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U-Haul Holding Co /NV/ - Quarter Report: 2003 June (Form 10-Q)

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
 
    For the quarterly period ended June 30, 2003
 
or
 
 
o
  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 Address
File Number and Telephone Number I.R.S. Employer Identification No.



1-11255
  AMERCO
(A Nevada Corporation)
1325 Airmotive Way, Ste. 100
Reno, Nevada 89502-3239
Telephone (775) 688-6300
  88-0106815
2-38498
  U-Haul International, Inc.
(A Nevada Corporation)
2727 N. Central Avenue
Phoenix, Arizona 85004
Telephone (602) 263-6645
  86-0663060

      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 þ          No o.

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ.

      20,514,958 shares of AMERCO Common Stock, $0.25 par value were outstanding at June 30, 2003.

      5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at September 8, 2003.




 

TABLE OF CONTENTS

                 
PART I FINANCIAL INFORMATION
  Item  1.     Financial Statements        
        a) Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and March 31, 2003     2  
        b) Condensed Consolidated Statements of Operations for the Quarters ended June 30, 2003 and 2002 (unaudited)     3  
        c) Condensed Consolidated Statements of Comprehensive Income for the Quarters ended June 30, 2003 and 2002 (unaudited)     4  
        d) Condensed Consolidated Statements of Cash Flows for the Quarters ended June 30, 2003 and 2002 (unaudited)     5  
        e) Notes to Condensed Consolidated Financial Statements     6  
  Item  2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     24  
  Item  3.     Quantitative and Qualitative Disclosures About Market Risk     39  
  Item  4.     Controls and Procedures     39  
PART II OTHER INFORMATION
  Item  1.     Legal Proceedings     40  
  Item  2.     Not applicable        
  Item  3.     Defaults Upon Senior Securities     42  
  Item  5.     Not applicable        
  Item  6.     Exhibits and Reports on Form 8-K     43  

1


 

PART I.     FINANCIAL INFORMATION

 
ITEM 1.     Financial Statements

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
                     
June 30, March 31,
2003 2003
Assets

(Unaudited)
(In thousands)
Cash and cash equivalents
  $ 85,460     $ 66,834  
Trade receivables, net
    262,208       263,737  
Notes and mortgage receivables, net
    10,531       2,868  
Inventories, net
    54,250       53,270  
Prepaid expenses
    20,360       21,846  
Investments, fixed maturities
    834,530       860,600  
Investments, other
    440,769       389,252  
Deferred policy acquisition costs, net
    103,707       105,100  
Deferred income taxes
    10,615       32,242  
Other assets
    88,132       63,600  
     
     
 
      1,910,562       1,859,349  
Property, plant and equipment, at cost:
               
 
Land
    158,583       157,987  
 
Building and Improvements
    751,601       747,853  
 
Furniture and Equipment
    292,218       291,383  
 
Rental trailers and other rental equipment
    152,573       149,707  
 
Rental trucks
    1,177,683       1,140,294  
 
SAC Holdings property, plant and equipment(1)
    726,668       757,292  
     
     
 
      3,259,326       3,244,516  
 
Less accumulated depreciation
    (1,327,515 )     (1,298,199 )
     
     
 
   
Total property, plant and equipment
    1,931,811       1,946,317  
     
     
 
   
Total assets
  $ 3,842,373     $ 3,805,666  
     
     
 
                         
Liabilities and Stockholders’ Equity
Liabilities:
               
 
Accounts payable and accrued expenses
    379,773       387,017  
 
AMERCO’s notes and loans payable, non-recourse to AMERCO
    93,977       954,856  
 
SAC Holdings’ notes and loans payable
    589,641       589,019  
 
Policy benefits and losses, claims and loss expenses Payable
    847,005       836,632  
 
Liabilities from investment contracts
    641,257       639,998  
 
Other policyholders’ funds and liabilities
    24,432       30,309  
 
Deferred income
    37,072       40,387  
 
Liabilities subject to compromise
    861,058        
     
     
 
       
Total liabilities
    3,474,215       3,478,218  
 
Commitments and Contingent Liabilities
           
 
Stockholders’ equity:
               
   
Serial preferred stock, with or without par value
               
     
Series A preferred stock, with no par value
               
     
Series B preferred stock, with no par value
           
   
Serial common stock, with or without par value
               
     
Series A common stock of $0.25 par value
    1,441       1,441  
   
Common stock of $0.25 par value
    9,122       9,122  
   
Additional paid-in capital
    238,983       238,983  
   
Accumulated other comprehensive loss
    (39,927 )     (55,765 )
   
Retained earnings
    592,717       568,222  
   
Cost of common shares in treasury, net
    (421,376 )     (421,378 )
   
Unearned ESOP shares
    (12,802 )     (13,177 )
     
     
 
       
Total stockholders’ equity
    368,158       327,448  
     
     
 
       
Total liabilities and stockholders’ equity
  $ 3,842,373     $ 3,805,666  
     
     
 


(1)  Property, plant and equipment totaled $984.9 million and $1,015.6 million before eliminations; intercompany eliminations were $258.3 million at June 30, 2003 and March 31, 2003.

     The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                       
Quarters Ended
June 30,

2003 2002


(Restated)
(Unaudited)
(In thousands, except per share
data)
Revenues
               
 
Revenues Rental revenue
  $ 435,042     $ 411,577  
 
Net sales
    69,209       68,189  
 
Premiums
    64,456       84,653  
 
Net investment and interest income
    11,409       14,875  
     
     
 
   
Total revenues
    580,116       579,294  
Costs and expenses
               
 
Operating expense
    292,976       276,220  
 
Commission expense
    40,194       42,130  
 
Cost of sales
    32,219       35,527  
 
Benefits and losses
    53,399       76,418  
 
Amortization of deferred policy acquisition costs
    9,100       10,334  
 
Lease expense
    38,630       41,356  
     
Depreciation, net
    38,038       33,712  
     
     
 
Total costs and expenses
    504,556       515,697  
     
     
 
Earnings from operations
    75,560       63,597  
 
Interest expense
    30,898       28,695  
     
     
 
Pretax earnings
    44,662       34,902  
Income tax expense
    (16,926 )     (11,123 )
     
     
 
   
Net earnings
  $ 27,736     $ 23,779  
Less: Preferred stock dividends
    (3,241 )     (3,241 )
     
     
 
Earnings available to common shareholders
  $ 24,495     $ 20,538  
     
     
 
Basic and diluted earnings per common share
  $ 1.24     $ 1.00  
     
     
 
Weighted average common shares
               
 
Outstanding: Basic and diluted
    19,825,852       20,592,858  
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                     
Quarters Ended
June 30,

2003 2002


(Restated)
(Unaudited)
(In thousands)
Comprehensive income:
               
 
Net earnings
  $ 27,736     $ 23,779  
   
Changes in other comprehensive income:
               
   
Foreign currency translation
    5,751       (2,277 )
   
Unrealized gain/(loss) on investments
    10,087       (322 )
     
     
 
   
Total comprehensive income
  $ 43,574     $ 21,180  
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     
Quarters Ended June 30,

2003 2002


(Restated)
(Unaudited)
(In thousands)
Net cash provided by operating activities
  $ 42,628     $ 117,328  
Cash flows from investing activities:
               
 
Purchases of investments:
               
   
Property, plant and equipment
    (48,137 )     (61,215 )
   
Investments, fixed maturities
    (13,917 )     (60,986 )
   
Other asset investment
    (25,474 )     (362 )
 
Proceeds from sale of investments:
               
   
Property, plant and equipment
    3,157       3  
   
Investments, fixed maturities
    53,150       70,324  
   
Preferred stock
          2,578  
   
Real estate
    6,344       4,545  
   
Mortgage loans
    203       560  
   
Other investments
    1,114       7,348  
     
     
 
Net cash used by investing activities
    (23,560 )     (37,205 )
     
     
 
Cash flows from financing activities:
               
 
Net change in short-term borrowings
          (100,485 )
 
Proceeds from notes
          99,991  
 
Leveraged employee stock ownership plan:
               
   
Purchase of shares
          (84 )
   
Payments on loan
    375        
 
Principal payments on notes
    (1,595 )     (105,837 )
 
Treasury stock acquisitions, net
          (572 )
 
Investment contract deposits
    20,334       36,628  
 
Investment contract withdrawals
    (19,556 )     (19,211 )
     
     
 
Net cash used by financing activities
    (442 )     (89,570 )
     
     
 
Increase (decrease) in cash and cash equivalents
    18,626       (9,447 )
Cash and cash equivalents at beginning of period
    66,834       41,446  
     
     
 
Cash and cash equivalents at end of period
  $ 85,460     $ 31,999  
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003, March 31, 2003 and June 30, 2002

(Unaudited)
 
1. Proceedings Under Chapter 11 of the Bankruptcy Code

      On June 20, 2003, AMERCO (the “Debtor”) filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the District of Nevada. On August 13, 2003, the company’s wholly owned subsidiary Amerco Real Estate Company (“AREC”) filed a petition for relief under Chapter 11 of the federal bankruptcy laws of the United States Bankruptcy Court for the District of Nevada. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petition for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor–in-possession. These claims are reflected in the June 30, 2003, balance sheet as “liabilities subject to compromise.” Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtor’s assets (“secured claims”) also are stayed, although the holders of such claims have the right to move the court for relief from the stay. Secured claims are secured primarily by liens of the Debtor’s property, plant and equipment.

 
2. Organization and Principles of Consolidation
 
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”). Throughout this Form 10-Q, unless the context otherwise requires, the term “Company” refers to AMERCO and all of its legal subsidiaries. The Company has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate, Property and Casualty Insurance (RepWest) and Life Insurance (Oxford).

      SAC Holding Corporation and SAC Holding Corporation II, Nevada corporations (collectively, “SAC Holdings”), are the holding companies for several individual corporations that own self-storage properties managed by AMERCO subsidiaries in the ordinary course of business. Mark V. Shoen, a significant shareholder and executive officer of AMERCO, owns all of the equity interest of SAC Holdings.

 
Principles of Consolidation

      The condensed consolidated financial statements presented here include the accounts of AMERCO and its wholly owned subsidiaries and SAC Holdings and their subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. SAC Holdings has been classified as a special purpose entity that meets the criteria for consolidation and therefore the accounts of SAC Holdings are included in the consolidated financial statements. AMERCO has concluded that SAC Holdings qualifies as a Variable Interest Entity, as defined by FIN 46, and will continue to be included in the consolidation. SAC Holdings are not legal subsidiaries of AMERCO. AMERCO is not liable for the debts of SAC Holdings and there are no default provisions in AMERCO indebtedness that cross-default to SAC Holdings’ obligations. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in AMERCO’s annual financial statements and notes. For a more detailed presentation of the accounts and transactions of AMERCO, refer to AMERCO’s Form 10-K.

      The condensed consolidated balance sheet as of June 30, 2003 and the related condensed consolidated statements of operations, comprehensive income, and cash flows for the quarters ended June 30, 2003 and 2002 are unaudited. In our opinion, all adjustments necessary for a fair presentation of such condensed

6


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

consolidated financial statements have been included. Such adjustments consist only of normal recurring items. Interim results are not necessarily indicative of results for a full year.

      The operating results and financial position of RepWest and Oxford have been consolidated on the basis of a calendar year and, accordingly, are determined on a one-quarter lag for financial reporting purposes. There were no effects related to intervening events, which would materially affect the consolidated financial position or results of operations for the financial statements presented herein, with the exception of various Agreements of Exchange entered into between SAC Holdings and RepWest and SAC Holdings and Oxford. The exchanges were effective June 30, 2003, were non-monetary and were recorded on the basis of the book values of the assets exchanged. Under the terms of these Agreements of Exchange, RepWest and Oxford exchanged their respective interests in Private Mini Storage Realty, L.P., a Texas based self-storage operator, for real estate owned by SAC Holdings. For the purposes of consolidating the operations of RepWest and Oxford and to facilitate proper eliminations among the various entities as of and for the quarter ended June 30, 2003, the transaction was accounted for as if it were effective March 31, 2003 with respect to RepWest and Oxford.

      Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses directly associated with the reorganization and restructuring of the business are reported as part of operating expenses in the Condensed Consolidated Statements of Operations. The Condensed Consolidated Balance Sheets distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities subject to compromise are reported at the amounts expected to be allowed, even if they may be settled for lesser amounts.

 
Going Concern Basis

      On June 20, 2003 (the “Petition Date”), AMERCO filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court, District of Nevada (the “Bankruptcy Court”) (Case No. 0352103). AMERCO will continue to manage its properties and operate its businesses as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In general, as debtor-in-possession, AMERCO is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Specific information pertaining to the bankruptcy filing may be obtained from the website www.amerco.com. The Bankruptcy filing and the events of default on substantially all of the Company’s debt raises substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect future effects on the recoverability and classification of assets or the amount and classification of liabilities that might result from these uncertainties.

 
Restatements and Reclassifications

      In connection with the recently completed audit of the Company’s financial statement for the year ended March 31, 2003, it was determined that there was a need for the Company to record adjustments that resulted in the restatement of the Company’s financial statements, including financial statements for the quarter ended June 30, 2002. The condensed consolidated statement of operations, comprehensive income and cash flows for the quarter ended June 30, 2002 contained in this report have been restated. Net income for the three months ended June 30, 2002 as originally reported was $40.5 million, or $1.81 per basic and diluted share. Net income for this period as restated is $23.8 million or $1.00 per basic and diluted share. The major components of the restatement were related to an adjustment to accrue for fully-developed actuarial estimates of the Company’s insurance reserves and to recognize equity-method losses relating to the Company’s investments in Private Mini Storage Realty, L.P. For a detailed discussion of the adjustments to our financial statements for the fiscal

7


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

years ended March 31, 2002 and 2001, see footnote 2 to the consolidated financial statements contained in our Annual Report on Form 10-K.

 
3. Investments

      A comparison of amortized cost to estimated market value for fixed maturities is as follows:

                                 
Gross Gross
March 31, 2003 Amortized Unrealized Unrealized Estimated
Consolidated Held-to-Maturity Cost Gains Losses Market Value





(In thousands)
U.S. government agency mortgage-backed Securities
  $ 510     $ 173     $     $ 683  
Mortgage-backed securities
    12,549       420       (49 )     12,920  
     
     
     
     
 
    $ 13,059     $ 593     $ (49 )   $ 13,603  
     
     
     
     
 
                                   
Gross Gross
March 31, 2003 Amortized Unrealized Unrealized Estimated
Consolidated Available-for-Sale Cost Gains Losses Market Value





(In thousands)
U.S. treasury securities and government Obligations
  $ 27,343     $ 3,176     $     $ 30,519  
U.S. government agency mortgage-backed securities
    10,915       588             11,503  
Obligations of states and political subdivisions
    2,625       172             2,797  
Corporate securities
    565,750       29,533       (27,825 )     567,458  
Mortgage-backed securities
    84,809       3,147       (3,423 )     84,533  
Redeemable preferred stocks
    123,305       1,721       (1,377 )     123,649  
Common stocks
    1,012                   1,012  
     
     
     
     
 
      815,759       38,337       (32,625 )     821,471  
     
     
     
     
 
 
Total
  $ 828,818     $ 38,930     $ (32,674 )   $ 835,074  
     
     
     
     
 
 
4. Contingent Liabilities and Commitments

      Following are the lease commitments which have a term of more than one year:

         
Lease
Commitments
Quarter Ending June 30,
(In thousands)
2004
  $ 236,793  
2005
    100,740  
2006
    85,503  
2007
    66,892  
2008
    21,941  
Thereafter
    7,522  
     
 
    $ 519,391  
     
 

      In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean up of underground fuel storage tanks. In our opinion, none of such suits, claims or proceedings involving AMERCO, individually, or in the aggregate, are expected to result in a material loss.

8


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

      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 we have spent $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 $5.0 million required by the State of Washington, INW filed for reorganization under federal bankruptcy laws in May of 2001. The potential liability to INW could be in the range of $750,000 to $1.25 million.

      Based upon the information currently available, compliance with the environmental laws and the costs of investigation and cleanup of known hazardous waste sites are not expected to have a material adverse affect on AMERCO’s financial position of operating results.

      In connection with the resolution of litigation with certain members of the Shoen family and their corporations, AMERCO has deducted for income tax purposes approximately $372.0 million of the payments made to plaintiffs in a 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 IRS has proposed adjustments to the Company’s 1997 and 1996 tax returns. Nearly all of the adjustments are attributable to denials of deductions claimed for certain payments made in connection with this litigation. We believe these income tax deductions are appropriate and are vigorously contesting the IRS adjustments. No additional taxes have been provided in the accompanying financial statements, as management believes that none will result.

      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. On March 22, 2002, the jury returned a verdict of $5 million in compensatory damages and $34 million in punitive damages. On November 5, 2002, the trial court entered an Order (“Order”) affirming the $39 million jury verdict and denying Oxford’s motion for New Trial Or, in The Alternative, Remittitur. Oxford has perfected its appeal to the West Virginia Supreme Court. Oral argument on the appeal petition occurred on September 9, 2003. Management does not believe that the Order is sustainable and expects the Order to be overturned by the West Virginia Supreme Court, in part because the jury award has no reasonable nexus to the actual harm suffered by Kocher. The Company has accrued $725,000, which represents management’s best estimate of the costs associated with legal fees to appeal and re-try the case and the company’s uninsured exposure to an unfavorable outcome.

      As previously discussed, on June 20, 2003, AMERCO filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. As debtor-in-possession, AMERCO is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. As of the Petition Date, virtually all pending litigation against AMERCO is stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, may take any action, again subject to certain exceptions, to recover on pre-petition claims against AMERCO. The automatic stay, however, does not apply to AMERCO’s subsidiaries, other than Amerco Real Estate Company, which filed for protection under Chapter 11, on August 13, 2003.

9


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

      On September 24, 2002, Paul F. Shoen filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al, CV02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as defendants. AMERCO is named a nominal defendant for purposes of the derivative action. The complaint alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC Holdings over the last several years. The complaint seeks a declaration that such transfers are void as well as unspecified damages. On October 28, 2002, AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed Motions to Dismiss the complaint. In addition, on October 28, 2002, Ron Belec filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al, CV 02-06331 and on January 16, 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et. al, CV 03-00386. Two additional derivative suits were also filed against these parties. These additional suits are substantially similar to the Paul F. Shoen derivative action. The five suits assert virtually identical claims. In fact, three of the five plaintiffs are parties who are working closely together and chose to file the same claims multiple times. The court consolidated all five complaints before dismissing them on May 8, 2003. Plaintiffs have filed a notice of appeal. These lawsuits falsely alleged that the AMERCO Board lacked independence. In reaching his decision to dismiss these claims, the court determined that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Board.

      The Securities and Exchange Commission (“SEC”) has issued a formal order of investigation to determine whether the Company has violated the Federal securities laws. On January 7, 2003, the Company received the first of four subpoenas issued by the SEC. SAC Holdings, the Company’s current and former auditors, and others have also received one or more subpoenas relating to this matter. The Company is cooperating fully with the SEC and is facilitating the expeditious review of its financial statements and any other issues that may arise. The Company has produced a large volume of documents and other materials in response to the subpoenas, and the Company is continuing to assemble and produce additional documents and materials for the SEC. Although the Company has fully cooperated with the SEC in this matter and intends to continue to fully cooperate, the SEC may determine that the Company has violated Federal securities laws. We cannot predict when this investigation will be completed or its outcome. If the SEC makes a determination that we have violated Federal securities laws, we may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

      AMERCO is a defendant in four putative class action lawsuits. Article Four Trust v. AMERCO, et al., District of Nevada, United States District Court, Case No. CV-N-03-0050-DWH-VPC. Article Four Trust, a purported AMERCO shareholder, commenced this action on January 28, 2003 on behalf of all persons and entities who purchased or acquired AMERCO securities between February 12, 1998 and September 26, 2002. The Article Four Trust action alleges one claim for violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Mates v. AMERCO, et al., United States District Court, District of Nevada, Case No. CV-N-03-0107. Maxine Mates, an AMERCO shareholder, commenced this putative class action on behalf of all persons and entities who purchased or acquired AMERCO securities between February 12, 1998 and September 26, 2002. The Mates action asserts claims under section 10(b) and Rule 10b-5, and section 20(a) of the Securities Exchange Act. Klug v. AMERCO, et al., United States District Court of Nevada, Case No. CV-S-03-0380. Edward Klug, an AMERCO shareholder, commenced this putative class action on behalf of all persons and entities who purchased or acquired AMERCO securities between

10


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

February 12, 1998 and September 26, 2002. The Klug action asserts claims under section 10(b) and Rule 10b-5 and section 20(a) of the Securities Exchange Act. IG Holdings v. AMERCO, et al., United States District Court, District of Nevada, Case No. CV-N-03-0199. IG Holdings, an AMERCO bondholder, commenced this putative class action on behalf of all persons and entities who purchased, acquired, or traded AMERCO bonds between February 12, 1998 and September 26, 2002, alleging claims under section 11 and section 12 of the Securities Act of 1933 and section 10(b) and Rule 10b-5, and section 20(a) of the Securities Exchange Act. Each of these four securities class actions allege that AMERCO engaged in transactions with SAC entities that falsely improved AMERCO’s financial statements, and that AMERCO failed to disclose the transactions properly. The actions are at a very early stage. The Klug action has not been served. In the other three actions, AMERCO does not currently have a deadline by which it must respond to the complaints. Management has stated that it intends to defend these cases vigorously. We have filed a notice of AMERCO’s bankruptcy petition and the automatic stay in each of the Courts where these cases are pending.

      The United States Department of Labor (“DOL”) is presently investigating whether there were violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) involving the AMERCO Employee Savings, Profit Sharing, and Employee Stock Ownership Plan (the “Plan”). The DOL has interviewed a number of Company representatives as well as the Plan fiduciaries and has issued a subpoena to the Company and a subpoena to SAC Holdings. At the present time, the Company is unable to determine whether the DOL will assert any claims against the Company, SAC Holdings, or the Plan fiduciaries. The DOL has asked AMERCO and its current directors as well as the Plan Trustees to sign an agreement tolling the statute of limitations with respect to any claims arising out of certain transactions between AMERCO or any affiliate of AMERCO and SAC Holdings or any of its affiliates and such persons have done so. The DOL recently asked such parties to extend the tolling agreement. The DOL has not advised the Company that it believes that any violations of ERISA have in fact occurred. Instead, the DOL is simply investigating potential violations. The Company intends to take any corrective action that may be needed in light of the DOL’s ultimate findings. Although the Company has fully cooperated with the DOL in this matter and intends to continue to fully cooperate, the DOL may determine that the Company has violated ERISA. In that event, the Company may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

 
5. New Accounting Standards

      Statement of Financial Accounting Standards No. 143 (“SFAS 143”), Accounting for Asset Retirement Obligations, requires recognition of the fair value of liabilities associated with the retirement of long-lived assets when a legal obligation to incur such costs arises as a result of the acquisition, construction, development and/or the normal operation of a long-lived asset. Upon recognition of the liability, a corresponding asset is recorded at present value and accreted over the life of the asset and depreciated over the remaining life of the long-lived asset. SFAS 143 defines a legal obligation as one that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. SFAS 143 is effective for fiscal years beginning after June 15, 2002. We adopted this statement effective April 1, 2003, and it did not affect our consolidated financial position or results of operations.

      In April 2002, the FASB issued SFAS No. 145 (“SFAS 145”), Rescission of No. 4, (Reporting Gains and Losses from Extinguishment of Debt), No. 44 (Accounting for Intangible Assets of Motor Carriers), No. 64, (Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements), Amendment of FASB Statement No. 13 (Accounting for Leases) and Technical Corrections. This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are

11


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modification of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002. We previously reclassified all extraordinary loss on debt extinguishment to interest expense. The changes related to lease accounting will be effective for transactions occurring after May 15, 2002. We have adopted the lease accounting provisions effective May 16, 2002 and it did not affect our consolidated financial position or results of operations.

      In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, (“SFAS 146”) Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. We have adopted the Statement effective January 1, 2003 and it did not affect our consolidated financial position or results of operations.

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting for Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies the requirements for a guarantor’s accounting for and disclosure of certain guarantees issued and outstanding. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation also incorporates without reconsideration the guidance in FASB Interpretation No. 34, which is being superseded. As a result of FIN 45, the Company has recorded a $70 million liability at March 31, 2003 and June 30, 2003, which is management’s estimate of the liability associated with the guarantee of the indebtedness of an affiliate of Private Mini Storage Realty, L.P. which was entered into in February 2003.

      In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amends Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation”. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We have adopted this statement and it did have a material impact on the Company’s consolidated balance sheet or results of operations.

      In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS 149”), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in

12


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND
SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

other contracts and for hedging activities under SFAS No. 133. In particular, SFAS 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying derivative to conform it to the language used in FIN 45, and (4) amends certain other existing pronouncements. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. The Company does not believe the adoption of SFAS No. 149 will have a material impact on the Company’s financial position, results of operations or cash flows.

      In May 2003, the FASB issued SFAS 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective at the beginning of the first interim period beginning after June 15, 2003; including all financial instruments created or modified after May 31, 2003. SFAS 150 currently has no impact on the Company.

      In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletins (“ARB”) No. 51, Consolidated Financial Statements). FIN 46 applies immediately to variable interest entities created after January 31, 2003, and in the first interim period beginning after June 15, 2003 for variable interest entities created prior to January 31, 2003. The interpretation explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. The interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. SAC Holdings has determined that Private Mini is a Variable Interest Entity and will need to be consolidated beginning in July 2003. Based on December 31, 2002 financial information for Private Mini, the impact of this on the consolidated financial statements is to increase assets by approximately $320.0 million and increase debt by approximately $308.0 million.

13


 

CONSOLIDATING BALANCE SHEETS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA

AMERCO has four industry segments represented by moving and storage operations (AMERCO and U-Haul), real estate (Real Estate), property and casualty insurance (RepWest), and life insurance (Oxford). SAC Holdings consist of one moving and storage industry segment.
AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

6. Consolidating balance sheets by industry segment as of June 30, 2003 are as follows:

                                                     
U-Haul
Moving and Property and
Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(In thousands)
ASSETS
                                               
Cash and cash equivalents
  $ 32,741       41,245       272       3,310       2,687        
Trade receivables, net
          16,339       13,739       229,145       22,827        
Notes and mortgages receivables, net
          34,887       5,771                    
Inventories, net
          49,944       4                    
Prepaid expenses
    84       24,512       11                    
Investments, fixed maturities
                      238,291       601,278        
Investments, other
    135,000       171,241       217,618       110,706       255,224       (50,027 )
Deferred policy acquisition costs, net
                      12,815       90,892        
Other assets
    514,578       212,435       3,990       105,586       1,476       (773,922 )
     
     
     
     
     
     
 
      682,403       550,603       241,405       699,853       974,384       (823,949 )
Investment in Subsidiaries
    1,066,859                               (1,066,859 )
Investment in SAC
    (43,771 )                              
Property, plant and equipment, at cost:
                                               
 
Land
          19,418       139,165                    
 
Buildings and improvements
          148,359       603,242                    
 
Furniture and equipment
    460       273,718       18,040                    
 
Rental trailers and other rental equipment
          152,573                          
 
Rental trucks
          1,177,683                          
 
SAC Holdings– property, plant and equipment
                                   
     
     
     
     
     
     
 
      460       1,771,751       760,447                    
 
Less accumulated depreciation
    (318 )     (1,012,129 )     (256,559 )                  
     
     
     
     
     
     
 
   
Total property, plant and equipment
    142       759,622       503,888                    
     
     
     
     
     
     
 
TOTAL ASSETS
    1,705,633       1,310,225       745,293       699,853       974,384       (1,890,808 )
     
     
     
     
     
     
 
(1) Balance as of March 31, 2003
                                               

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated




(In thousands)
ASSETS
                               
Cash and cash equivalents
    80,255       5,205             85,460  
Trade receivables, net
    282,050             (19,842 )     262,208  
Notes and mortgages receivables, net
    40,658             (30,127 )     10,531  
Inventories, net
    49,948       4,302             54,250  
Prepaid expenses
    24,607       973       (5,220 )     20,360  
Investments, fixed maturities
    839,569             (5,039 )     834,530  
Investments, other
    839,762       1,701       (400,694 )     440,769  
Deferred policy acquisition costs, net
    103,707                   103,707  
Other assets
    64,143       55,574       (31,585 )     88,132  
     
     
     
     
 
      2,324,699       67,755       (492,507 )     1,899,947  
Investment in Subsidiaries
                       
Investment in SAC
    (43,771 )           43,771        
Property, plant and equipment, at cost:
                               
 
Land
    158,583                   158,583  
 
Buildings and improvements
    751,601                   751,601  
 
Furniture and equipment
    292,218                   292,218  
 
Rental trailers and other rental equipment
    152,573                   152,573  
 
Rental trucks
    1,177,683                   1,177,683  
 
SAC Holdings– property, plant and equipment
          984,939       (258,271 )     726,668  
     
     
     
     
 
      2,532,658       984,939       (258,271 )     3,259,326  
 
Less accumulated depreciation
    (1,269,006 )     (65,607 )     7,098       (1,327,515 )
     
     
     
     
 
   
Total property, plant and equipment
    1,263,652       919,332       (251,173 )     1,931,811  
     
     
     
     
 
TOTAL ASSETS
    3,544,580       987,087       (699,909 )     3,831,758  
     
     
     
     
 
(1) Balance as of March 31, 2003
                               

14


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

6.     Consolidating Balance Sheets by Industry Segment and Geographic Area Data, Continued:

Consolidating balance sheets by industry segment as of June 30, 2003 are as follows — Continued:

                                                   
Moving
and
Storage Property and
Operations Casualty Life
AMERCO U-Haul Real Estate Insurance(1) Insurance(1) Eliminations






(In thousands)
LIABILITIES
                                               
Accounts payable and accrued expenses
  $ 181,545       295,656       3,800             666       (101,326 )
AMERCO’s notes and loans payable
          31,693       101,503                   (39,219 )
SAC Holdings’ notes and loans payable
                                   
Policy benefits and losses, claims and loss expenses payable
          182,254             483,128       181,623        
Liabilities from investment contracts
                            641,257        
Other policyholders’ funds and liabilities
                      17,105       7,327        
Deferred income
          31,214       1,009       17,306       14,279        
Deferred income taxes
    125,686       222,519       94,914             11,730       (346,669 )
Other liabilities
                325,565             11,170       (336,735 )
Liabilities subject to compromise
    861,058                                
     
     
     
     
     
     
 
 
Total liabilities
    1,168,289       763,336       526,791       517,539       868,052       (823,949 )
Minority Interest
                                   
STOCKHOLDERS’ EQUITY
                                               
Serial preferred stock-
                                   
 
Series A preferred stock
                                   
 
Series B preferred stock
                                   
Serial common stock-
                                   
 
Series A common stock
    1,441                                
Common stock
    9,122       540       1       3,300       2,500       (6,341 )
Additional paid-in- capital
    396,048       121,230       147,481       70,023       16,435       (355,169 )
Additional paid-in- capital-SAC
    3,199                                
Accumulated other comprehensive loss
    (40,139 )     (35,796 )           (3,058 )     (1,308 )     40,162  
Accumulated other comprehensive loss-
                                               
 
SAC Holdings
    212                                
Retained earnings
    585,619       473,737       71,020       112,049       88,705       (745,511 )
Cost of common shares in treasury, net
    (418,178 )                              
Unearned ESOP shares
    20       (12,822 )                        
     
     
     
     
     
     
 
 
Total stockholders’ equity
    537,344       546,889       218,502       182,314       106,332       (1,066,859 )
     
     
     
     
     
     
 
Total Liabilities and Stockholders’ Equity
    1,705,633       1,310,225       745,293       699,853       974,384       (1,890,808 )
     
     
     
     
     
     
 
(1) Balance as of March 31, 2003
                                               

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                   
SAC Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated




(In thousands)
LIABILITIES
                               
Accounts payable and accrued expenses
    380,341       49,403       (49,971 )     379,773  
AMERCO’s notes and loans payable
    93,977                   93,977  
SAC Holdings’ notes and loans payable
          982,728       (393,087 )     589,641  
Policy benefits and losses, claims and loss expenses payable
    847,005                   847,005  
Liabilities from investment contracts
    641,257                   641,257  
Other policyholders’ funds and liabilities
    24,432                   24,432  
Deferred income
    63,808       10,069       (36,805 )     37,072  
Deferred income taxes
    108,180       (20,790 )     (98,005 )     (10,615 )
Other liabilities
                       
Liabilities subject to compromise
    861,058                   861,058  
     
     
     
     
 
 
Total liabilities
    3,020,058       1,021,410       (577,868 )     3,463,600  
Minority Interest
          12,646       (12,646 )      
STOCKHOLDERS’ EQUITY
                               
Serial preferred stock-
                       
 
Series A preferred stock
                       
 
Series B preferred stock
                       
Serial common stock-
                       
 
Series A common stock
    1,441                   1,441  
Common stock
    9,122                   9,122  
Additional paid-in- capital
    396,048             (160,264 )     235,784  
Additional paid-in- capital-SAC
    3,199       3,199       (3,199 )     3,199  
Accumulated other comprehensive loss
    (40,139 )                 (40,139 )
Accumulated other comprehensive loss-
                               
 
SAC Holdings
    212       212       (212 )     212  
Retained earnings
    585,619       (47,182 )     54,280       592,717  
Cost of common shares in treasury, net
    (418,178 )     (3,198 )           (421,376 )
Unearned ESOP shares
    (12,802 )                 (12,802 )
     
     
     
     
 
 
Total stockholders’ equity
    524,522       (46,969 )     (109,395 )     368,158  
     
     
     
     
 
Total Liabilities and Stockholders’ Equity
    3,544,580       987,087       (699,909 )     3,831,758  
     
     
     
     
 
(1) Balance as of March 31, 2003
                               

15


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
6. Consolidating Industry Segment and Geographic Area Data, Continued:

Consolidating balance sheets by industry segment as of March 31, 2003 are as follows:

                                                     
U-Haul
Moving
and Property and
Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
ASSETS
                                               
Cash and cash equivalents
  $ 18,524       30,046       174       4,108       9,320        
Trade receivables, net
          22,444       1,558       224,427       23,062        
Notes and mortgage receivable, net
          10,462       17,285                    
Inventories, net
          49,229       4                    
Prepaid expenses
    87       27,400       11                    
Investments, fixed maturities
                      253,871       613,206        
Investments, other
    135,000       170,886       217,619       120,372       224,604       (79,707 )
Deferred policy acquisition costs
                            13,206       91,894        
Other assets
    471,884       161,825       3,991       88,660       2,289       (689,684 )
     
     
     
     
     
     
 
      625,495       472,292       240,642       704,644       964,375       (769,391 )
Investment in Subsidiaries
    1,037,756                               (1,037,756 )
Investment in SAC
    (41,938 )                              
Property, plant and equipment, at cost:
                                               
 
Land
          18,849       139,138                    
 
Buildings and improvements
          145,177       602,676                    
 
Furniture and equipment
    459       272,884       18,040                    
 
Rental trailers and other rental equipment
          149,707                            
 
Rental trucks
          1,140,294                          
 
SAC Holdings — property, plant and equipment
                                   
     
     
     
     
     
     
 
      459       1,726,911       759,854                    
 
Less accumulated depreciation
    (315 )     (990,412 )     (254,409 )                  
     
     
     
     
     
     
 
   
Total property, plant and equipment
    144       736,499       505,445                    
     
     
     
     
     
     
 
TOTAL ASSETS
    1,621,457       1,208,791       746,087       704,644       964,375       (1,807,147 )
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
ASSETS
                               
Cash and cash equivalents
    62,172       4,662             66,834  
Trade receivables, net
    271,491             (7,754 )     263,737  
Notes and mortgage receivable, net
    27,747             (24,879 )     2,868  
Inventories, net
    49,233       4,037             53,270  
Prepaid expenses
    27,498       811       (6,463 )     21,846  
Investments, fixed maturities
    867,077             (6,477 )     860,600  
Investments, other
    788,774             (399,522 )     389,252  
Deferred policy acquisition costs
    105,100                   105,100  
Other assets
    38,965       24,635             63,600  
     
     
     
     
 
      2,238,057       34,145       (445,095 )     1,827,107  
Investment in Subsidiaries
                       
Investment in SAC
    (41,938 )           41,938        
Property, plant and equipment, at cost:
                               
 
Land
    157,987                   157,987  
 
Buildings and improvements
    747,853                   747,853  
 
Furniture and equipment
    291,383                   291,383  
 
Rental trailers and other rental equipment
    149,707                   149,707  
 
Rental trucks
    1,140,294                   1,140,294  
 
SAC Holdings — property, plant and equipment
          1,015,563       (258,271 )     757,292  
     
     
     
     
 
      2,487,224       1,015,563       (258,271 )     3,244,516  
 
Less accumulated depreciation
    (1,245,136 )     (59,679 )     6,616       (1,298,199 )
     
     
     
     
 
   
Total property, plant and equipment
    1,242,088       955,884       (251,655 )     1,946,317  
     
     
     
     
 
TOTAL ASSETS
    3,438,207       990,029       (654,812 )     3,773,424  
     
     
     
     
 

(1)     Balances as of December 31, 2002

16


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Consolidating Balance Sheets By Industry Segment And Geographic Area Data, Continued:

Consolidating balance sheets by industry segment as of March 31, 2003 are as follows — Continued:

                                                   
Moving and
Storage Property and
Operations Casualty Life
AMERCO U-Haul Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
LIABILITIES
                                               
Accounts payable and accrued expenses
  $ 139,496       263,394       7,892             570       (39,735 )
AMERCO’s notes and loans payable
    861,158       31,693       101,505                   (39,500 )
SAC Holdings’ notes and loans payable
                                   
Policy benefits and losses, claims and loss expenses payable
          168,666             485,383       182,583        
Liabilities from investment contracts
                            639,998        
Other policyholders’ funds and liabilities
                      20,164       10,145        
Deferred income
    2,863       30,943       1,011                    
Deferred income taxes
    120,446       214,715       94,914             8,664       (353,058 )
Other liabilities
                325,783             11,315       (337,098 )
     
     
     
     
     
     
 
 
Total liabilities
    1,123,963       709,411       531,105       505,547       853,275       (769,391 )
Minority Interest
                                   
STOCKHOLDERS’ EQUITY
                                               
Serial preferred stock —
                                   
 
Series A preferred stock
                                   
 
Series B preferred stock
                                   
Serial common stock —
                                   
 
Series A common stock
    1,441                                
Common stock
    9,122       540       1       3,300       2,500       (6,341 )
Additional paid-in- capital
    396,050       121,230       147,481       70,023       16,435       (355,169 )
Additional paid-in- capital — SAC
    3,199                                
Accumulated other comprehensive loss
    (54,278 )     (39,849 )           13,589       4,166       22,094  
Accumulated other comprehensive loss — SAC
    (1,487 )                              
Retained earnings
    561,606       430,656       67,500       112,185       87,999       (698,340 )
Cost of common shares in treasury
    (418,179 )                              
Unearned ESOP shares
    20       (13,197 )                        
     
     
     
     
     
     
 
 
Total stockholders’ equity
    497,494       499,380       214,982       199,097       111,100       (1,037,756 )
     
     
     
     
     
     
 
Total Liabilities and stockholders’ equity
  $ 1,621,457       1,208,791       746,087       704,644       964,375       (1,087,147 )
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                   
SAC Moving
and
AMERCO Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
LIABILITIES
                               
Accounts payable and accrued expenses
    371,617       48,033       (32,633 )     387,017  
AMERCO’s notes and loans payable
    954,856                   954,856  
SAC Holdings’ notes and loans payable
          983,190       (394,171 )     589,019  
Policy benefits and losses, claims and loss expenses payable
    836,632                   836,632  
Liabilities from investment contracts
    639,998                   639,998  
Other policyholders’ funds and liabilities
    30,309                   30,309  
Deferred income
    34,817       12,033       (6,463 )     40,387  
Deferred income taxes
    85,681       (19,918 )     (98,005 )     (32,242 )
Other liabilities
                       
     
     
     
     
 
 
Total liabilities
    2,953,910       1,023,338       (531,272 )     3,445,976  
Minority Interest
          11,828       (11,828 )      
STOCKHOLDERS’ EQUITY
                               
Serial preferred stock —
                       
 
Series A preferred stock
                       
 
Series B preferred stock
                       
Serial common stock —
                       
 
Series A common stock
    1,441                   1,441  
Common stock
    9,122                   9,122  
Additional paid-in- capital
    396,050             (160,266 )     235,784  
Additional paid-in- capital — SAC
    3,199       3,199       (3,199 )     3,199  
Accumulated other comprehensive loss
    (54,278 )                 (54,278 )
Accumulated other comprehensive loss — SAC
    (1,487 )     (1,487 )     1,487       (1,487 )
Retained earnings
    561,606       (43,650 )     50,266       568,222  
Cost of common shares in treasury
    (418,179 )     (3,199 )           (421,378 )
Unearned ESOP shares
    (13,177 )                 (13,177 )
     
     
     
     
 
 
Total stockholders’ equity
    484,297       (45,137 )     (111,712 )     327,448  
     
     
     
     
 
Total Liabilities and stockholders’ equity
    3,438,207       990,029       (654,812 )     3,773,424  
     
     
     
     
 


(1)  Balances as of December 31, 2002

17


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Consolidating Industry Segment and Geographic Area Data, Continued:

Consolidating statements of operations by industry segment for the quarter ended June 30, 2003 are as follows:

                                                     
U-Haul Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
Revenues
                                               
 
Rental revenue
  $       407,047       14,828                   (15,319 )
 
Net sales
          54,276       15                    
 
Premiums
                      28,567       38,084       (2,195 )
 
Net investment and interest income
    244       8,028       1,992       5,804       5,353        
     
     
     
     
     
     
 
   
Total revenues
    244       469,351       16,835       34,371       43,437       (17,514 )
Costs and expenses
                                               
 
Operating expenses
    11,530       262,735       (2,534 )     5,278       8,650       (17,514 )
 
Commission expenses
          47,153                          
 
Cost of sales
          25,627       6                    
 
Benefits and losses
                      25,582       27,817        
 
Amortization of deferred policy acquisition costs
                      3,710       5,390        
 
Lease expense
    230       37,520       4,444                    
 
Depreciation, net
    3       30,580       2,171                    
     
     
     
     
     
     
 
   
Total costs and expenses
    11,763       403,615       4,087       34,570       41,857       (17,514 )
     
     
     
     
     
     
 
Equity in Earnings of Subsidiary
    47,171                               (47,171 )
Equity in Earning of SAC
    (3,532 )                              
     
     
     
     
     
     
 
Earnings (loss) from operations
    32,120       65,736       12,748       (199 )     1,580       (47,171 )
 
Interest expense
    14,375       (1,069 )     6,797                    
     
     
     
     
     
     
 
Pretax earnings (loss)
    17,745       66,805       5,951       (199 )     1,580       (47,171 )
Income tax benefit (expense)
    9,509       (23,724 )     (2,431 )     63       (874 )      
     
     
     
     
     
     
 
 
Net earnings/(loss)
    27,254       43,081       3,520       (136 )     706       (47,171 )
     
     
     
     
     
     
 
Less: Preferred stock dividends
    (3,241 )                              
     
     
     
     
     
     
 
Earnings (loss) available to common shareholders
  $ 24,013       43,081       3,520       (136 )     706       (47,171 )
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
Revenues
                               
 
Rental revenue
    406,556       42,300       (13,814 )     435,042  
 
Net sales
    54,291       14,918             69,209  
 
Premiums
    64,456                   64,456  
 
Net investment and interest income
    21,421             (10,012 )     11,409  
     
     
     
     
 
   
Total revenues
    546,724       57,218       (23,826 )     580,116  
Costs and expenses
                               
 
Operating expenses
    268,145       28,122       (3,291 )     292,976  
 
Commission expenses
    47,153             (6,959 )     40,194  
 
Cost of sales
    25,633       6,586             32,219  
 
Benefits and losses
    53,399                   53,399  
 
Amortization of deferred policy acquisition costs
    9,100                   9,100  
 
Lease expense
    42,194             (3,564 )     38,630  
 
Depreciation, net
    32,754       5,766       (482 )     38,038  
     
     
     
     
 
   
Total costs and expenses
    478,378       40,474       (14,296 )     504,556  
     
     
     
     
 
Equity in Earnings of Subsidiary
                       
Equity in Earning of SAC
    (3,532 )           3,532        
     
     
     
     
 
Earnings (loss) from operations
    64,814       16,744       (5,998 )     75,560  
 
Interest expense
    20,103       20,807       (10,012 )     30,898  
     
     
     
     
 
Pretax earnings (loss)
    44,711       (4,063 )     4,014       44,662  
Income tax benefit (expense)
    (17,457 )     531             (16,926 )
     
     
     
     
 
 
Net earnings/(loss)
    27,254       (3,532 )     4,014       27,736  
     
     
     
     
 
Less: Preferred stock dividends
    (3,241 )                 (3,241 )
     
     
     
     
 
Earnings (loss) available to common shareholders
    24,013       (3,532 )     4,014       24,495  
     
     
     
     
 

(1)  For the quarter ended March 31, 2003

18


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Consolidating Industry Segment and Geographic Area Data, Continued:

      Consolidating statements of operations by industry segment for the restated quarter ended June 30, 2002 are as follows:

                                                     
U-Haul Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
Revenues
                                               
 
Rental revenue
  $       383,709       15,384                   (15,695 )
 
Net sales
          53,624       16                    
 
Premiums
                      46,609       39,658       (1,614 )
 
Net investment and interest income
    811       7,589       2,777       7,568       5,384        
     
     
     
     
     
     
 
   
Total revenues
    811       444,922       18,177       54,177       45,042       (17,309 )
Costs and expenses
                                               
 
Operating expenses
    1,079       257,788       (588 )     5,210       8,363       (17,309 )
 
Commission expenses
          49,039                          
 
Cost of sales
          29,448       7                    
 
Benefits and losses
                      45,647       30,771        
 
Amortization of deferred acquisition costs
                      5,309       5,025        
 
Lease expense
    230       41,219       1,962                    
 
Depreciation, net
    4       27,421       2,125                    
     
     
     
     
     
     
 
   
Total costs and expenses
    1,313       404,915       3,506       56,166       44,159       (17,309 )
     
     
     
     
     
     
 
Equity in Earnings of Subsidiary
    30,024                               (30,024 )
Equity in Earning of SAC
    (389 )                              
Earnings (loss) from operations
    29,133       40,007       14,671       (1,989 )     883       (30,024 )
 
Interest expense
    9,249       3,751       5,302                    
     
     
     
     
     
     
 
Pretax earnings (loss)
    19,884       36,256       9,369       (1,989 )     883       (30,024 )
Income tax benefit (expense)
    3,413       (11,917 )     (3,279 )     1,005       (304 )      
     
     
     
     
     
     
 
 
Net earnings/(loss)
    23,297       24,339       6,090       (984 )     579       (30,024 )
     
     
     
     
     
     
 
Less: Preferred stock dividends
    (3,241 )                              
     
     
     
     
     
     
 
Earnings (loss) available to common shareholders
  $ 20,056       24,339       6,090       (984 )     579       (30,024 )
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
and
AMERCO Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
Revenues
                               
 
Rental revenue
    383,398       40,198       (12,019 )     411,577  
 
Net sales
    53,640       14,549             68,189  
 
Premiums
    84,653                   84,653  
 
Net investment and interest income
    24,129             (9,254 )     14,875  
     
     
     
     
 
   
Total revenues
    545,820       54,747       (21,273 )     579,294  
Costs and expenses
                               
 
Operating expenses
    254,543       24,732       (3,055 )     276,220  
 
Commission expenses
    49,039             (6,909 )     42,130  
 
Cost of sales
    29,455       6,072             35,527  
 
Benefits and losses
    76,418                   76,418  
 
Amortization of deferred acquisition costs
    10,334                   10,334  
 
Lease expense
    43,411             (2,055 )     41,356  
 
Depreciation, net
    29,550       4,644       (482 )     33,712  
     
     
     
     
 
   
Total costs and expenses
    492,750       35,448       (12,501 )     515,697  
     
     
     
     
 
Equity in Earnings of Subsidiary
                       
Equity in Earning of SAC
    (389 )           389        
Earnings (loss) from operations
    52,681       19,299       (8,383 )     63,597  
 
Interest expense
    18,302       19,647       (9,254 )     28,695  
     
     
     
     
 
Pretax earnings (loss)
    34,379       (348 )     871       34,902  
Income tax benefit (expense)
    (11,082 )     (41 )           (11,123 )
     
     
     
     
 
 
Net earnings/(loss)
    23,297       (389 )     871       23,779  
     
     
     
     
 
Less: Preferred stock dividends
    (3,241 )                 (3,241 )
     
     
     
     
 
Earnings (loss) available to common shareholders
    20,056       (389 )     871       20,538  
     
     
     
     
 


(1)     For the quarter ended March 31, 2002

19


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Consolidating Industry Segment and Geographic Area Data, Continued:

Consolidating cash flow statements by industry segment for the quarter ended June 30, 2003 are as follows:

                                                     
U-Haul Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
Net cash flows provided by (used in) operating activities
  $ 14,217       48,133       604       (28,193 )     (1,233 )      
     
     
     
     
     
     
 
Cash flows from investing activities:
                                               
 
Purchases of investments:
                                               
   
Property, plant and equipment
          (41,895 )                        
   
Fixed maturities
                      (70 )     (13,847 )      
   
Common Stock
                                   
   
Preferred Stock
                                   
   
Other asset investment
                      9,386       (34,860 )      
   
Real estate
                                   
   
Mortgage loans
                                   
 
Proceeds from sale of investments:
                                         
   
Property, plant and equipment
          4,513       (634 )                  
   
Fixed maturities
                      17,597       35,553        
   
Common Stock
                                   
   
Preferred Stock
                                   
   
Real estate
                      482       5,862        
   
Mortgage loans
          73       130                    
 
Changes in other investments
                            1,114        
     
     
     
     
     
     
 
Net cash provided by (used in) investing activities
          (37,309 )     (504 )     27,395       (6,178 )      
     
     
     
     
     
     
 
Cash flows from financing activities:
                                               
 
Net change in short-term borrowings
                                   
 
Proceeds from notes
                                   
 
Debt issuance costs
                                   
 
Leveraged ESOP:
                                   
   
Purchase of shares
                                     
   
Payments on loans
          375                          
 
Principal payments on notes
                (2 )                  
 
Preferred stock dividends paid
                                   
 
Treasury stock acquisitions, net
                                   
 
Dividends paid
                                   
 
Investment contract deposits
                            20,334        
 
Investment contract withdrawals
                            (19,556 )      
     
     
     
     
     
     
 
Net cash provided by (used in) financing activities
          375       (2 )           778        
     
     
     
     
     
     
 
Increase (decrease) in cash and cash equivalents
    14,217       11,199       98       (798 )     (6,633 )      
Cash and cash equivalents at the beginning of period
    18,524       30,046       174       4,108       9,320        
     
     
     
     
     
     
 
Cash and cash equivalents at the end of period
  $ 32,741       41,245       272       3,310       2,687        
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
and
AMERCO Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
Net cash flows provided by (used in) operating activities
    33,528       (27,569 )     36,669       42,628  
     
     
     
     
 
Cash flows from investing activities:
                               
 
Purchases of investments:
                               
   
Property, plant and equipment
    (41,895 )     (6,242 )           (48,137 )
   
Fixed maturities
    (13,917 )                 (13,917 )
   
Common Stock
                       
   
Preferred Stock
                       
   
Other asset investment
    (25,474 )                 (25,474 )
   
Real estate
                       
   
Mortgage loans
                       
 
Proceeds from sale of investments:
                             
   
Property, plant and equipment
    3,879       37,029       (37,751 )     3,157  
   
Fixed maturities
    53,150                   53,150  
   
Common Stock
                       
   
Preferred Stock
                       
   
Real estate
    6,344                   6,344  
   
Mortgage loans
    203                   203  
 
Changes in other investments
    1,114                     1,114  
     
     
     
     
 
Net cash provided by (used in) investing activities
    (16,596 )     30,787       (37,751 )     (23,560 )
     
     
     
     
 
Cash flows from financing activities:
                               
 
Net change in short-term borrowings
                       
 
Proceeds from notes
          357       (357 )      
 
Debt issuance costs
                       
 
Leveraged ESOP:
                       
   
Purchase of shares
                               
   
Payments on loans
    375                   375  
 
Principal payments on notes
    (2 )     (3,032 )     1,439       (1,595 )
 
Preferred stock dividends paid
                       
 
Treasury stock acquisitions, net
                       
 
Dividends paid
                       
 
Investment contract deposits
    20,334                   20,334  
 
Investment contract withdrawals
    (19,556 )                 (19,556 )
     
     
     
     
 
Net cash provided by (used in) financing activities
    1,151       (2,675 )     1,082       (442 )
     
     
     
     
 
Increase (decrease) in cash and cash equivalents
    18,083       543             18,626  
Cash and cash equivalents at the beginning of period
    62,172       4,662             66,834  
     
     
     
     
 
Cash and cash equivalents at the end of period
    80,255       5,205             85,460  
     
     
     
     
 

(1)  For the quarter ended March 31, 2003

20


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
6. Consolidating Industry Segment and Geographic Area Data, Continued:

Consolidating cash flow statements by industry segment for the quarter ended June 30, 2002 are as follows:

                                                     
U-Haul Moving Property and
and Storage Casualty Life
AMERCO Operations Real Estate Insurance(1) Insurance(1) Eliminations






(Unaudited)
(In thousands)
Net cash flows provided by (used in) operating activities
  $ 208,844       49,252       (99,525 )     (27,956 )     (16,869 )      
     
     
     
     
     
     
 
Cash flows from investing activities:
                                               
 
Purchases of investments:
                                               
   
Property, plant and equipment
          (55,735 )     (445 )                  
   
Fixed maturities
                            (60,986 )      
   
Common Stock
                                   
   
Preferred Stock
                                   
   
Other asset investment
                            (362 )      
   
Real estate
                                   
   
Mortgage loans
                                   
 
Proceeds from sale of investments:
                                           
   
Property, plant and equipment
    3                                
   
Fixed maturities
                      20,745       49,579        
   
Common Stock
                                   
   
Preferred Stock
                            2,578        
   
Real estate
                            4,545        
   
Mortgage loans
                      560              
 
Changes in other investments
                      11,376       (4,028 )      
     
     
     
     
     
     
 
Net cash provided by (used in) investing activities
    3       (55,735 )     (445 )     32,681       (8,674 )      
     
     
     
     
     
     
 
Cash flows from financing activities:
                                               
 
Net change in short-term borrowings
    (100,485 )                              
 
Proceeds from notes
                99,991                    
 
Debt issuance costs
                                   
 
Leveraged ESOP:
                                   
   
Purchase of shares
          (84 )                        
   
Payments on loans
                                   
 
Principal payments on notes
    (107,290 )                              
 
Preferred stock dividends paid
                                   
 
Treasury stock acquisitions, net
    (572 )                              
 
Dividends paid
                                   
 
Investment contract deposits
                            36,628        
 
Investment contract withdrawals
                            (19,211 )      
     
     
     
     
     
     
 
Net cash provided by (used in) financing activities
    (208,347 )     (84 )     99,991             17,417        
     
     
     
     
     
     
 
Increase (decrease) in cash and cash equivalents
    500       (6,567 )     21       4,725       (8,126 )      
Cash and cash equivalents at the beginning of period
    71       25,719       576       5,912       9,158        
     
     
     
     
     
     
 
Cash and cash equivalents at the end of period
  $ 571       19,152       597       10,637       1,032        
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                     
SAC Moving
AMERCO and Storage Total
Consolidated Operations Eliminations Consolidated




(Unaudited)
(In thousands)
Net cash flows provided by (used in) operating activities
    113,746       5,146       (1,564 )     117,328  
     
     
     
     
 
Cash flows from investing activities:
                               
 
Purchases of investments:
                               
   
Property, plant and equipment
    (56,180 )     (5,035 )           (61,215 )
   
Fixed maturities
    (60,986 )                 (60,986 )
   
Common Stock
                       
   
Preferred Stock
                       
   
Other asset investment
    (362 )                 (362 )
   
Real estate
                       
   
Mortgage loans
                       
 
Proceeds from sale of investments:
                           
   
Property, plant and equipment
    3                   3  
   
Fixed maturities
    70,324                   70,324  
   
Common Stock
                       
   
Preferred Stock
    2,578                   2,578  
   
Real estate
    4,545                   4,545  
   
Mortgage loans
    560                   560  
 
Changes in other investments
    7,348                   7,348  
     
     
     
     
 
Net cash provided by (used in) investing activities
    (32,170 )     (5,035 )           (37,205 )
     
     
     
     
 
Cash flows from financing activities:
                               
 
Net change in short-term borrowings
    (100,485 )                 (100,485 )
 
Proceeds from notes
    99,991       (1,564 )     1,564       99,991  
 
Debt issuance costs
                       
 
Leveraged ESOP:
                       
   
Purchase of shares
    (84 )                 (84 )
   
Payments on loans
                       
 
Principal payments on notes
    (107,290 )     1,453             (105,837 )
 
Preferred stock dividends paid
                       
 
Treasury stock acquisitions, net
    (572 )                 (572 )
 
Dividends paid
                       
 
Investment contract deposits
    36,628                   36,628  
 
Investment contract withdrawals
    (19,211 )                 (19,211 )
     
     
     
     
 
Net cash provided by (used in) financing activities
    (91,023 )     (111 )     1,564       (89,570 )
     
     
     
     
 
Increase (decrease) in cash and cash equivalents
    (9,447 )                 (9,447 )
Cash and cash equivalents at the beginning of period
    41,436       10             41,446  
     
     
     
     
 
Cash and cash equivalents at the end of period
    31,989       10             31,999  
     
     
     
     
 


(1)  For the quarter ended March 31, 2002

21


 

AMERCO (Debtor in Possession) AND CONSOLIDATED SUBSIDIARIES AND

SAC HOLDING CORPORATIONS AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Industry Segment and Geographic Area Data, Continued:

                         
Geographic Area Data —
(All amounts are in U.S. $’s) United States Canada Consolidated




Quarter Ended

(Unaudited)
(In thousands)
June 30, 2003
                       
Total revenues
  $ 561,570     $ 18,546     $ 580,116  
Depreciation/amortization
    45,606       1,532       47,138  
Interest expense
    29,532       1,366       30,898  
Pretax earnings
    40,251       4,411       44,662  
Income tax benefit (expense)
    (16,926 )           (16,926 )
Identifiable assets
    3,699,208       143,165       3,842,373  
 
June 30, 2002
                       
Total revenues
    564,107       15,392       579,499  
Depreciation/amortization
    42,716       1,330       44,046  
Interest expense
    27,587       1,108       28,695  
Pretax earnings
    31,922       2,980       34,902  
Income tax benefit (expense)
    (11,123 )           (11,123 )
Identifiable assets
    3,499,642       130,082       3,629,724  

7.     Liabilities Subject to Compromise

      Under the Bankruptcy Code certain claims against AMERCO in existence prior to the Petition Date are stayed while AMERCO continues operating as a debtor-in-possession. AMERCO has received approval from the Court to (a) pay pre-petition and post-petition employee wages, salaries, benefits and other employee obligations; (b) pay vendors and other providers in the ordinary course for goods and services received from and after the Petition Date. Substantially all other pre-petition liabilities of AMERCO have been classified as liabilities subject to compromise in the unaudited Condensed Consolidated Balance Sheets. Adjustments to these liabilities may result from negotiations, payments authorized by Court order, additional rejection of executory contracts including leases, or other events.

      Shortly after the Chapter 11 filing, AMERCO began notifying all known or potential creditors of the filing for the purpose of identifying all pre-petition claims against the Company. Amounts that AMERCO has recorded may be different than amounts filed by its creditors. The number and amount of allowable claims cannot be presently ascertained. The claims reconciliation process may result in adjustments to allowable claims.

      The following table summarizes the components of Liabilities subject to compromise included in AMERCO’s Condensed Consolidated Balance Sheets as of June 30, 2003 (in thousands):

           
Debt
  $ 860,873  
Accounts payable
    185  
     
 
 
Total liabilities subject to compromise
  $ 861,058  
     
 

      Reorganization items represent amounts incurred as a direct result of the Company’s Chapter 11 filing and are included in operating expenses and interest expense in the Company’s Statement of Operations. Professional fees of $8.8 million and default interest payments of $4.4 million were paid during the quarter ended June 30, 2003.

22


 

7.     Certain Relationships and Related Transactions

      During the quarter ended June 30, 2003, the Company purchased $140,280, of printing from Form Builders, Inc. Mark V. Shoen, his daughter and Edward J. Shoen’s sons are major stockholders of Form Builders, Inc. The Company ceased doing business with Form Builders on April 18, 2003.

23


 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements Regarding Forward-Looking Statements

      This Quarterly Report on Form 10-Q contains forward-looking statements. We may make additional written or oral forward-looking statements from time to time in filings with the Securities and Exchange Commission or otherwise. We believe such forward-looking statements are within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, estimates of capital expenditures, our plans and intentions regarding the recapitalization of our balance sheet and the payment of dividends arrearages, plans for future operations, products or services and financing needs and plans, our perceptions of our legal positions and anticipated outcomes of pending litigation against us, liquidity, expected outcomes of the Chapter 11 proceeding 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. Factors that could significantly affect results include, without limitation, the risk factors enumerated at the end of this section, as well as the following: the Company’s ability to operate pursuant to the terms of its DIP facility; the Company’s ability to obtain court approval with respect to motions in the Chapter 11 proceeding prosecuted by it from time to time; the Company’s ability to develop, prosecute, confirm, and consummate a plan of reorganization with respect to the Chapter 11 case; risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for the Company to propose and confirm a plan of reorganization, for the appointment of a Chapter 11 trustee or to convert the case to a Chapter 7 case; the Company’s ability to obtain and maintain normal terms with vendors and service providers; the Company’s ability to maintain contracts that are critical to its operations; the potential adverse impact of the Chapter 11 case on the Company’s liquidity or results of operations; the costs and availability of financing; the Company’s ability to execute its business plan; the Company’s ability to attract, motivate and retain key employees; general economic conditions; weather conditions; fluctuations in our costs to maintain and update our fleet and facilities; our ability to refinance our debt; our ability to successfully recapitalize our balance sheet and cure existing defaults of our debt agreements; our ability to continue as a going concern; changes in government regulations, particularly environmental regulations; our credit ratings; the availability of credit; changes in demand for our products; changes in the general domestic economy; degree and nature of our competition; the resolution of pending litigation against the company; changes in accounting standards and other factors described in this report or the other documents we file with the Securities 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. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

General

      Information on industry segments is incorporated by reference from — Notes 1 and 6 of Notes to Condensed Consolidated Financial Statements. The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographical area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies.

Critical Accounting Policies and Estimates

      Management’s discussion and analysis of financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,

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and related disclosure of contingent assets and liabilities. On an ongoing basis, estimates are reevaluated, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include allowances for doubtful accounts, depreciation of revenue earning vehicles and buildings, self-insured liabilities, impairments of assets, insurance reserves, premiums and acquisition cost amortization, income taxes and commitments and contingencies. Our estimates are based on historical experience, observance of trends in particular areas, information and/ or valuations available from outside sources and on various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions and conditions. Such differences may be material.

      Accounting policies are considered critical when they are significant and involve difficult, subjective or complex judgments or estimates. We consider the following to be critical accounting policies:

     Principles of Consolidation

      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. SAC Holdings has been classified as a special purpose entity that meets the criteria for consolidation and therefore the accounts of SAC Holdings are included in the consolidated financial statements. AMERCO has concluded that SAC Holdings qualifies as a Variable Interest Entity, as defined by FIN 46, and will continue to be included in the consolidation. AMERCO does not have an equity ownership interest in SAC Holdings or any of SAC Holdings’ subsidiaries, except for investments made by RepWest and Oxford in a SAC Holdings-controlled limited partnership, which holds Canadian self-storage properties. SAC Holdings are not legal subsidiaries of AMERCO. AMERCO is not liable for the debts of SAC Holdings and there are no default provisions in AMERCO indebtedness that cross-default to SAC Holdings’ obligations. SAC Holdings has concluded that a conglomerate of entities, known as Private Mini Storage Realty, L.P. (“Private Mini”), qualifies as a Variable Interest Entity and will be included in the consolidation beginning July 1, 2003. As of June 30, 2003 and for the period then ended, Private Mini is accounted for on the equity method of accounting.

      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 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 — For investments accounted for under SFAS 115, 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. Other-than-temporary 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 and earned over the terms of the respective policies. Benefits and expenses are matched with recognized premiums to result in revenue and expense 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.

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      Unearned premiums represent the portion of premiums written which relate 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.

      U-Haul insurance expense — Expense is recognized annually based on reported claims and an estimate of future claims. A reserve is booked for unpaid losses. U-Haul’s self-insured retention is paid out over time as claims are settled, relieving the reserve for unpaid losses.

Results of Operations

 
Quarter Ended June 30, 2003 Versus Quarter Ended June 30, 2002
 
U-HAUL Moving and Storage Operations

      Revenues consist of rental revenues, net sales and investment earnings. Rental revenue was $407.0 million and $383.7 million for the quarter ended June 30, 2003 and 2002. The increase was due to a 6% increase in the rental transactions of trucks and trailers.

      Net sales revenues were $54.3 million and $53.6 million for the quarter ended June 30, 2003 and 2002. The increase in sales was due to increased volume.

      Cost of sales were $25.6 million and $29.4 million for the quarter ended June 30, 2003 and 2002. The decrease was due to better material cost margins and increased labor efficiency.

      Operating expenses before inter-company eliminations were $262.7 million and $257.8 million for the quarter ended June 30, 2003 and 2002.

      Lease expense was $37.5 million and $41.2 million for the quarter ended June 30, 2003 and 2002. This decrease reflects a decline in the number of leased rental trucks.

      Net depreciation expense was $30.6 million and $27.4 million for the quarter ended June 30, 2003 and 2002.

      Operating profit before inter-company eliminations was $65.7 million and $40.0 million for the quarter ended June 30, 2003 and 2002.

 
SAC Moving and Storage Operations

      Total revenues consist of storage rental revenues, vehicle rental commissions and net sales. Total rental revenue was $42.3 million and $40.2 million for the quarter ended June 30, 2003 and 2002. The increase is due to a 9% increase in storage rental transactions.

      Net sales revenues were $14.9 million and $14.5 million for the quarter ended June 30, 2003 and 2002. Net sales stayed about constant for the same time period.

      Operating expenses before inter-company eliminations were $28.1 million and $24.7 million for the quarter ended June 30, 2003 and 2002. Increased expenses were the result of increased property taxes, management fees, and utilities.

      Cost of sales were $6.6 million and $6.1 million for the quarter ended June 30, 2003 and 2002. The increase is proportional to increases in net sales.

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      Net depreciation expense was $5.8 million and $4.6 million for the quarter ended June 30, 2003 and 2002.

      Operating profits were $16.7 million and $19.3 million for the quarter ended June 30, 2003 and 2002.

 
Amerco’s Real Estate Operations

      Rental revenue before inter-company eliminations was $14.8 million and $15.4 million for the quarter ended June 30, 2003 and 2002. Intercompany revenue was $14.0 and $14.7 million for the quarter ended June 30, 2003 and 2002.

      Net investment and interest income was $2.0 million and $2.8 million for the quarter ended June 30, 2003 and 2002.

      Lease expense was $4.4 million and $2.0 for the quarter ended June 30, 2003 and 2002. The increase is a result of the increase in synthetic lease expense.

      Net depreciation expense was $2.2 million and $2.1 million for the quarter ended June 30, 2003 and 2002. The increase in net depreciation expense is the result of a decline in gross profits recognized on the sales of surplus properties.

      Operating profit before inter-company eliminations was $12.7 million and $14.7 million for the quarter ended June 30, 2003 and 2002.

Property and Casualty

      RepWest’s earned premiums were $28.6 million and $46.6 million for the quarter ended March 31, 2003 and 2002 respectively. General agency premiums were $21.0 million and 28.1 million for the quarters ended March 31, 2003 and March 31, 2002, respectively. The decrease in 2003 is due to the reduction of the Company’s non-core lines of business. Assumed treaty reinsurance premium was $2.0 million and $9.3 million for the quarters ended March 31, 2003 and March 31, 2002, respectively. The decrease from 2002 to 2003 is due to the non-renewal and cancellation of Company’s assumed treaty business. Rental industry earnings were $5.5 million and $9.2 million for the quarters ended March 31, 2003 and March 31, 2002, respectively. The 2003 decrease was from a change in policy structure on U-Haul business effective April 1, 2002. Under the new policy U-Haul is now responsible for the losses from $0 — $2,000,000.

      Net investment income was $5.8 million and $7.6 million for the quarter ended March 31, 2003 and 2002. The decrease is primarily attributable to lower annual average invested assets.

      Operating expenses were $5.3 million and $5.2 million for the quarter ended March 31, 2003 and 2002.

      Benefits and losses incurred were $25.6 million and $45.6 million for the quarter ended March 31, 2003 and 2002. The decrease in 2003 is due to decreased underwritings in all segments of the Company’s business.

      The amortization of deferred acquisition costs (DAC) was $3.7 million and $5.3 million for the quarter ended March 31, 2003 and 2002. The 2003 decrease is due to the Company’s premium writings.

      Operating loss before inter-company eliminations was $0.2 million and $2.0 million for the quarter ended March 31, 2003 and 2002. The decrease is due to the cancellation of multiple unprofitable lines of business.

      In April 2003, RepWest announced that in connection with the Company’s overall restructuring efforts, it is redirecting its operating focus. In particular, RepWest is exiting non-U-Haul related lines of business. Management estimates that approximately 78% of net earned premium and balance sheet reserves relate to the operations being discontinued. The process will be conducted in a fashion to help insure an orderly transition and minimize related costs. However, this exit may result in near term losses.

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REPUBLIC WESTERN BUSINESS BREAKDOWN

                                 
Net Earned Net Earned Outstanding Outstanding
Premium 03/03 Premium 03/02 Reserves 03/03 Reserves 12/02




Total Company
    28,566,943       46,609,350       405,398,104       399,448,036  
     
     
     
     
 
U-Haul business
    584,004       3,108,917       77,956,115       85,196,799  
Safes
    3,184,075       3,291,201       2,821,145       2,698,114  
Storage
    1,464,553       1,871,330       6,784,737       6,871,358  
NAFCIC
    1,071,216       1,114,400       3,238,375       3,627,634  
     
     
     
     
 
Total U-Haul
    6,303,848       9,385,848       90,800,372       98,393,905  
     
     
     
     
 
Agency
    21,209,852       28,943,746       244,681,534       227,776,323  
Assumed business
    1,053,243       8,279,756       69,916,198       73,277,808  
     
     
     
     
 
Total non-U-Haul
    22,263,095       37,223,502       314,597,732       301,054,131  
     
     
     
     
 

Life Insurance

      Net premiums were $38.1 million and $39.7 million for the quarter ended March 31, 2003 and 2002, respectively. Oxford increased Medicare supplement premiums by $0.3 million through direct writings and rate management activity. Credit insurance premiums decreased $1.0 million for the quarter. Other health premiums decreased $0.6 million from terminated programs. Other lines had premium decreases totaling $0.3 million.

      Net investment income before inter-company eliminations increased $0.02 million to $5.4 million from $5.4.

      Operating expenses were $8.7 million and $8.4 million for the quarter ended March 31, 2003 and 2002. Non-deferrable commissions have increased $0.9 million from 2002 primarily due to the increase in Medicare supplement and life premiums. General and administrative expenses net of fees collected decreased $0.6 million.

      Benefits incurred were $27.8 million and $30.8 million for the quarter ended March 31, 2003 and 2002. Medicare supplement incurred claims decreased $1.4 million for the quarter and Credit incurred claims decreased $1.3 million. Other lines had decreases of $0.3 million.

      Amortization of deferred acquisition cost (“DAC”) and the value of business acquired (“VOBA”) was $5.4 million and $5.0 million for the quarter ended March 31, 2003 and 2002.

      Operating profit/(loss) before tax and inter-company eliminations was $1.6 million and $0.9 million for the quarter ended March 31, 2003 and 2002. The increase from 2002 is due primarily to improved loss ratios in Medicare supplement.

Consolidated Group

Interest Expense

      Interest expense was $30.9 million and $28.7 million for the quarter ended June 30, 2003 and 2002, respectively.

      Interest expense of SAC Holdings on third party debt was $10.8 million and $10.4 million for the quarter ended June 30, 2003 and 2002, respectively. AMERCO’s interest expense on third party debt was $20.1 and $18.3 million for the quarter ended June 30, 2003 and 2002, respectively.

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Earnings

      Pretax earnings were $44.7 million and $34.9 million for the quarter ended June 30, 2003 and 2002, respectively. After providing for income taxes, net earnings were $27.7 million and $23.8 million for the quarter ended June 30, 2003 and 2002, respectively.

Liquidity and Capital Resources

      The matters described in “Liquidity and Capital Resources” to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 case. That proceeding will involve, or may result in, various restrictions on the Company’s activities, limitations on financing, the need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers and others with whom the Company may conduct or seek to conduct business.

      Generally, under the Bankruptcy Code, most of a debtor’s liabilities must be satisfied in full in order to preserve the value of the debtor’s preferred and common stock. The rights and claims of the Company’s various creditors and security holders will be determined by the plan of reorganization to be filed by AMERCO. Although AMERCO expects to file and consummate a “full value” plan of reorganization that provides creditors with a combination of cash and new debt securities equal to the full amount of their allowed claims and also preserves the value of AMERCO’s common and preferred stock, no assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies.

      The Company’s total of cash, cash equivalents and short-term investments was $85.5 million at June 30, 2003, compared to $66.8 million at March 31, 2003.

U-Haul 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 2003, capital expenditures were $182.4 million, as compared to $248.7 million and $411.9 million in fiscal years 2002 and 2001, respectively. These expenditures primarily reflect the renewal of the rental truck fleet. The capital required to fund these expenditures was obtained through internally generated funds from operations and lease financings.

      During each of the fiscal years ending March 31, 2004, 2005 and 2006, U-Haul estimates gross capital expenditures will average approximately $150 million to maintain the rental fleet at current levels. This level of capital expenditures, combined with a potential level of debt amortization of approximately $100 million, are expected to create average annual funding needs of approximately $250 million. Management estimates that U-Haul will fund these requirements entirely with internally generated funds and proceeds from the sale of trucks and surplus assets. The level of capital expenditures will be dependent upon the amount of internally generated funds and proceeds from the sale of assets.

DIP Facility

      The DIP Facility consists of a $300 million credit facility with an interest rate option of LIBOR plus 3.5% or the prime rate plus 1.0%. The DIP Facility will mature on the earlier of (i) 12 months following the Bankruptcy Court’s order approving the facility; (ii) ten days following the date of entry of an order confirming AMERCO’s plan of reorganization; and (iii) the conversion of the Chapter 11 case to a case under Chapter 7. In order to facilitate a drawing on the DIP Facility, Real Estate filed for Chapter 11. This filing was needed to facilitate granting security to the lending group in the real estate assets owned by Real Estate. The DIP Facility was approved on an interim basis by the Bankruptcy Court on August 14, 2003.

      The terms of the DIP Facility include covenants that require AMERCO to maintain agreed upon minimum levels of EBITDA, EBITDAR and fixed charge coverage ratios. The DIP Facility also contains a limitation on capital expenditures. All such financial covenants will be tested quarterly. Other customary covenants (both positive and negative) are included in the DIP Facility.

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      In addition, AMERCO has entered into a restructuring agreement with the revolver lenders and Amerco Real Estate Company has entered into a restructuring agreement with the holders of $100 million of its notes. Both agreements govern the consensual treatment of such creditors under AMERCO’s contemplated Plan of Reorganization and such creditors have agreed to support confirmation of the Plan. These agreements are filed as exhibits to this report.

Credit Agreements

      AMERCO’s operations were previously 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 June 30, 2003, AMERCO had $954.9 million in total notes and loans outstanding.

      Certain of AMERCO’s credit agreements contained 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 AMERCO’s various credit and financing arrangements are affected by its credit ratings. When AMERCO experienced the credit downgrade, certain interest rates that were being charged were increased.

      On October 15, 2002, AMERCO failed to make a $100 million principal payment due to the Series 1997-C Bond Backed Asset Trust. On that date, AMERCO also failed to pay a $26.6 million obligation to Citibank and Bank of America in connection with the BBATs. As a result of the foregoing, AMERCO is in default with respect to its other credit arrangements that contain cross-default provisions, including its Revolver in the amount of $205 million. In addition to the cross-default under the Revolver, AMERCO is also in default under that agreement as a result of its failure to obtain incremental net cash proceeds and/or availability from additional financings in the aggregate amount of at least $150 million prior to October 15, 2002. In addition, Amerco Real Estate Company has defaulted on a $100 million loan by failing to grant mortgages required by the loan agreement in a timely manner. The obligations of AMERCO currently in default (either directly or as a result of a cross-default) are approximately $1,178.1 million.

Support Agreements

      In February 1997, AMERCO, through its insurance subsidiaries, invested in the equity of Private Mini. During 1997, Private Mini secured a line of credit in the amount of $225 million with a financial institution, which was subsequently reduced in accordance with its terms to $125 million in December 2001. Under the terms of this credit facility AMERCO entered into a support party agreement with Private Mini and the financial institution whereby upon certain defaults or noncompliance with debt covenants by Private Mini, AMERCO could be required to assume responsibility in fulfilling all payment obligations and certain covenant obligations related to this credit facility. Private Mini defaulted on the credit facility due to AMERCO’s default under the support party agreement, which support party agreement default was triggered by virtue of cross-defaults to certain other AMERCO obligations. Additionally, Private Mini defaulted under the credit facility by virtue of non-payment of the outstanding balance at maturity. In December 2002, the financing institution exercised its option to require AMERCO to purchase all commitments under the credit facility. In March, 2003 AMERCO and the financial institution entered a standstill agreement with respect to this obligation, which standstill agreement expired by its terms on April 30, 2003. Since April 30, 2003, the financial institution has not re-issued any default notices to AMERCO with respect to this obligation or otherwise required AMERCO to purchase all commitments under the credit facility. AMERCO has not purchased any commitments under the credit facility and, as of March 31, 2003, AMERCO has recorded a liability for the $55 million remaining balance under the credit facility with a corresponding increase to its receivable from Private Mini.

      In February 2003, an entity affiliated with Private Mini closed on a $255 million financing and $70 million of these proceeds were used to pay down the $125 million line of credit described above. The aggregate amount of support provided by AMERCO remains unchanged at $125 million ($55 million to the

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lenders under the Amended and Restated loan agreement with the 1997 lenders and $70 million under the new $255 million financing). Under the terms of the support party agreement for the $255 million financing, following certain events of default, AMERCO would assume responsibility for $70 million of the obligations under this financing. AMERCO has recorded a liability for the $70 million obligation with a corresponding increase to its receivable from Private Mini.

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.

U-Haul Moving and Storage Operations

      At June 30, 2003, U-Haul Moving and Storage notes and loans payable due in less than one year total $31.7 million and its accounts payable and accrued expenses total $295.7 million. U-Haul Moving and Storage financial assets (cash, receivables, inventories, and short term investments) at June 30, 2003 were $142.4 million. These assets, if converted to cash, are available to meet the financial obligations of AMERCO.

SAC Moving and Storage Operations

      At June 30, 2003, SAC Holdings notes and loans payable due in less than one year total $80.0 million and its accounts payable and accrued expenses total $49.4 million. SAC Holdings financial assets (cash, receivables, inventories, and short term investments) at June 30, 2003 were $9.5 million. Because AMERCO does not have any equity ownership in SAC Holdings (other than investments made by RepWest and Oxford in a SAC Holdings-controlled limited partnership which holds Canadian self-storage properties), these assets are not available to meet the obligations of AMERCO.

Real Estate Operations

      At June 30, 2003, Real Estate had $101.5 million of notes and loans payable due in less than one year and its accounts payable and accrued expenses total $3.8 million. Real Estate financial assets (cash, receivables, inventories, and short term investments) at June 30, 2003 were $19.8 million. These assets, if converted to cash, are available to meet the obligations of AMERCO to the extent such cash exceeds current obligations of Real Estate.

Property and Casualty

      At March 31, 2003, Property and Casualty had no notes and loans due in less than one year and its accounts payable and accrued expenses were $17.1 million. Property and Casualty financial assets (cash, receivables, inventories, and short term investments) at March 31, 2003 were $343.2 million. Because of state insurance regulations that restrict the amount of dividends that can be paid to stockholders of insurance companies, these assets are generally not available to meet the obligations of AMERCO. Reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Insurance Operations.”

Life Insurance

      At March 31, 2003, Life Insurance had no notes and loans payable due in less than one year and its accounts payable and accrued expenses total $0.7 million. Life Insurance financial assets (cash, receivables, inventories, and short term investments) at March 31, 2003 were $280.7 million. Because of state insurance regulations that restrict the amount of dividends that can be paid to stockholders of insurance companies, these assets are generally not available to meet the obligations of AMERCO. Reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Insurance Operations.”

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Consolidated group

      At June 30, 2003, total outstanding notes and mortgages payable for AMERCO and consolidated subsidiaries was $955.0 million compared to $954.9 million at March 31, 2003.

      At June 30, 2003, total outstanding notes and mortgages payable for SAC Holdings and consolidated subsidiaries, before intercompany eliminations were $982.7 million as compared to $983.2 million at March 31, 2003. 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.

      Due to the defaults and various cross defaults, the consolidated group has notes, loans and lease obligations due in one year of $1.2 billion. The group also had accounts payable and accrued expenses of $380.0 million. Liquid assets for the group totaled $412.5 million. AMERCO is in the process of refinancing and restructuring its debt to meet it’s liquidity needs.

U-HAUL Moving and Storage Operations

      Cash provided by operating activities was $48.1 million and $49.2 million for the quarter ended June 30, 2003 and 2002, respectively.

SAC Moving and Storage Operations

      SAC Holdings’ operations are funded by various mortgage loans and unsecured notes, with interest rates ranging from 7.5% to 13.0%. SAC Holdings’ does not utilize revolving lines of credit to finance its operations or acquisitions. Certain of SAC Holdings’ agreements contain restrictive covenants including coverage ratios and restrictions on incurring additional subsidiary indebtedness. At June 30, 2003, SAC Holdings was in compliance with all of these covenants.

Property and Casualty

      Cash used by operating activities was $28.2 million and $28.0 million for the quarter ended March 31, 2003 and 2002, respectively. The decrease is due to less change in unearned premiums offset by increased receivables.

      RepWest’s cash and cash equivalents and short-term investment portfolio was $25.1 million and $11.6 million at March 31, 2003 and 2002, respectively.

      RepWest maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 71.2% of the fixed-income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains stable with current invested assets equal to 72.9% of total liabilities.

      The liability for reported and unreported losses based upon RepWest’s historical results and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted.

      Stockholder’s equity was $183.1 million and $199.1 million at March 31, 2003 and 2002, respectively. RepWest considers current shareholder’s equity to be adequate to support future growth and absorb unforeseen risk events.

Life Insurance

      Oxford’s primary sources of cash are premiums, receipts from interest-sensitive products, and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements.

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      Cash flows used by operating activities was $1.2 million, and $16.9 million for the quarters ended March 31, 2003 and March 31, 2002. Cash flows provided by financing activities were $0.8 million, and $17.4 million for the quarters ended March 31, 2003 and 2002. Cash flows from deferred annuity sales increased investment contract deposits, which are a component of financing activities.

      In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford’s short-term portfolio. At March 31, 2003 and 2002 short-term investments amounted to $115.2 million and $57.5 million respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs.

      Stockholders’ equity of Oxford decreased to $106.3 million from $111.1 for the quarters ended March 31, 2003 and March 31, 2002, respectively.

      Applicable laws and regulations of the State of Arizona require the Company’s insurance subsidiaries to maintain minimum capital and surplus determined in accordance with statutory accounting practices. With respect to Oxford, the amount is $0.4 million. In addition, the amount of dividends that can be paid to shareholders by insurance companies domiciled in the State of Arizona is limited. Any dividends in excess of the limit requires prior regulatory approval. As of March 31, 2003, Oxford must receive regulatory approval before any statutory surplus can be distributed as dividends. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations.

Consolidated Group

      Cash provided by operating activities was $42.6 million and $117.3 million for the quarter ended June 30, 2003 and 2002, respectively.

      On June 20, 2003 (the “Petition Date”), AMERCO filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court, District of Nevada (the “Bankruptcy Court”) (Case No. 0352103). AMERCO will continue to manage its properties and operate its businesses as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In general, as debtor-in-possession, AMERCO is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Specific information pertaining to the bankruptcy filing may be obtained from the website www.amerco.com. The Bankruptcy filing and the events of default on substantially all of the Company’s debt raises substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect future effects on the recoverability and classification of assets or the amount and classification of liability that might result from these uncertainties. The Company’s independent auditors qualified their opinion on the company’s March 31, 2003 financial statements by including an explanatory paragraph in which they expressed substantial doubt about the Company’s ability to continue as a going concern.

      At June 30, 2003, total outstanding notes and mortgages payable for AMERCO and wholly owned subsidiaries was $955.0 million compared to $954.9 million at March 31, 2003. At June 30, 2003, total outstanding notes and mortgages payable for SAC Holdings and consolidated subsidiaries was $982.7 million compared to $983.2 million at March 31, 2003. SAC Holdings’ securitized loan agreements have no guarantees, or triggers that could create a guarantee, from AMERCO. There are no cross default provisions on indebtedness between AMERCO and SAC Holdings.

      On October 15, 2002 the AMERCO failed to make a $100 million principal payment and a $3.6 million interest payment due to the Series 1997-C Bond Backed Asset Trust (“BBAT”) holders. On that date, the AMERCO also failed to pay a $26.6 million obligation, in the aggregate, to Citibank and Bank of America in connection with the BBATs. This expense was recognized in the third quarter of fiscal year 2003.

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      As a result of the foregoing, the AMERCO is in default with respect to its other credit arrangements that contain cross-default provisions, including its 3-Year Credit Agreement dated June 28, 2002 (the “Revolver”) in the amount of $205.0 million. In addition to the cross-default under the Revolver, the Company is also in default under that agreement as a result of the Company’s failure to obtain incremental net cash proceeds and/or availability from additional financings in the aggregate amount of at least $150 million prior to October 15, 2002. In addition, Amerco Real Estate Company has defaulted on a $100 million loan by failing to grant mortgages required by the loan agreement in a timely manner. The obligations of the Company currently in default (either directly or as a result of a cross-default) are approximately $1,178.1 million.

      AMERCO does not have any ownership interest in SAC Holdings or its subsidiaries, except for investments made by RepWest and Oxford in a SAC Holdings — controlled limited partnership which holds Canadian self-storage properties. The presentation of the consolidated statements has no bearing on the credit agreements or the operations of either AMERCO or SAC Holdings.

      Due to the defaults that exist with respect to certain obligations of the Company we suspended the dividend payment to the holders of our Series A 8 1/2% preferred stock.

Credit Agreements

      Our operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes, revolving lines of credit with banks and operating leases. The operating leases are primarily used to finance the Company’s fleet of trucks and trailers. As of June 30, 2003, we had $954.8 million in total notes and loans payable outstanding.

      On June 28, 2002, AMERCO entered into an agreement replacing an existing five year $400.0 million revolving credit agreement with the Revolver.

      Certain of our credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, making third party guarantees, entering into contingent obligations, maintaining certain financial ratios, placing certain additional liens on our properties and assets, and restricting the issuance of certain types of preferred stock. Although AMERCO was in compliance with these covenants at September 30, 2002, we were in default as of October 15, 2002 as a result of our failure to make the principal payment due to the BBAT holders and a covenant contained in the Revolver that required the completion of a $150 million financing.

Disclosures About Contractual Obligations and Commercial Commitments

                                         
Payments Due by Period (as of June 30, 2003)

Prior to 07-01-04 07-01-06 07-01-08 and
Financial Obligations Total 06-03-04 06/01/06 06-01-08 thereafter






(in thousands)
AMERCO’s notes and loans
  $ 954,850     $ 954,850     $     $     $  
AMERCO’s operating leases
    519,391       519,391                    
SAC Holdings’ financed lease obligations
    122,238       48,893       73,345              
SAC Holdings’ notes and loans
    861,929       36,466       46,123       18,580       760,760  
Elimination of SAC Holdings’ Obligations to AMERCO
    (394,526 )           (23,618 )           (370,908 )
     
     
     
     
     
 
Total Contractual Obligations
  $ 2,063,882     $ 1,559,600     $ 95,850     $ 18,580     $ 389,852  
     
     
     
     
     
 

      As discussed above and in Part II, Item III “Defaults Upon Senior Securities”, on October 15, 2002 we defaulted on our BBATs and related obligations. This default triggered cross-default provisions in most of

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AMERCO’s other debt agreements. As a result, approximately $1,178.1 million of AMERCO’s contractual obligations and commercial commitments listed below are classified as current.
         
(In millions)

Bank of Montreal synthetic lease
  $ 149.0  
Citibank synthetic lease
    101.7  
3yr Credit Agreement
    205.0  
Royal Bank of Canada lease
    5.7  
Amerco Real Estate Notes
    100.0  
’03 Notes
    175.0  
’05 Notes
    200.0  
Medium Term Notes
    109.5  
BBAT
    100.0  
Bank of America Obligation (BBAT)
    11.3  
Citicorp Obligation (BBAT)
    15.3  
Bank of America Swap
    2.1  
JP Morgan Swap
    3.5  
     
 
    $ 1,178.1  

Risk Factors

 
AMERCO has filed for protection under Chapter 11 of the Bankruptcy Code.

      On June 20, 2003, AMERCO filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. AMERCO’s subsidiaries were not included in the initial filing. However, on August 13, 2003, Amerco Real Estate Company filed for protection under Chapter 11. AMERCO will continue to manage its properties and operate its businesses as “debtor-in-possession in” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In order to exit Chapter 11 successfully, AMERCO will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization that satisfies the requirements of the Bankruptcy Code. Although AMERCO expects to file a “full-value” plan of reorganization that provides creditors with a combination of cash and new debt securities equal to the full amount of their allowed claims as well as AMERCO’s emergence from bankruptcy as a going concern, there can be no assurance at this time that a plan of reorganization will be confirmed by the Bankruptcy Court or that any such plan will be implemented successfully.

      The U.S. Trustee has appointed a Creditors’ Committee and an Equity Committee. The Creditors’ Committee, Equity Committee and their respective legal representatives have a right to be heard on certain matters that come before the Bankruptcy Court. There can be no assurance that the Creditors’ Committee and Equity Committee will support AMERCO’s positions or AMERCO’s ultimate plan of reorganization, once proposed, and disagreements between AMERCO and the Creditors’ Committee and Equity Committee could protract the Chapter 11 case, could negatively impact AMERCO’s ability to operate during the Chapter 11 case, and could prevent AMERCO’s emergence from Chapter 11.

      At this time, it is not possible to predict accurately the effect of the Chapter 11 reorganization process on the Company’s business or when AMERCO may emerge from Chapter 11. The Company’s future results depend on the timely and successful confirmation and implementation of a plan of reorganization. The rights and claims of various creditors and security holders will be determined by the plan as well. Although AMERCO expects to file and consummate a “full value” plan of reorganization that provides creditors with a combination of cash and new debt securities equal to the full amount of their allowed claims and also preserves the value of AMERCO’s common and preferred stock, no assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in any of such securities and claims.

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We operate in a highly competitive industry.

      The truck rental industry is highly competitive and includes a number of significant national and hundreds of regional and local competitors. Competition is generally based on price, product quality, convenience, availability, brand name recognition and service. In our truck rental business, we face competition from Budget Car and Truck Rental Company and Penske Truck Leasing. Some of our competitors may have greater financial resources than we have. We cannot assure you that we will not be forced to reduce our rental prices or delay price increases.

      We compete with national and regional self-storage operators as well as local operators. Competition in the market areas in which we operate is significant and affects the occupancy levels, rental rates and operating expenses of our facilities. Competition might cause us to experience a decrease in occupancy levels, limit our ability to increase rental rates and compel us to offer discounted rental rates which could have a material adverse effect on our operating results.

      Entry into the self-storage business through acquisition of existing facilities is possible for persons or institutions with the required initial capital. Development of new self-storage facilities is more difficult, however, due to zoning, environmental and other regulatory requirements. The self-storage industry has in the past experienced overbuilding in response to perceived increases in demand. We cannot assure you that we will be able to successfully compete in existing markets or expand into new markets.

 
Control of AMERCO remains in the hands of a small contingent.

      As of June 30, 2003, Edward J. Shoen, Chairman of the Board of Directors and President of AMERCO, James P. Shoen, a director of AMERCO, and Mark V. Shoen, an executive officer of AMERCO, collectively own 8,893,078 shares (approximately 43.1%) of the outstanding common shares of AMERCO. Accordingly, Edward J. Shoen, Mark V. Shoen and James P. Shoen will be in a position to continue to influence the election of the members of the Board of Directors and approval of significant transactions. In addition, 2,402,456 shares (approximately 11.7%) of the outstanding common shares of AMERCO, including shares allocated to employees and unallocated shares, are held by our Employee Savings and Employee Stock Ownership Trust.

 
Our operations subject us to numerous environmental regulations and the possibility that environmental liability in the future could adversely affect our operations.

      Compliance with environmental requirements of federal, state and local governments significantly affects our business. 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. Under environmental laws, we can be held strictly liable for hazardous substances that are found on real property we have owned or operated. We are aware of issues regarding hazardous substances on some of our real estate and we have put in place a remedial plan at each site where we believe such a plan is necessary. We regularly make capital and operating expenditures to stay in compliance with environmental laws. In particular, we have managed a testing and removal program since 1988 for our underground storage tanks. Under this program, we spent $43.7 million between April 1988 and March 31, 2003. Despite these compliance efforts, risk of environmental liability is part of the nature of our business.

      While we do not expect the future cost of compliance with environmental laws or future environmental liabilities, including compliance and remediation costs, to have a material adverse effect on our business, environmental laws and regulations are complex, change frequently and could become more stringent in the future. We cannot assure you that future compliance with these regulations or future environmental liabilities will not have a material adverse effect on our business.

 
Our business is seasonal.

      Our business is seasonal and our results of operations and cash flows fluctuate significantly from quarter to quarter. Historically, revenues have been stronger in the first and second fiscal quarters due to the overall

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increase in moving activity during the spring and summer months. The fourth fiscal quarter is generally weakest, when there is a greater potential for adverse weather conditions.
 
We obtain our rental trucks from a limited number of manufacturers.

      In the last ten years, we purchased all of our rental trucks from Ford and General Motors. Although we believe that we have alternative sources of supply for our rental trucks, termination of one or more of our relationships with any of these suppliers could have a material adverse effect on our business, financial condition or results of operations.

 
Our property and casualty insurance business has suffered extensive losses.

      Our property and casualty insurance business, RepWest, has experienced significant net losses totaling approximately $77.0 million for the three calendar years ended December 31, 2002. These losses are primarily attributable to business lines that were unprofitable as underwritten. To restore profitability in RepWest, we are exiting all non-U-Haul related lines and the exit may result in near term losses as these lines are eliminated. Although we believe the changes will have a positive impact on the financial position of RepWest, we cannot assure you that we will be successful in returning RepWest to sustained profitability. Our inability to sustain profitability could have a material adverse effect on our earnings and financial position.

 
Our insurance businesses have recently suffered downgrades in their ratings from national insurance company rating agencies.

      A.M. Best has recently downgraded RepWest and Oxford. These downgrades have affected their standing in the insurance industry and caused their premiums to decrease. Ratings have become an increasingly important factor in establishing the competitive position of insurance companies. A.M. Best ratings reflect its opinion of an insurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders. The A.M. Best ratings are C for RepWest and C+ for Oxford.

 
Notes receivable from SAC Holdings are a significant portion of AMERCO’S total assets.

      At June 30, 2003, we held $393.1 million of mortgage loans and notes due from SAC Holdings. Although these assets have been eliminated in the consolidated financial statements, we have significant economic exposure to SAC Holdings. SAC Holdings is highly leveraged with total outstanding indebtedness and other obligations of $982.7 million at June 30, 2003. We hold various senior and junior unsecured notes of SAC Holdings. The senior unsecured notes of SAC Holdings that we hold rank equal in right of payment with the notes of certain senior mortgage holders, but junior to the extent of the collateral securing the applicable mortgages and junior to the extent of the cash flow waterfalls that favor the senior mortgage holders. If SAC Holdings are unable to meet their obligations to their senior lenders, it could trigger a default on their obligations to us. In such an event of default, we could suffer a significant loss to the extent the value of the underlying collateral on our loans to SAC Holdings is inadequate to repay SAC Holdings’ senior lenders and us. We cannot assure you that SAC Holdings will not default on their loans to their senior lenders or that the value of SAC Holdings’ assets upon liquidation would be sufficient to repay us in full.

 
AMERCO is a holding company and is dependent on its subsidiaries for cash flow.

      As a holding company with no business operations, AMERCO’s material assets consist only of the stock of its subsidiaries. AMERCO will have to rely upon dividends and other payments from its subsidiaries to generate the funds necessary to pay its obligations. AMERCO’s subsidiaries, however, are legally distinct from AMERCO and have no obligation, contingent or otherwise, to make funds available to AMERCO. The ability of AMERCO’s subsidiaries to make dividend and other payments to AMERCO is subject to, among other things, the availability of funds, the terms of the indebtedness of AMERCO’s subsidiaries and applicable state laws and insurance regulations.

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We face risks related to an SEC investigation and securities litigation.

      The SEC has issued a formal order of investigation to determine whether we have violated the Federal securities laws. Although we have fully cooperated with the SEC in this matter and intend to continue to fully cooperate, the SEC may determine that we have violated Federal securities laws. We cannot predict when this investigation will be completed or its outcome. If the SEC makes a determination that we have violated Federal securities laws, we may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

      In addition, the Company has been named a defendant in a number of class action and related lawsuits. The findings and outcome of the SEC investigation may affect the class-action lawsuits that are pending. We are generally obliged, to the extent permitted by law, to indemnify our directors and officers who are named defendants in some of these lawsuits. We are unable to estimate what our liability in these matters may be, and we may be required to pay judgments or settlements and incur expenses in aggregate amounts that could have a material adverse effect on our financial condition or results of operations.

 
We face risks related to a Department of Labor Investigation.

      The DOL is presently investigating whether there were violations of ERISA involving the AMERCO Employee Savings, Profit Sharing, and Employee Stock Ownership Plan. Although the Company has fully cooperated with the DOL in this matter and intends to continue to fully cooperate, the DOL may determine that the Company has violated ERISA. In that event, the Company may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

 
Our common stock may be delisted from the NASDAQ Stock Market.

      On June 24, 2003, we received a letter from NASDAQ indicating that, in light of AMERCO’s recent Chapter 11 filing, a NASDAQ Listing Qualifications Panel (the “Panel”) would consider such filing and associated concerns in rendering a determination regarding AMERCO’s listing status. NASDAQ has requested, and we have provided, information regarding the Chapter 11 filing and the anticipated effect of the filing on the shareholders of AMERCO. On August 13, 2003, AMERCO received a letter from Nasdaq indicating that the Panel has determined to continue the listing of AMERCO’s common stock on Nasdaq provided that: (1) on or before August 22, 2003, AMERCO files this report and its Form 10-K for the year ended March 31, 2002 with the SEC and Nasdaq (Nasdaq has been advised that this deadline was not met and further discussions with Nasdaq are anticipated); (2) on or before deadlines determined by the Panel, AMERCO submits to Nasdaq a copy of the Company’s plan of reorganization as filed with the bankruptcy court, a copy of any amendments to the plan of reorganization as submitted to the bankruptcy court; documentation evidencing that AMERCO has commenced the solicitation of votes regarding the plan of reorganization, as well as documentation evidencing that the plan of reorganization has been confirmed by the bankruptcy court; and (3) on or before January 9, 2004, AMERCO submits documentation to Nasdaq evidencing its emergence from bankruptcy. In addition to the foregoing, AMERCO must comply with all other requirements for continued listing on Nasdaq. Although we have requested a modification of the above deadlines and intend to take all actions available to maintain our Nasdaq listing, there can be no assurance that AMERCO will be able to do so.

 
Our preferred stock may be delisted from the New York Stock Exchange

      The New York Stock Exchange has completed a review of the continued listing of the Series A 8 1/2% preferred stock of AMERCO following its filing for protection under Chapter 11. According to NYSE, this assessment has shown that the Company is currently in compliance with all of the NYSE’s quantitative continued listing standards. The NYSE will continue to closely monitor events at the Company in connection with assessing the appropriateness of continued listing of the Company’s preferred stock. The NYSE has indicated that it will give consideration to immediate suspension of the Company’s preferred stock if authoritative advice is received that the Company’s securities, including the common stock, are without value, or if the Company subsequently falls below any of the NYSE’s quantitative continued listing standards. In

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addition, the NYSE noted that it may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable. Accordingly, there can be no assurance that the Company’s preferred stock will continue to be listed on NYSE.
 
RepWest has consented to an Order of Supervision issued by the Arizona Department of Insurance.

      On May 20, 2003, RepWest consented to an Order of Supervision issued by the DOI. Pursuant to this Order and Arizona law, during the period of supervision, RepWest may not engage in certain activities without the prior approval of the DOI.

      The requirements to abate the order are for RepWest to eliminate the specific credit risk associated with the exposures to AMERCO and its affiliates and establish that it possesses surplus sufficient with Arizona law and as the Arizona Director of Insurance may require based on type, volume or nature of its business pursuant to Arizona law.

      In addition, if RepWest fails to satisfy the requirements to abate DOI’s concerns, the DOI may take further action, including, but not limited to, commencing a conservatorship.

 
Item 3. Quantitative and Qualitative Disclosures About Market Risk

      Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in AMERCO’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002.

 
Item 4. Controls and Procedures

Evaluation of Controls and Procedures

      We maintain disclosure controls procedures, which are designed to ensure that material information related to AMERCO and its subsidiaries and SAC Holdings and their subsidiaries, is disclosed in our public filings on a regular basis. In response to recent legislation and proposed regulations, we reviewed our internal control structure and our disclosure controls and procedures. We believe our pre-existing disclosure controls and procedures are adequate to enable us to comply with our disclosure obligations.

      As of the end of the period covered by this report, members of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, management concluded that the Company’s disclosure controls and procedures are effective in causing material information to be recorded, processed, summarized and reported by management of the Company on a timely basis and to ensure that the quality and timeliness of the Company’s public disclosures complies with its SEC disclosure obligations.

Changes in Internal Control Over Financial Reporting

      During the period covered by this report and during our second fiscal quarter of 2003, there were significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes are summarized below:

      a.     We limited access to the general ledger (posting ability) to specifically identified individuals;

      b.     We require documentation for all journal postings;

      c.     We have hired a system administrator to document and map all accounting imports and exports to the various sub ledgers maintained throughout the organization;

      d.     We have initiated a formal cross training program to ensure that any unforseen loss of personnel does not adversely affect the financial reporting and disclosure processes;

      e.     We have hired additional accounting personnel; and

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      f.     We are implementing control procedures to verify each inter company account is reconciled prior to each month end closing process.

      These changes are largely a result of a material weaknesses letter we received from our independent auditors in July. The Company is developing a plan to address these issues and implement a strategy to improve the overall control environment.

PART II. OTHER INFORMATION

 
Item 1. Legal Proceedings

      On July 20, 2000, Charles Kocher (“Kocher”) filed suit in Wetzel County, West Virginia, Civil Action No. 00-C-51-K, entitled Charles Kocher v. Oxford Life Insurance Co. (“Oxford”) seeking compensatory and punitive damages for breach of contract, bad faith and unfair claims settlement practices arising from an alleged failure of Oxford to properly and timely pay a claim under a disability and dismemberment policy. On March 22, 2002, the jury returned a verdict of $5 million in compensatory damages and $34 million in punitive damages. On November 5, 2002, the trial court entered an Order (“Order”) affirming the $39 million jury verdict and denying Oxford’s motion for New Trial Or, in The Alternative, Remittitur. Oxford has perfected its appeal to the West Virginia Supreme Court. Oral argument on the appeal petition occurred on September 9, 2003. Management does not believe that the Order is sustainable and expects the Order to be overturned by the West Virginia Supreme Court, in part because the jury award has no reasonable nexus to the actual harm suffered by Kocher. The Company has accrued $725,000, which represents management’s best estimate of the costs associated with legal fees to appeal and re-try the case and the company’s uninsured exposure to an unfavorable outcome.

      As previously discussed, on June 20, 2003, AMERCO filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. As debtor-in-possession, AMERCO is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. As of the Petition Date, virtually all pending litigation against AMERCO is stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, may take any action, again subject to certain exceptions, to recover on pre-petition claims against AMERCO. The automatic stay, however, does not apply to AMERCO’s subsidiaries, other than Amerco Real Estate Company, which filed for protection under Chapter 11, on August 13, 2003.

      On September 24, 2002, Paul F. Shoen filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Paul F. Shoen vs. SAC Holding Corporation et al, CV02-05602, seeking damages and equitable relief on behalf of AMERCO from SAC Holdings and certain current and former members of the AMERCO Board of Directors, including Edward J. Shoen, Mark V. Shoen and James P. Shoen as defendants. AMERCO is named a nominal defendant for purposes of the derivative action. The complaint alleges breach of fiduciary duty, self-dealing, usurpation of corporate opportunities, wrongful interference with prospective economic advantage and unjust enrichment and seeks the unwinding of sales of self-storage properties by subsidiaries of AMERCO to SAC Holdings over the last several years. The complaint seeks a declaration that such transfers are void as well as unspecified damages. On October 28, 2002, AMERCO, the Shoen directors, the non-Shoen directors and SAC Holdings filed Motions to Dismiss the complaint. In addition, on October 28, 2002, Ron Belec filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned Ron Belec vs. William E. Carty, et al, CV 02-06331 and on January 16, 2003, M.S. Management Company, Inc. filed a derivative action in the Second Judicial District Court of the State of Nevada, Washoe County, captioned M.S. Management Company, Inc. vs. William E. Carty, et. al, CV 03-00386. Two additional derivative suits were also filed against these parties. These additional suits are substantially similar to the Paul F. Shoen derivative action. The five suits assert virtually identical claims. In fact, three of the five plaintiffs are parties who are working closely together and chose to file the same claims multiple times. The court consolidated all five complaints before he dismissed them on May 8, 2003. Plaintiffs have filed a notice of appeal. These lawsuits falsely alleged that the AMERCO Board lacked independence. In reaching his decision to dismiss these claims, the

40


 

court determined that the AMERCO Board of Directors had the requisite level of independence required in order to have these claims resolved by the Board.

      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 $5.0 million required by the State of Washington, INW filed for reorganization under the federal bankruptcy laws in May of 2001. A successful mediation with other liable parties has occurred and future potential liability to INW will be in the range of $750,000 to $1.25 million.

      The Securities and Exchange Commission (“SEC”) has issued a formal order of investigation to determine whether the Company has violated the Federal securities laws. On January 7, 2003, the Company received the first of four subpoenas issued by the SEC. SAC Holdings, the Company’s current and former auditors, and others have also received one or more subpoenas relating to this matter. The Company is cooperating fully with the SEC and is facilitating the expeditious review of its financial statements and any other issues that may arise. The Company has produced a large volume of documents and other materials in response to the subpoenas, and the Company is continuing to assemble and produce additional documents and materials for the SEC. Although the Company has fully cooperated with the SEC in this matter and intends to continue to fully cooperate, the SEC may determine that the Company has violated Federal securities laws. We cannot predict when this investigation will be completed or its outcome. If the SEC makes a determination that we have violated Federal securities laws, we may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

      AMERCO is a defendant in four putative class action lawsuits. Article Four Trust v. AMERCO, et al., District of Nevada, United States District Court, Case No. CV-N-03-0050-DWH-VPC. Article Four Trust, a purported AMERCO shareholder, commenced this action on January 28, 2003 on behalf of all persons and entities who purchased or acquired AMERCO securities between February 12, 1998 and September 26, 2002. The Article Four Trust action alleges one claim for violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Mates v. AMERCO, et al., United States District Court, District of Nevada, Case No. CV-N-03-0107. Maxine Mates, an AMERCO shareholder, commenced this putative class action on behalf of all persons and entities who purchased or acquired AMERCO securities between February 12, 1998 and September 26, 2002. The Mates action asserts claims under section 10(b) and Rule 10b-5, and section 20(a) of the Securities Exchange Act. Klug v. AMERCO, et al., United States District Court of Nevada, Case No. CV-S-03-0380. Edward Klug, an AMERCO shareholder, commenced this putative class action on behalf of all persons and entities who purchased or acquired AMERCO securities between February 12, 1998 and September 26, 2002. The Klug action asserts claims under section 10(b) and Rule 10b-5 and section 20(a) of the Securities Exchange Act. IG Holdings v. AMERCO, et al., United States District Court, District of Nevada, Case No. CV-N-03-0199. IG Holdings, an AMERCO bondholder, commenced this putative class action on behalf of all persons and entities who purchased, acquired, or traded AMERCO bonds between February 12, 1998 and September 26, 2002, alleging claims under section 11 and section 12 of the Securities Act of 1933 and section 10(b) and Rule 10b-5, and section 20(a) of the Securities Exchange Act. Each of these four securities class actions allege that AMERCO engaged in transactions with SAC entities that falsely improved AMERCO’s financial statements, and that AMERCO failed to disclose the transactions properly. The actions are at a very early stage. The Klug action has not been served. In the other three actions, AMERCO does not currently have a deadline by which it must respond to the complaints. Management has stated that it intends to defend these cases vigorously. We have filed a notice of AMERCO’s bankruptcy petition and the automatic stay in each of the Courts where these cases are pending.

      The United States Department of Labor (“DOL”) is presently investigating whether there were violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) involving the AMERCO Employee Savings, Profit Sharing, and Employee Stock Ownership Plan (the “Plan”). The DOL has interviewed a number of Company representatives as well as the Plan fiduciaries and has issued a subpoena to the Company and a subpoena to SAC Holdings. At the present time, the Company is unable to determine whether the DOL will assert any claims against the Company, SAC Holdings, or the Plan fiduciaries. The

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DOL has asked AMERCO and its current directors as well as the Plan Trustees to sign an agreement tolling the statute of limitations until December 31, 2003 with respect to any claims arising out of certain transactions between AMERCO or any affiliate of AMERCO and SAC Holdings or any of its affiliates and such persons have done so. The DOL recently asked such parties to extend the tolling agreement. The DOL has not advised the Company that it believes that any violations of ERISA have in fact occurred. Instead, the DOL is simply investigating potential violations. The Company intends to take any corrective action that may be needed in light of the DOL’s ultimate findings. Although the Company has fully cooperated with the DOL in this matter and intends to continue to fully cooperate, the DOL may determine that the Company has violated ERISA. In that event, the Company may face sanctions, including, but not limited to, significant monetary penalties and injunctive relief.

Item 3.     Defaults Upon Senior Securities

      (a)     On October 15, 2002, AMERCO failed to make a $100 million principal payment and a $3.6 million interest payment due to the Series 1997-C Bond Backed Asset Trust. On that date, AMERCO also failed to pay $26.6 million in the aggregate to Citibank and Bank of America in connection with the early extinguishment of the Series 1997-C bonds. As a result of the foregoing, AMERCO is in default with respect to the other contractual obligations and commercial commitments listed below, which contain cross-default provisions, including its 3-Year Credit Agreement dated June 28, 2002 (the “Revolver”). In addition to the cross-default under the Revolver, the AMERCO is also in default under that agreement as a result of its failure to obtain incremental net cash proceeds and/or availability from additional financings in an aggregate amount of at least $150.0 million prior to October 15, 2002. In addition, Amerco Real Estate Company has defaulted on a $100 million loan by failing to grant mortgages required by the loan agreement in a timely manner. The total amount of indebtedness currently in default (either directly or as a result of a cross-default) is approximately $1,178.1 million.

         
(In millions)
Bank of Montreal synthetic lease
  $ 149.0 *
Citibank synthetic lease
    101.7  
3yr Credit Agreement
    205.0  
Royal Bank of Canada lease
    5.7  
Amerco Real Estate Notes
    100.0  
’03 Notes
    175.0  
’05 Notes
    200.0  
Medium Term Notes
    109.5  
BBAT
    100.0  
Bank of America Obligation (BBAT)
    11.3  
Citicorp Obligation (BBAT)
    15.3  
Bank of America Swap
    2.1  
JP Morgan Swap
    3.5  
     
 
    $ 1,178.1  

  $14.8 million of such amount is owed by U-Haul International, Inc.

      (b)     AMERCO has not paid the December 1, 2002 or March 1, June 1, or September 1, 2003 dividend payments to holders of its Series A 8.5% Preferred Stock. Due to the Chapter 11 filing, AMERCO does not expect to make any dividend payments for the duration of such proceedings. No assurance can be given as to when or whether the payment of cumulative preferred stock dividends will resume. The total amount of Series A 8.5% Preferred Stock dividends in arrears is $12.96 million.

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Item 6.     Exhibits and Reports on Form 8-K

      (a)     Exhibits

         
Exhibit
No. Description


  3.1     Restated Articles of Incorporation of AMERCO(1)
  3.2     Restated By-Laws of AMERCO as of August 27, 1997(2)
  3.3     Restate Articles of Incorporation of U-Haul International, Inc. (3)
  3.4     Bylaws of U-Haul International, Inc.(3)
  10.70     Senior Secured Super-Priority Debtor-In-Possession Loan and Security Agreement
  10.71     AMERCO Revolver Lenders Restructuring Agreement
  10.72     Restructuring Agreement with Amerco Real Estate Company Noteholders
  31.1      Rule 13a-14(a)/15d-14(a) Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO and U-Haul International, Inc.
  31.2      Rule 13a-14(a)/15d-14(a) Certificate of Gary B. Horton, Treasurer of AMERCO and Assistant Treasurer of U-Haul International, Inc.
  32.1      Certificate of Edward J. Shoen, President and Chairman of the Board of U-Haul International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2      Certificate of Gary B. Horton, Treasurer of AMERCO and Assistant Treasurer of U-Haul International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)  Incorporated by reference to AMERCO’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255.
 
(2)  Incorporated by reference to AMERCO’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255.
 
(3)  Incorporated by reference to AMERCO’s Annual Report on Form 10-K for the year ended March 31, 2003, file no. 1-11255.


(b)     Reports on Form 8-K.

      On May 13, 2003, we filed a Form 8-K relating to a press release announcing that BDO Seidman was in the process of reauditing the financial statements of AMERCO and its subsidiaries for fiscal years 2001 and 2002; (ii) that AMERCO received notice from PricewaterhouseCoopers that its most recent audit report should no longer be associated with AMERCO’s fiscal 2001 and 2002 financial statement; and (iii) that the Securities and Exchange Commission has been conducting an investigation regarding AMERCO’s financial statements.

      On June 23, 2003, we filed a Form 8-K disclosing that AMERCO filed a voluntary petition for relief under Chapter 11 of the United Bankruptcy Code.

      On July 16, 2003, we filed a Form 8-K relating to a press release announcing that the filing of our Annual Report on Form 10-K had been delayed.

      On August 11, 2003, we filed a Form 8-K disclosing that Andrew Stevens had relinquished his role as Chief Financial Officer of AMERCO.

      On August 27, 2003, we filed a Form 8-K relating to a press release announcing our financial results for the fiscal years ended March 31, 2001, 2002 and 2003 as well as some guidance for our results for the quarter ended June 30, 2003.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

     
    AMERCO
 
Date: September 9, 2003
  /s/ EDWARD J. SHOEN
-----------------------------------------------
Edward J. Shoen
President and Chairman of the Board
(Duly Authorized Officer)
 
Date: September 9, 2003
  /s/ GARY B. HORTON
-----------------------------------------------
Gary B. Horton
Treasurer
(Principal Financial Officer)
 
    U-HAUL INTERNATIONAL, INC.
 
Date: September 9, 2003
  /s/ EDWARD J. SHOEN
-----------------------------------------------
Edward J. Shoen
President and Chairman of the Board
(Duly Authorized Officer)
 
Date: September 9, 2003
  /s/ GARY B. HORTON
-----------------------------------------------
Gary B. Horton
Assistant Treasurer
(Principal Financial Officer)

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EXHIBIT INDEX

         
Exhibit
No. Description


  3.1     Restated Articles of Incorporation of AMERCO(1)
  3.2     Restated By-Laws of AMERCO as of August 27, 1997(2)
  3.3     Restate Articles of Incorporation of U-Haul International, Inc. (3)
  3.4     Bylaws of U-Haul International, Inc.(3)
  10.70     Senior Secured Super-Priority Debtor-In-Possession Loan and Security Agreement
  10.71     AMERCO Revolver Lenders Restructuring Agreement
  10.72     Restructuring Agreement with Amerco Real Estate Company Noteholders
  31.1      Rule 13a-14(a)/15d-14(a) Certificate of Edward J. Shoen, President and Chairman of the Board of AMERCO and U-Haul International, Inc.
  31.2      Rule 13a-14(a)/15d-14(a) Certificate of Gary B. Horton, Treasurer of AMERCO and Assistant Treasurer of U-Haul International, Inc.
  32.1      Certificate of Edward J. Shoen, President and Chairman of the Board of U-Haul International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2      Certificate of Gary B. Horton, Treasurer of AMERCO and Assistant Treasurer of U-Haul International, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)  Incorporated by reference to AMERCO’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255.
 
(2)  Incorporated by reference to AMERCO’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, file no. 1-11255.
 
(3)  Incorporated by reference to AMERCO’s Annual Report on Form 10-K for the year ended March 31, 2003, file no. 1-11255.