,449 301,656 187,032 (93,079) 2,068,010 Depreciation/ amortization $ 117,784 10,822 22,068 18,766 -- 169,440 Interest expense $ 116,345 34,299 -- -- (34,299) 116,345 Pretax earnings $ 24,220 37,892 (68,183) 11,050 -- 4,979 Income tax benefit(expense) $ (8,919) (13,294) 23,802 (3,847) -- (2,258) Identifiable assets at March 31, 2002 $1,881,800 597,295 817,480 929,371 (452,491) 3,773,455 Fiscal year 2001 - ---------------- Revenues: Outside $1,499,916 13,659 241,109 133,358 -- 1,888,042 Intersegment -- 69,379 6,091 1,424 (76,894) -- ------------------------------------------------------------------------------------ Total revenue $1,499,916 83,038 247,200 134,782 (76,894) 1,888,042 Depreciation/ amortization $ 108,088 11,005 17,588 20,120 -- 156,801 Interest expense $ 114,576 44,265 -- -- (44,265) 114,576 Pretax earnings $ 7,235 21,544 (29,894) 6,949 -- 5,834 Income tax benefit(expense) $ (3,357) (7,540) 10,494 (2,298) -- (2,701) Extraordinary loss on early extinguishment of debt, net $ (2,121) -- -- -- -- (2,121) Identifiable assets at March 31, 2002 $1,676,477 735,999 734,134 850,311 (358,482) 3,638,439
73 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Moving Property/ Adjustments and Storage Real Casualty Life and Operations(1) Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------------------- (in thousands) Fiscal year 2000 - ---------------- Revenues: Outside $1,410,152 9,365 199,929 116,425 -- 1,735,871 Intersegment -- 71,021 6,878 1,274 (79,173) -- ---------------------------------------------------------------------------- Total revenue $1,410,152 80,386 206,807 117,699 (79,173) 1,735,871 Depreciation/ amortization $ 96,536 10,512 14,819 21,787 -- 143,654 Interest expense $ 99,859 39,257 -- -- (39,257) 99,859 Pretax earnings $ 52,115 25,454 7,934 14,190 -- 99,693 Income tax expense $ 20,517 8,930 2,611 4,117 -- 36,175 Extraordinary loss on early extinguishment of debt, net $ (334) -- -- -- -- (334) Identifiable assets at March 31, 2001 $1,554,706 687,855 664,787 721,311 (337,367) 3,291,292
(1) Includes SAC Holding Corporations. 74 AMERCO AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, continued 21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued
Geographic Area Data - United States Canada Consolidated --------------------------------------- (All amounts are in U.S. $'s) (in thousands) Fiscal year 2002 ---------------- Total revenues $ 2,015,675 52,335 2,068,010 Depreciation/amortization $ 164,210 5,230 169,440 Interest expense $ 112,153 4,192 116,345 Pretax earnings $ (350) 5,329 4,979 Income tax expense $ (2,403) 145 (2,258) Identifiable assets at March 31, 2002 $ 3,655,852 117,603 3,773,455 Fiscal year 2001 ---------------- Total revenues $ 1,841,832 46,210 1,888,042 Depreciation/amortization $ 151,591 5,210 156,801 Interest expense $ 111,864 2,712 114,576 Pretax earnings (loss) $ 3,683 2,151 5,834 Income tax expense $ (2,695) (6) (2,701) Identifiable assets at March 31, 2001 $ 3,534,344 114,095 3,638,439 Fiscal year 2000 ---------------- Total revenues $ 1,697,724 38,147 1,735,871 Depreciation/amortization $ 139,479 4,175 143,654 Interest expense $ 98,932 927 99,859 Pretax earnings $ 97,355 2,338 99,693 Income tax expense $ (36,175) - (36,175) Extraordinary loss $ (334) - (334) Identifiable assets at March 31, 2000 $ 3,229,254 12,038 3,291,292
22. SUBSEQUENT EVENTS On May 7, 2002, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to the Series A preferred stockholders of record as of May 17, 2002. In May 2002, AMERCO entered into an agreement with various insurance lenders for $100,000,000 with maturities ranging from 4 to 10 years and fixed interest rates of 7.85% to 9.03%. On June 28, 2002, AMERCO entered into an agreement replacing an existing revolver agreement with a 3 year revolver for $205,000,000. The interest rate is based on a spread over LIBOR that will be determined over the term of the agreement. 75 SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information The following Summary of Earnings of Independent Trailer Fleets is presented for purposes of analysis and is not a required part of the basic financial statements.
Years Ended March 31, -------------------------------------------------------------- 2002 2001 2000 1999 1998 -------------------------------------------------------------- (in thousands, except earnings per $100 of average investment) Earnings data (Note A): Fleet Owner income: Credited to Fleet Owner gross rental income $1,028 1,350 1,977 2,191 2,317 Credited to Trailer Accident Fund (Notes D and E) 61 79 114 144 183 -------------------------------------------------------------- Total Fleet Owner income 1,089 1,429 2,091 2,335 2,500 -------------------------------------------------------------- Fleet Owner operation expenses: Charged to Fleet Owner (Note C) 532 719 999 873 1,144 Charged to Trailer Accident Fund (Notes D and F) 15 18 23 27 20 -------------------------------------------------------------- Total Fleet Owner operation expenses 547 737 1,022 900 1,164 -------------------------------------------------------------- Fleet Owner earnings before Trailer Accident Fund credit, depreciation and income taxes 496 631 978 1,318 1,173 Trailer Accident Fund credit (Note D) 46 61 91 117 163 -------------------------------------------------------------- Net Fleet Owner earnings before depreciation and income taxes $ 542 692 1,069 1,435 1,336 ============================================================== Investment data (Note A): Amount at end of year $1,663 2,046 2,654 3,272 3,875 ============================================================== Average amount during year $1,855 2,350 2,963 3,574 4,639 ============================================================== Net Fleet Owner earnings before depreciation and income taxes per $100 of average investment (Note B) (unaudited) $20.06 23.38 28.12 29.56 28.79 ==============================================================
The accompanying notes are an integral part of this Summary of Earnings of Independent Trailer Fleets. 76 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS Additional Information (A) The accompanying Summary of Earnings of Independent Trailer Fleets includes the operations of trailers under the brand name of "U-Haul" owned by Independent Fleet Owners. Earnings data represent the aggregate results of operations before depreciation and taxes. Investment data represent the cost of trailers and investments before accumulated depreciation. Fleet Owner income is based on Independent Rental Dealer reports of rentals transacted through the day preceding the last Monday of each month and received by U-Haul International, Inc. by the end of the month and Company-Operated U-Haul Center reports of rentals transacted through the last day of each month. Payments to Fleet Owners for trailers lost or retired from rental service as a result of damage by accident have not been reflected in this summary because such payments do not relate to earnings before depreciation and income taxes but, rather, investment (depreciation). The investment data is based upon the cost of trailers to the Fleet Owners as reflected by sales records of the U-Haul manufacturing facilities. (B) The summary of earnings data stated in terms of amount per $100 of average investment represents the aggregate results of operations (earnings data) divided by the average amount of investment during the periods. The average amount of investment is based upon a simple average of the month-end investment during each period. Average earnings data is not necessarily representative of an individual Fleet Owner's earnings. (C) A summary of operations expenses charged directly to Independent Fleet Owners follows:
Year ended March 31, -------------------------------------------- 2002 2001 2000 1999 1998 -------------------------------------------- (in thousands) Licenses $ 86 124 150 159 285 Public liability insurance 65 87 126 134 156 Repairs and maintenance 381 508 723 580 703 -------------------------------------------- $532 719 999 873 1,144 ============================================
(D) The Fleet Owners and Subsidiary U-Haul Rental Companies forego normal commissions on a portion of gross rental fees designated for transfer to the Trailer Accident Fund. Trailer accident repair expenses, otherwise chargeable to Fleet Owners, are paid from these Funds to the extent of the financial resources of the Funds. The amounts designated "Trailer Accident Fund credit" in the accompanying summary of earnings represent Independent Fleetowner commissions foregone, which exceed expenses borne by the Funds. 77 NOTES TO SUMMARY OF EARNINGS OF INDEPENDENT TRAILER FLEETS, continued Additional Information (E) Commissions foregone for transfer to the Trailer Accident Fund follows:
Fleet Owners Subsidiary ------------------------ U-Haul Subsidiary Companies Companies Independent Total ------------------------------------------- (in thousands) Year ended: March 31, 2002 $6,385 3,377 61 9,823 March 31, 2001 6,073 3,191 79 9,343 March 31, 2000 6,061 3,150 114 9,325 March 31, 1999 6,081 3,131 144 9,356 March 31, 1998 6,299 3,208 183 9,690
(F) A summary of Independent Fleet Owner expenses borne by the Trailer Accident Fund follows:
Total Fleet Owners Trailer Subsidiary --------------------------- Trailer Accident U-Haul Subsidiary Sub Accident Repair Companies Companies Independent Total Retirements Expenses ------------------------------------------------------------------------------------------ (in thousands) Year ended: March 31, 2002 $1,225 647 12 1,884 455 2,339 March 31, 2001 1,067 561 18 1,646 498 2,144 March 31, 2000 1,233 641 23 1,897 354 2,251 March 31, 1999 1,148 591 27 1,766 342 2,108 March 31, 1998 682 347 20 1,049 408 1,457
(G) Certain reclassifications have been made to the Summary of Earnings of Independent Trailer Fleets for the fiscal years ended 1999 and 1998 to conform with the current year's presentation. 78 Schedule I Condensed Financial Information of Registrant AMERCO Balance Sheets March 31,
2002 2001 ------------------------ (in thousands) Assets Cash $ 71 114 Investment in subsidiaries 1,121,630 894,831 Due from unconsolidated subsidiaries 890,880 1,092,274 Other assets 15,088 15,061 ------------------------ $ 2,027,669 2,002,280 ======================== Liabilities and Stockholders' Equity - ------------------------------------ Liabilities: Notes and loans payable $ 1,030,805 1,156,613 Other liabilities 310,464 239,340 ------------------------ Stockholders' equity: Preferred stock - - Common stock 10,563 10,563 Additional paid-in capital 405,794 312,128 Accumulated other comprehensive income (32,384) (40,709) Retained earnings: Beginning of year 730,942 743,720 Net earnings 1,199 185 Dividends paid (12,963) (12,963) ------------------------ 719,178 730,942 Less: Cost of common shares in treasury 416,771 406,617 Unearned employee stock ownership plan shares (20) (20) ------------------------ Total stockholders' equity 686,400 606,327 ------------------------ $ 2,027,669 2,002,280 ========================
See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 79 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Earnings Years Ended March 31,
2002 2001 2000 ------------------------------------- (in thousands, except share and per share data) Revenues - -------- Net interest income from subsidiaries $ 61,424 61,509 53,504 Expenses - -------- Interest expense 90,644 86,963 77,561 Other expenses 7,562 5,750 5,823 ------------------------------------- Total expenses 98,206 92,713 83,384 ------------------------------------- Operating loss (36,782) (31,204) (29,880) Equity in earnings of unconsolidated subsidiaries 63,698 61,181 126,159 Income tax expense (25,717) (27,669) (31,173) Extraordinary loss on early extinguishment of debt, net -- (2,121) (334) ------------------------------------- Net earnings $ 1,199 187 64,772 ===================================== Earnings per common share (both basic and diluted): Earnings from operations before extraordinary loss on early extinguishment of debt $ (0.56) (0.50) 2.35 Extraordinary loss on early extinguishment of debt, net - (0.10) (0.02) ------------------------------------- Net earnings $ (0.56) (0.60) 2.33 ===================================== Weighted average common shares outstanding 21,022,712 21,486,370 21,934,390 ====================================
See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 80 Schedule I, continued Condensed Financial Information of Registrant AMERCO Statements of Cash Flows Years Ended March 31,
2002 2001 2000 ----------------------------------- (in thousands) Cash flows from operating activities: Net earnings $ 1,199 185 64,772 Amortization, net 956 826 569 Gain on sale 101,994 38,494 -- Equity in earnings of subsidiaries (226,799) (74,948) (58,499) (Increase) decrease in amounts due from unconsolidated subsidiaries 201,394 (62,951) (21,846) Net change in operating assets and liabilities 70,528 104,392 68,551 ----------------------------------- Net cash provided by operating activities 149,272 5,998 53,547 ----------------------------------- Cash flows from financing activities: Net change in short term borrowings (23,295) 156,070 (146,500) Proceeds from notes -- -- 350,000 Leveraged Employee Stock Ownership Plan-repayments from loan -- 137 118 Principal payments on notes (102,513) (137,010) (180,010) Debt issuance costs (390) (488) (6,024) Repurchase of preferred stock -- -- (24,663) Preferred stock dividends paid (12,963) (12,963) (13,641) Treasury stock purchase, net (10,154) (9,617) (33,467) Extraordinary loss on early extinguishment of debt, net -- (2,121) (334) ----------------------------------- Net cash used by financing activities (149,315) (5,992) (54,521) ----------------------------------- Increase (decrease) in cash and cash equivalents (43) 6 (974) Cash and cash equivalents at beginning of year 114 108 1,082 ----------------------------------- Cash and cash equivalents at end of year $ 71 114 108 ===================================
Income taxes paid in cash amounted to $5,662,000, $3,450,000 and $1,522,000 for 2002, 2001 and 2000, respectively. Interest paid in cash amounted to $77,902,000, $92,622,000 and $77,529,000 for 2002, 2001 and 2000, respectively. See accompanying notes to condensed financial information and notes to consolidated financial statements incorporated herein by reference. 81 Schedule I, continued Condensed Financial Information of Registrant AMERCO Notes to Condensed Financial Information March 31, 2002, 2001 and 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AMERCO, a Nevada corporation, was incorporated in April, 1969, and is the holding company for U-Haul International, Inc., Republic Western Insurance Company, Oxford Life Insurance Company and Amerco Real Estate Company. The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this Form 10-K. AMERCO is included in a consolidated Federal income tax return with all of its U.S. subsidiaries. Accordingly, the provision for income taxes has been calculated for Federal income taxes of the Registrant and subsidiaries included in the consolidated return of the Registrant. State taxes for all subsidiaries are allocated to the respective subsidiaries. The financial statements include only the accounts of the Registrant (a Nevada corporation), which include certain of the corporate operations of AMERCO, (excluding SAC Holdings). The debt and related interest expense of the Registrant have been allocated to the consolidated subsidiaries. The intercompany interest income and expenses are eliminated in the consolidated financial statements. 2. GUARANTEES AMERCO has guaranteed performance of certain long-term leases. See Note 14 of Notes to Consolidated Financial Statements. 3. NOTES AND LOANS PAYABLE Notes and loans payable consist of the following:
March 31, ----------------------- 2002 2001 ----------------------- (in thousands) Medium-term notes payable, unsecured, 7.23% to 8.08% interest rates, due through 2027 $ 109,500 212,000 Notes payable under Bond Backed Asset Trust, unsecured, 7.14% interest rates, due through 2032 100,000 100,000 Notes payable to banks under commercial paper agreements, unsecured, 5.00% to 6.20% interest rates -- 119,570 Notes payable to public, unsecured, 7.85% interest rate, due through 2003 175,000 175,000 Senior Note, unsecured, 7.20% interest rate, due through 2002 150,000 150,000 Senior Note, unsecured, 8.80% interest rate, due through 2005 200,000 200,000 Other notes payable, unsecured, 9.50% interest rate, due through 2005 42 42 Notes payable to banks under revolving lines of credit, unsecured, 2.00% to 4.75% interest rates 283,000 185,000 Other short-term promissory notes, 2.88% interest rate 12,500 15,000 ----------------------- $1,030,053 1,156,612 =======================
For additional information, see Note 5 of Notes to Consolidated Financial Statements. 82 Schedule V AMERCO AND CONSOLIDATED SUBSIDIARIES Supplemental Information (For Property-Casualty Insurance Underwriters) Years ended December 31, 2001, 2000 and 1999
Reserves Amorti- for Unpaid zation Paid Claims Claims and of Claims Deferred and Claim Adjustment Deferred and Policy Claim Net Net Expenses Incurred Policy Claim Net Affiliation Acqui- Adjust- Discount Earned Invest- Related to Acqui- Adjust- Premiums Fiscal With sition ment if any, Unearned Premiums ment Current Prior sition ment Written Year Registrant Costs Expenses Deducted Premiums (1) Income(3) Year Year Costs Expenses (2) ---- ---------- ----- -------- -------- -------- --- --------- ---- ---- ----- -------- --- (in thousands) 2002 Consolidated property - casualty entity $16,209 448,984 N/A 91,725 261,213 31,757 232,984 36,132 22,067 236,866 234,793 2001 Consolidated property - casualty entity $21,637 369,292 N/A 107,768 212,005 32,030 155,073 35,387 16,309 178,221 251,924 2000 Consolidated property - casualty entity 15,130 334,857 N/A 64,755 166,925 32,527 121,861 16,052 13,358 138,072 176,604
(1) The earned premiums are reported net of intersegment transactions. Earned premiums eliminated in consolidation amount to $12,829,000, $6,091,000 and $6,878,000 for the years ended 2001, 2000 and 1999, respectively. (2) The premiums written are reported net of intersegment transactions. Premiums written eliminated in consolidation amount to $12,829,000, $6,091,000 and $6,878,000 for the years ended 2001, 2000 and 1999, respectively. (3) Net Investment Income excludes net realized gains(losses) on investments of ($4,143,000), ($2,926,000) and $477,000 for the years 2001, 2000 and 1999, respectively. 83 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /S/ EDWARD J. SHOEN ---------------------------------- Edward J. Shoen Chairman of the Board Dated: July 15, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ EDWARD J. SHOEN Chairman of the Board July 15, 2002 - ------------------------- (Principal Executive Edward J. Shoen Officer) /S/ GARY B. HORTON Treasurer July 15, 2002 - ------------------------- (Principal Financial Gary B. Horton and Accounting Officer) /S/ WILLIAM E. CARTY Director July 15, 2002 - ------------------------- William E. Carty /S/ JAMES P. SHOEN Director July 15, 2002 - ------------------------- James P. Shoen /S/ CHARLES J. BAYER Director July 15, 2002 - ------------------------- Charles J. Bayer /S/ JOHN M. DODDS Director July 15, 2002 - ------------------------- John M. Dodds /S/ JAMES J. GROGAN Director July 15, 2002 - ------------------------- James J. Grogen /S/ JOHN P. BROGAN Director July 15, 2002 - ------------------------- John P. Brogan /S/ FRANK M. LYONS Director July 15, 2002 - ------------------------- Frank M. Lyons 84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /S/ EDWARD J. SHOEN --------------------------------------- Edward J. Shoen President Dated: July 15, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ---- ---- /S/ EDWARD J. SHOEN President July 15, 2002 - -------------------------- (Principal Executive Edward J. Shoen Officer) /S/ GARY B. HORTON Assistant Treasurer July 15, 2002 - -------------------------- (Principal Financial Gary B. Horton and Accounting Officer) /S/ WILLIAM E. CARTY Director July 15, 2002 - -------------------------- William E. Carty /S/ JOHN M. DODDS Director July 15, 2002 - -------------------------- John M. Dodds /S/ JOHN T. TAYLOR Director July 15, 2002 - -------------------------- John T. Taylor 85 Index to Exhibits
Exhibit No. Description ----------- ----------- 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (3) 4.1 Debt Securities Indenture dated May 1, 1996 (1) 4.2 First Supplemental Indenture, dated as of May 6, 1996 (4) 4.3 Rights Agreement, dated as of August 7, 1998 (13) 4.5 Second Supplemental Indenture, dated as of October 22, 1997 (11) 4.6 Calculation Agency Agreement (11) 4.7 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust Certificates ("BATs") due October 15, 2000 (11) 4.8 Indenture dated September 10, 1996 (9) 4.9 First Supplemental Indenture dated September 10, 1996 (9) 4.10 Senior Indenture dated April 1, 2000 (14) 4.11 First Supplemental Indenture dated April 5, 2000 (14) 4.12 Second Supplemental Indenture dated February 4, 2001 (15) 10.1* AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.1A* First Amendment to the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan 10.2 U-Haul Dealership Contract (5) 10.3 Share Repurchase and Registration Rights Agreement with Paul F. Shoen (5) 10.4 AMERCO Stock Option and Incentive Plan (5) 10.5 ESOP Loan Credit Agreement (6) 10.6 ESOP Loan Agreement (6) 10.7 Trust Agreement for the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan (6) 10.8 Amended Indemnification Agreement (6) 10.9 Indemnification Trust Agreement (6) 10.10 Promissory Note between SAC Holding Corporation and a subsidiary of AMERCO (12) 10.11 Promissory Notes between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.12 Management Agreement between Three SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.13 Management Agreement between Four SAC Self-Storage Corporation and a subsidiary of AMERCO (12) 10.14 Agreement, dated October 17, 1995, among AMERCO, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.15 Directors' Release, dated October 17, 1995, executed by Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty in favor of AMERCO (8) 10.16 AMERCO Release, dated October 17, 1995, executed by AMERCO in favor of Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds and William E. Carty (8) 10.21 Management Agreement between Five SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.22 Management Agreement between Eight SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.23 Management Agreement between Nine SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.24 Management Agreement between Ten SAC Self-Storage Corporation and a subsidiary of AMERCO (16) 10.25 Management Agreement between Six-A SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.26 Management Agreement between Six-B SAC Self-Storage Corporation and a subsidiary of AMERCO (17)
* Indicates compensatory plan arrangement 10.27 Management Agreement between Six-C SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.28 Management Agreement between Eleven SAC Self-Storage Corporation and a subsidiary of AMERCO (17) 10.29 Management Agreement between Twelve SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.30 Management Agreement between Thirteen SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.31 Management Agreement between Fourteen SAC Self-Storage Corporation and a subsidiary of AMERCO (18) 10.32 Management Agreement between Fifteen SAC Self-Storage Corporation and a subsidiary of AMERCO (19) 10.33 Management Agreement between Sixteen SAC Self-Storage Corporation and a subsidiary of AMERCO (19) 10.34 Management Agreement between Seventeen SAC Self-Storage Corporation and a subsidiary of AMERCO (19) 12 Statements Re: Computation of Ratios 21 Subsidiaries of AMERCO 23 Consent of Independent Accountants
- ---------------- (1) Incorporated by reference to AMERCO's Registration Statement on Form S-3, Registration no. 333-1195. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (3) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255. (4) Incorporated by reference to AMERCO's Current Report on Form 8-K, dated May 6, 1996, file no. 1-11255. (5) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1993, file no. 1-11255. (6) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1990, file no. 1-11255. (7) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, file no. 1-11255. (8) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, file no. 1-11255. (9) Incorporated by reference to AMERCO's Current Report on Form 8-K dated September 6, 1996, file no. 1-11255. (10) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, file no. 1-11255. (11) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. (12) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 1997, file no. 1-11255. (13) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, file no. 1-11255. (14) Incorporated by reference to AMERCO's Current Report on Form 8-K dated April 5, 2000, file no. 1-11255. (15) Incorporated by reference to AMERCO's Current Report on Form 8-K dated February 4, 2001, file no. 1-11255. (16) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 2000, file no. 1-11255. (17) Incorporated by reference to AMERCO's Annual Report on Form 10-K for the year ended March 31, 2001, file no. 1-11255. (18) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, file no. 1-11255. (19) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 2001, file no. 1-11255. EX-12 3 p66760exv12.txt EX-12 AMERCO and Consolidated Subsidiaries Exhibit 12. Statement Re: Computation of Ratios
Year end --------------------------------------- 2002 2001 2000 1999 1998 --------------------------------------- Pretax earnings from operations $ 5.0 5.8 99.7 94.7 75.0 Plus: Interest expense 116.3 114.6 99.9 85.6 89.3 Preferred stock dividends 13.0 13.0 13.6 17.4 20.8 Amortization of debt expense and discounts 1.1 0.8 0.5 0.3 0.3 A portion of rental expense (1/3) 58.5 57.7 43.7 39.6 30.0 --------------------------------------- Subtotal (A) 193.9 191.9 257.4 237.6 215.4 --------------------------------------- Divided by: Fixed charges: Interest expense 76.1 87.4 81.5 73.7 79.4 Preferred stock dividends 13.0 13.0 13.6 17.4 20.8 A portion of rental expense (1/3) 58.5 57.7 43.7 39.6 30.0 Interest capitalized during the period 2.0 2.5 1.4 0.9 2.2 Amortization of debt expense and discounts 1.1 0.8 0.5 0.3 0.3 ---------------------------------------- Subtotal (B) $ 150.7 161.4 140.7 131.9 132.7 --------------------------------------- Ratio of earnings to fixed charges (A)/(B) 1.29 1.19 1.83 1.80 1.62 =======================================
AMERCO believes that one-third of AMERCO's annual rental expense is a reasonable approximation of the interest factor of such rentals. EX-21 4 p66760exv21.txt EX-21 Exhibit 21
AMERCO (Nevada) FIRST LEVEL SUBSIDIARY JURISDICTION ------------ EJOS, Inc. AZ Japal, Inc. NV M.V.S., Inc. NV Pafran, Inc. NV Sophmar, Inc. NV Picacho Peak Investments Co. NV Republic Western Insurance Company AZ SECOND LEVEL SUBSIDIARIES Republic Claims Service Co. AZ Republic Western Syndicate, Inc. NY North American Fire & Casualty Insurance Co. LA RWIC Investment, Inc. AZ THIRD LEVEL SUBSIDIARIES Republic Western Specialty Underwriters, Inc. AZ Republic Western Insurance Services AZ FIRST LEVEL SUBSIDIARY Oxford Life Insurance Company AZ SECOND LEVEL SUBSIDIARIES Christian Fidelity Life Insurance Co. TX Encore Financial, Inc. WI THIRD LEVEL SUBSIDIARIES Encore Agency, Inc. LA North American Insurance Company WI FOURTH LEVEL SUBSIDIARIES Community Health, Inc. (80% owned) WI Community Health Partners, Inc. (20% owned) IL FIRST LEVEL SUBSIDIARY Amerco Real Estate Company NV SECOND LEVEL SUBSIDIARIES Amerco Real Estate Company of Alabama, Inc. AL Amerco Real Estate Company of Texas, Inc. TX Amerco Real Estate Services, Inc. NV One PAC Company NV Two PAC Company NV Three PAC Company NV Four PAC Company NV Five PAC Company NV Six PAC Company NV Seven PAC Company NV
SECOND LEVEL SUBSIDIARIES-Amerco Real Estate Company (Cont'd) JURISDICTION ------------ Eight PAC Company NV Nine PAC Company NV Ten PAC Company NV Eleven PAC Company NV Twelve PAC Company NV Fourteen PAC Company NV Fifteen PAC Company NV Sixteen PAC Company NV Seventeen PAC Company NV Nationwide Commercial Co. AZ THIRD LEVEL SUBSIDIARIES Yonkers Property Corporation NY FIRST LEVEL SUBSIDIARY U-Haul International, Inc. NV SECOND LEVEL SUBSIDIARIES INW Company WA A & M Associates, Inc. AZ U-Haul Business Consultants, Inc. AZ U-Haul Leasing & Sales Co. NV U-Haul Self-Storage Corporation NV U-Haul Co. (Canada) Ltd. ON U-Haul Co. of Alaska AK U-Haul Co. of Alabama, Inc. AL U-Haul Co. of Arkansas AR U-Haul Co. of Arizona AZ U-Haul Co. of California CA U-Haul Co. of Colorado CO U-Haul Co. of Connecticut CT U-Haul Co. of District of Columbia, Inc. DC U-Haul Co. of Florida FL U-Haul Co. of Georgia GA U-Haul of Hawaii, Inc. HI U-Haul Co. of Iowa, Inc. IA U-Haul Co. of Idaho, Inc. ID U-Haul Co. of Illinois, Inc. IL U-Haul Co. of Indiana, Inc. IN U-Haul Co. of Kansas, Inc. KS U-Haul Co. of Kentucky KY U-Haul Co. of Louisiana LA U-Haul Co. of Massachusetts, Inc. MA U-Haul Co. of Maryland, Inc. MD U-Haul Co. of Maine, Inc. ME U-Haul Co. of Michigan MI U-Haul Co. of Minnesota MN U-Haul Company of Missouri MO U-Haul Co. of Mississippi MS
SECOND LEVEL SUBSIDIARIES - U-HAUL INTERNATIONAL, INC. JURISDICTION ------------- U-Haul Co. of Montana, Inc. MT U-Haul Co. of North Carolina NC U-Haul Co. of North Dakota ND U-Haul Co. of Nebraska NE U-Haul Co. of New Hampshire, Inc. NH U-Haul Co. of New Jersey, Inc. NJ U-Haul Co. of New Mexico, Inc. NM U-Haul Co. of Nevada, Inc. NV U-Haul Co. of New York, Inc. NY U-Haul Co. of Oklahoma, Inc. OK U-Haul Co. of Oregon OR U-Haul Co. of Pennsylvania PA U-Haul Co. of Rhode Island RI U-Haul Co. of South Carolina, Inc. SC U-Haul Co. of South Dakota, Inc. SD U-Haul Co. of Tennessee TN U-Haul Co. of Utah, Inc. UT U-Haul Co. of Virginia VA U-Haul Co. of Vermont, Inc. VT U-Haul Co. of Washington WA U-Haul Co. of Wisconsin, Inc. WI U-Haul Co. of West Virginia WV U-Haul Co. of Wyoming, Inc. WY U-Haul Co. of Texas TX THIRD LEVEL SUBSIDIARIES Mover's Club, Inc. TX
EX-23 5 p66760exv23.txt EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-10119, 333-73357, 333-48396 and 33-56571) of AMERCO and its subsidiaries of our report dated July 12, 2002 relating to the consolidated financial statements and financial statement schedules, which appears in this Form 10-K. PRICEWATERHOUSECOOPERS LLP Phoenix, Arizona July 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----