-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PlaaLJio+awLOWc8+RyLn19jXTLLx14I6n7oquWji4Tf3CBvMYuJ+tAjkx3YoqXb F9iS9JAWYFzoLR7KPgYSZg== 0000004457-01-500025.txt : 20010223 0000004457-01-500025.hdr.sgml : 20010223 ACCESSION NUMBER: 0000004457-01-500025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U HAUL INTERNATIONAL INC CENTRAL INDEX KEY: 0000004458 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 860663060 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-38498 FILM NUMBER: 1540435 BUSINESS ADDRESS: STREET 1: 2727 N CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022636645 MAIL ADDRESS: STREET 1: P.O. BOX 21502 CITY: PHOENIX STATE: AZ ZIP: 85036-1502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO INC /OR/ DATE OF NAME CHANGE: 19790319 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO INC DATE OF NAME CHANGE: 19770301 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED MANAGEMENT ENGINEERING & RESEAR DATE OF NAME CHANGE: 19730830 10-Q 1 uhq1200.txt FORM 10-Q 12/31/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. ________________________________________________________________________________ 1-11255 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (775) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 21,973,537 shares of AMERCO Common Stock, $0.25 par value were outstanding at February 12, 2001. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at February 12, 2001. U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Consolidated Balance Sheets as of December 31, 2000 (unaudited) and March 31, 2000............... 4 b) Condensed Consolidated Statements of Earnings for the Nine months ended December 31, 2000 and 1999 (unaudited)....... 6 c) Condensed Consolidated Statements of Comprehensive Income for the Nine months ended December 31, 2000 and 1999 (unaudited)... 7 d) Condensed Consolidated Statements of Earnings for the Quarters ended December 31, 2000 and 1999 (unaudited).......... 8 e) Condensed Consolidated Statements of Cash Flows for the Nine months ended December 31, 2000 and 1999 (unaudited)....... 9 f) Notes to Condensed Consolidated Financial Statements - December 31, 2000 (unaudited), March 31, 2000 and December 31, 1999 (unaudited).................................. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. 29 Item 6. Exhibits and Reports on Form 8-K................................... 30 3 THIS PAGE LEFT INTENTIONALLY BLANK 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, March 31, Assets 2000 2000 ----------------------- (Unaudited) (in thousands) Cash and cash equivalents $ 25,047 48,435 Notes and mortgage, net 75,986 49,866 Inventories, net 81,393 84,614 Investments, fixed maturities 878,037 884,824 Investments, other 550,190 320,695 Other assets 343,019 354,129 ---------------------- Property, plant and equipment, at cost: Buildings and improvements 821,448 853,403 Rental trucks 1,005,134 1,035,585 Other property, plant, and equipment 650,241 672,122 ---------------------- 2,476,823 2,561,110 Less accumulated depreciation 1,159,212 1,178,448 ---------------------- Total property, plant and equipment 1,317,611 1,382,662 ---------------------- Total Assets $ 3,271,283 3,125,225 ====================== The accompanying notes are an integral part of these consolidated financial statements. 5 December 31, March 31, Liabilities and Stockholders' Equity 2000 2000 ----------------------- (Unaudited) (in thousands) Liabilities: Notes and loans payable $ 1,182,073 1,137,840 Policy benefits and losses, claims and loss expenses payable 547,124 548,043 Liabilities from premium deposits 469,393 461,673 Deferred income taxes 161,298 109,413 Other liabilities 248,910 282,962 ---------------------- Total liabilities 2,608,798 2,539,931 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 311,804 275,242 Accumulated other comprehensive income (44,828) (42,317) Retained earnings 805,065 755,172 Cost of common shares in treasury, net (404,946) (397,000) Unearned ESOP shares (15,173) (16,366) ---------------------- Total stockholders' equity 662,485 585,294 Contingent liabilities and commitments ---------------------- Total Liabilities and Stockholders' Equity $ 3,271,283 3,125,225 ====================== The accompanying notes are an integral part of these consolidated financial statements. 6 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Nine months ended December 31, (Unaudited) 2000 1999 ------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 951,058 907,802 Net sales 155,078 148,669 Premiums 210,102 167,020 Net investment and interest income 72,082 61,545 ----------------------- Total revenues 1,388,320 1,285,036 Costs and expenses Operating expenses 744,009 705,289 Cost of sales 87,600 87,737 Benefits and losses 170,678 126,944 Amortization of deferred policy acquisition costs 25,129 27,500 Lease expense 132,395 98,999 Depreciation, net 67,767 61,553 ----------------------- Total costs and expenses 1,227,578 1,108,022 Earnings from operations 160,742 177,014 Interest expense 65,234 61,038 ----------------------- Pretax earnings 95,508 115,976 Income tax expense (33,772) (40,867) ----------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 61,736 75,109 Extraordinary loss on early extinguishment of debt, net of tax of $1,160 (2,121) - ----------------------- Net earnings $ 59,615 75,109 ======================= Basic earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt 2.42 2.95 Extraordinary loss on early extinguishment of debt, net (0.10) - ----------------------- Net earnings $ 2.32 2.95 ======================= Diluted earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt 2.42 2.93 Extraordinary loss on early extinguishment of debt, net (0.10) - ----------------------- Net earnings $ 2.32 2.93 ======================= Weighted average common shares outstanding: Basic 21,539,821 21,964,513 ======================= Diluted 21,539,821 22,353,402 ======================= The accompanying notes are an integral part of these consolidated financial statements. 7 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income Nine months ended December 31, (Unaudited) 2000 1999 ------------------- (in thousands) Comprehensive income: Net earnings $ 59,615 75,109 Changes in other comprehensive income: Foreign currency translation (4,683) 4,100 Fair market value of cash flow hedge (861) 2,130 Unrealized gain (loss) on investments 3,033 (14,855) ------------------- Total comprehensive income $ 57,104 66,484 =================== The accompanying notes are an integral part of these consolidated financial statements. 8 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Earnings Quarters ended December 31, (Unaudited) 2000 1999 ------------------------- (in thousands, except share and per share data) Revenues Rental revenue $ 270,775 264,772 Net sales 41,117 38,548 Premiums 88,607 59,217 Net investment and interest income 25,478 20,060 ----------------------- Total revenues 425,977 382,597 Costs and expenses Operating expense 257,181 237,911 Cost of sales 21,626 25,003 Benefits and losses 74,863 42,929 Amortization of deferred policy acquisition costs 8,560 12,519 Lease expense 45,859 34,787 Depreciation, net 23,282 23,002 ----------------------- Total costs and expenses 431,371 376,151 Earnings (loss) from operations (5,394) 6,446 Interest expense 21,182 21,223 ----------------------- Pretax loss (26,576) (14,777) Income tax benefit 9,467 5,452 ----------------------- Loss from operations before extraordinary loss on early extinguishment of debt (17,109) (9,325) Extraordinary loss on early extinguishment of debt, net of tax of $1,160 (2,121) - ----------------------- Net loss $ (19,230) (9,325) ======================= Basic and diluted loss per common share: Loss from operations before extraordinary loss on early extinguishment of debt $ (0.95) (0.57) Extraordinary loss on early extinguishment of debt, net (0.10) - ----------------------- Net loss $ (1.05) (0.57) ======================= Basic and diluted average common shares outstanding: 21,406,688 21,975,889 ======================= The accompanying notes are an integral part of these consolidated financial statements. 9 AMERCO AND CONSOLIDATED SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine months ended December 31, (Unaudited) 2000 1999 -------------------- (in thousands) Net cash provided by operating activities 98,868 131,304 -------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (280,024) (269,530) Fixed maturities (84,808) (114,778) Mortgage loans (21,654) (11,955) Proceeds from sale of investments: Property, plant and equipment 241,925 167,305 Fixed maturities 89,583 87,604 Mortgage loans 19,187 8,382 Changes in other investments (120,313) 21,351 -------------------- Net cash used by investing activities (156,104) (111,621) -------------------- Cash flows from financing activities: Net change in short-term borrowings 169,281 17,160 Proceeds from notes - 150,000 Principal payments on notes (125,048) (180,084) Repurchase of preferred stock - (25,000) Preferred stock dividends paid (9,722) (10,400) Investment contract deposits 62,947 45,435 Investment contract withdrawals (55,763) (45,518) Changes in other financing activities (7,847) 1,395 -------------------- Net cash provided (used) by financing activities 33,848 (47,012) -------------------- Increase (decrease) in cash and cash equivalents (23,388) (27,329) Cash and cash equivalents at beginning of period 48,435 44,505 -------------------- Cash and cash equivalents at end of period $ 25,047 17,176 ==================== The accompanying notes are an integral part of these consolidated financial statements. 10 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements December 31, 2000, March 31, 2000 and December 31, 1999 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (AMERCO), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (Real Estate), Republic Western Insurance Company (RepWest) and Oxford Life Insurance Company (Oxford). PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of the parent corporation, AMERCO, and its wholly-owned subsidiaries. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in AMERCO's annual financial statements and notes. The condensed consolidated balance sheet as of December 31, 2000 and the related condensed consolidated statements of earnings for the three and nine months ended December 31, 2000 and 1999 and the condensed consolidated statements of comprehensive income and the condensed consolidated statements of cash flows for the nine months ended December 31, 2000 and 1999 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such condensed financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There were no effects related to intervening events which would materially affect the consolidated financial position or results of operations for the financial statements presented herein. Certain reclassifications have been made to the financial statements for the three and nine months ended December 31, 1999 to conform with the current year's presentation. NEW ACCOUNTING STANDARDS During the quarter ended September 30, 2000, AMERCO adopted Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements", which provides guidance on the recognition, presentation and disclosure of revenue in the financial statements filed with the Securities and Exchange Commission. The adoption of SAB 101 was not material to AMERCO's condensed consolidated financial statements. 11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows: September 30, 2000 ------------------ Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 15,158 $ 14,503 141 (244) 14,400 U.S. government agency mortgage- backed securities $ 15,453 15,378 43 (290) 15,131 Corporate securities $ 59,022 59,690 774 (3,769) 56,695 Mortgage-backed securities $ 32,239 31,749 305 (365) 31,689 Redeemable preferred stocks 4,561 115,174 - - 115,174 ---------------------------------------- 236,494 1,263 (4,668) 233,089 ---------------------------------------- September 30, 2000 ------------------ Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ (in thousands) U.S. treasury securities and government obligations $ 41,870 $ 42,450 988 (982) 42,456 U.S. government agency mortgage- backed securities $ 34,802 34,550 293 (341) 34,502 Obligations of states and political subdivisions $ 16,355 16,548 527 (125) 16,950 Corporate securities $ 504,676 503,057 4,018 (24,405) 482,670 Mortgage-backed securities $ 35,122 34,885 640 (441) 35,084 Redeemable preferred stocks 1,311 32,675 61 (2,855) 29,881 ---------------------------------------- 664,165 6,527 (29,149) 641,543 ---------------------------------------- Total $ 900,659 7,790 (33,817) 874,632 ======================================== 12 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summarized condensed consolidated balance sheet for RepWest is presented below: September 30, ------------------- 2000 1999 ------------------- (in thousands) Investments, fixed maturities $ 407,265 413,845 Receivables 147,143 115,407 Deferred policy acquisition costs 21,844 12,720 Deferred federal income taxes 10,790 12,538 Other assets 78,506 64,561 ------------------- Total assets $ 665,548 619,071 =================== Policy liabilities and accruals $ 309,887 324,214 Unearned premiums 81,679 48,885 Other policyholders' funds and liabilities 61,908 29,872 ------------------- Total liabilities 453,474 402,971 Stockholder's equity 212,074 216,100 ------------------- Total liabilities and stockholder's equity $ 665,548 619,071 =================== A summarized condensed consolidated income statement for RepWest is presented below: Quarter ended Nine months ended September 30, September 30, ---------------------------------------- 2000 1999 2000 1999 ---------------------------------------- (in thousands) Premiums $ 63,386 35,721 135,718 100,289 Net investment income 7,966 8,141 23,718 24,830 ---------------- ----------------- Total revenue 71,352 43,862 159,436 125,119 Benefits and losses 56,331 28,674 116,432 82,387 Amortization of deferred policy acquisition costs 3,776 3,312 10,147 10,304 Operating expenses 18,049 7,775 37,766 23,351 ---------------- ----------------- Total expenses 78,156 39,761 164,345 116,042 Income (loss) from operations (6,804) 4,101 (4,909) 9,077 Income tax benefit (expense) 2,379 (1,217) 1,789 (2,783) ---------------- ----------------- Net income (loss) $ (4,425) 2,884 (3,120) 6,294 ================ ================= 13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summarized condensed consolidated balance sheet for Oxford is presented below: September 30, ------------------- 2000 1999 ------------------- (in thousands) Investments, fixed maturities $ 470,772 491,279 Investments, other 167,208 129,900 Deferred policy acquisition costs 77,867 70,270 Other assets 15,780 36,284 ------------------- Total assets $ 731,627 727,733 =================== Policy liabilities and accruals $ 152,358 141,995 Premium deposits 469,393 457,677 Other policyholders' funds and liabilities 19,958 40,741 ------------------- Total liabilities 641,709 640,413 Stockholder's equity 89,918 87,320 ------------------- Total liabilities and stockholder's equity $ 731,627 727,733 =================== A summarized condensed consolidated income statement for Oxford is presented below: Quarter ended Nine months ended September 30, September 30, ---------------------------------------- 2000 1999 2000 1999 ---------------------------------------- (in thousands) Premiums $ 26,750 24,334 78,274 71,541 Net investment income 5,807 5,774 18,170 16,015 ---------------- ---------------- Total revenue 32,557 30,108 96,444 87,556 Benefits and losses 18,532 14,255 54,246 44,557 Amortization of deferred policy acquisition costs 4,784 6,147 14,982 17,196 Operating expenses 6,626 5,910 19,857 15,541 ---------------- ---------------- Total expenses 29,942 26,312 89,085 77,294 Income from operations 2,615 3,796 7,359 10,262 Income tax expense (753) (1,180) (1,878) (3,352) ---------------- ---------------- Net income $ 1,862 2,616 5,481 6,910 ================ ================ 14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 4. CONTINGENT LIABILITIES AND COMMITMENTS During the nine months ended December 31, 2000, a subsidiary of U-Haul entered into 33 transactions whereby the subsidiary sold rental trucks, trailers and support rental items which were subsequently leased back. AMERCO has guaranteed $60,725,000 of residual values at December 31, 2000 for these assets at the end of the respective lease terms. U-Haul also entered into one transaction where it leased computer equipment and one transaction where it leased general rental items. Following are the lease commitments for the leases executed during the nine months ended December 31, 2000, and subsequently which have a term of more than one year (in thousands): Net activity Year ended Lease subsequent to March 31, Commitments period end Total -------------------------------------------------------- 2001 $ 27,325 - 27,325 2002 40,044 - 40,044 2003 39,993 - 39,993 2004 39,643 - 39,643 2005 39,626 - 39,626 Thereafter 84,448 - 84,448 ------------------------------------ $ 271,079 - 271,079 ==================================== In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean- up of underground fuel storage tanks. It is the opinion of management that none of such suits, claims or proceedings involving AMERCO, individually or in the aggregate are expected to result in a material loss. 5. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories, investments, other and accounts payable and accrued liabilities net of other operating and investing activities follows: Nine months ended December 31, 2000 1999 ------------------- (in thousands) Receivables $ 9,560 (3,394) =================== Investments, other (refer to Note 7) $ (98,351) - =================== Inventories $ 3,221 (422) =================== Accounts payable and accrued expenses $ (42,701) (24,365) =================== 15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 6. EARNINGS PER SHARE The following table reflects the calculation of the earnings per share: Weighted Average Common Shares Income Outstanding Per Share (Numerator) (Denominator) Amount ----------- ---------------- --------- (in thousands, except share and per share data) Quarter ended December 31, 2000: Loss from operations before extraordinary loss on early extinguishment of debt $ (17,109) Less preferred stock dividends 3,241 ------ Loss from operations before extraordinary loss on early extinguishment of debt available to common stockholders (20,350) 21,406,688 $ (0.95) Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) ------ ---- Basic and diluted loss per common share (22,471) 21,406,688 $ (1.05) ====== ========== ==== Quarter ended December 31, 1999: Loss from operations $ (9,325) Less preferred stock dividends 3,241 ------ Basic and diluted loss per common share (12,566) 21,975,889 $ (0.57) ====== ========== ==== Nine months ended December 31, 2000: Earnings from operations before extraordinary loss on early extinguishment of debt $ 61,736 Less preferred stock dividends 9,722 ------ Earnings from operations before extraordinary loss on early extinguishment of debt available to common stockholders 52,014 21,539,821 $ 2.42 Extraordinary loss on early extinguishment of debt, net (2,121) (0.10) ------ ---- Basic and diluted earnings per common share 49,893 21,539,821 $ 2.32 ====== ========== ==== Nine months ended December 31, 1999: Earnings from operations $ 75,109 Less preferred stock dividends 10,259 ------ Basic earnings per common share 64,850 21,964,513 $ 2.95 Effect of dilutive securities Series B preferred shares 537 388,889 ------ ---------- Diluted earnings per common share 65,387 22,353,402 $ 2.93 ====== ========== ==== 16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 7. RELATED PARTIES During the nine months ended December 31, 2000, subsidiaries of AMERCO held various senior and junior notes with SAC Holding Corporation and its subsidiaries (SAC Holdings). The voting common stock of SAC Holdings is held by Mark V. Shoen, a major stockholder of AMERCO. AMERCO's subsidiaries received interest payments of $26,318,000 and principal payments of $795,000 from SAC Holdings during the nine months ended December 31, 2000. The terms of the notes with SAC Holdings are consistent with the terms of notes held by U-Haul for other properties owned by unrelated parties and managed by U-Haul. These amounts are reflected in Investments, other of the condensed consolidated balance sheet. During the nine months ended December 31, 2000, a subsidiary of AMERCO funded through a note the purchase of properties and construction costs for SAC Holdings of approximately $182,576,000. This amount is reflected in Investments, other of the condensed consolidated balance sheet. U-Haul currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which U-Haul receives a management fee equal to 6% of the gross receipts from the properties. Management fees of $4,523,000 and $3,348,000 were received during the nine months ended December 31, 2000 and 1999, respectively. The management fee percentage is consistent with the fees received by U-Haul for other properties owned by unrelated parties and managed by U-Haul. In June 2000, Real Estate completed the sale of twenty-four storage properties to Twelve SAC Self-Storage Corporation, Thirteen SAC Self-Storage Corporation and Fourteen SAC Self-Storage Corporation, subsidiaries of SAC Holding Corporation, for $98,351,000. Real Estate received cash and notes from the sale. The gain is reflected in the equity section of the condensed consolidated balance sheet. Management believes that the foregoing transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. 17 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 8. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA Industry Segment Data - AMERCO has four industry segments represented by Moving and Storage Operations (U-Haul), Real Estate (AREC), Property and Casualty Insurance (RepWest) and Life Insurance (Oxford). Information concerning operations by industry segment follows: Moving and Property/ Adjustments Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------- (in thousands) Nine months ended December 31, 2000 ----------------- Revenues: Outside $1,126,987 9,343 156,609 95,381 - 1,388,320 Intersegment - 52,599 2,827 1,063 (56,489) - -------------------------------------------------------------- Total revenues $1,126,987 61,942 159,436 96,444 (56,489) 1,388,320 Depreciation/ amortization $ 77,721 8,144 10,208 15,449 - 111,522 Interest expense $ 65,234 32,870 - - (32,870) 65,234 Pretax earnings (loss) $ 80,818 12,240 (4,909) 7,359 - 95,508 Income tax $ (29,399) (4,284) 1,789 (1,878) - (33,772) Extraordinary loss on early extinguishment of debt, net $ (2,121) - - - - (2,121) Identifiable assets $1,451,659 761,149 665,548 731,627 (338,700) 3,271,283 Nine months ended December 31, 1999 ----------------- Revenues: Outside $1,069,592 7,579 121,254 86,611 - 1,285,036 Intersegment - 53,075 3,865 945 (57,885) - -------------------------------------------------------------- Total revenues $1,069,592 60,654 125,119 87,556 (57,885) 1,285,036 Depreciation/ amortization $ 62,278 7,664 10,529 17,486 - 97,957 Interest expense $ 61,038 30,926 - - (30,926) 61,038 Pretax earnings $ 78,245 18,392 9,077 10,262 - 115,976 Income tax $ (28,294) (6,438) (2,783) (3,352) - (40,867) Identifiable assets $1,385,918 705,396 619,071 727,733 (340,074) 3,098,044 18 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 8. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Moving and Property/ Adjustments Storage Real Casualty Life and Operations Estate Insurance Insurance Eliminations Consolidated ---------------------------------------------------------------- (in thousands) Quarter ended December 31, 2000 ----------------- Revenues: Outside $ 320,572 3,025 70,191 32,189 - 425,977 Intersegment - 17,754 1,161 368 (19,283) - -------------------------------------------------------------- Total revenues $ 320,572 20,779 71,352 32,557 (19,283) 425,977 Depreciation/ amortization $ 29,034 2,760 3,453 4,824 - 40,071 Interest expense $ 21,182 10,626 - - (10,626) 21,182 Pretax earnings (loss) $ (26,527) 4,140 (6,804) 2,615 - (26,576) Income tax $ 9,290 (1,449) 2,379 (753) - 9,467 Extraordinary loss on early extinguishment of debt, net $ (2,121) - - - - (2,121) Identifiable assets $1,451,659 761,149 665,548 731,627 (338,700) 3,271,283 Quarter ended December 31, 1999 ----------------- Revenues: Outside $ 307,882 1,583 43,347 29,785 - 382,597 Intersegment - 17,777 515 323 (18,615) - -------------------------------------------------------------- Total revenues $ 307,882 19,360 43,862 30,108 (18,615) 382,597 Depreciation/ amortization $ 21,862 2,623 3,544 6,129 - 34,158 Interest expense $ 21,223 10,653 - - (10,653) 21,223 Pretax earnings $ (27,150) 4,476 4,101 3,796 - (14,777) Income tax $ 9,416 (1,567) (1,217) (1,180) - 5,452 Identifiable assets $1,385,918 705,396 619,071 727,733 (340,074) 3,098,044 19 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) 8. INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA, continued Geographic Segment Data - AMERCO has two geographic segments represented by the United States and Canada. Information concerning operations by geographic segment follows: United United States Canada Consolidated States Canada Consolidated ------------------------------ ------------------------------ Nine months ended Quarter ended ------------------------------ ------------------------------ (in thousands of U.S. dollars) December 31, 2000 ----------------- Total revenues $1,357,483 30,837 1,388,320 418,421 7,556 425,977 Depreciation/ amortization $ 108,244 3,278 111,522 38,963 1,108 40,071 Interest expense $ 65,221 13 65,234 21,176 6 21,182 Pretax earnings (loss) $ 91,281 4,227 95,508 (25,588) (988) (26,576) Income tax $ (33,766) (6) (33,772) 9,467 - 9,467 Extraordinary loss, net $ (2,121) - (2,121) (2,121) - (2,121) Identifiable assets $3,220,700 50,583 3,271,283 3,220,700 50,583 3,271,283 December 31, 1999 ----------------- Total revenues $1,256,823 28,213 1,285,036 375,238 7,359 382,597 Depreciation/ amortization $ 95,261 2,696 97,957 33,162 996 34,158 Interest expense $ 61,022 16 61,038 21,218 5 21,223 Pretax earnings (loss) $ 113,047 2,929 115,976 (13,930) (847) (14,777) Income tax $ (40,867) - (40,867) 5,452 - 5,452 Identifiable assets $3,051,332 46,712 3,098,044 3,051,332 46,712 3,098,044 9. SUBSEQUENT EVENTS On February 6, 2001, AMERCO declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of February 16, 2001. On November 13, 2000, Oxford completed the acquisition of Christian Fidelity Life Insurance Company (CFLIC) for $37.6 million in cash. CFLIC is a Texas-based insurance company specializing in providing Medicare supplement insurance. The acquisition will be accounted for under the purchase method of accounting whereby the purchase price will be allocated to the underlying assets and liabilities based on their estimated fair values. The source of funds for the acquisition was from Oxford's available cash and short-term funds. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by AMERCO from time to time in filings with the Securities and Exchange Commission or otherwise. Management believes such forward-looking statements are within the meaning of the safe- harbor provisions. Such statements may include, but not be limited to, projections of revenues, income or loss, estimates of capital expenditures, litigation results, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe", "expect", "anticipate", "estimate", "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The following disclosures, as well as other statements in this report and in the Notes to AMERCO's Consolidated Financial Statements, describe factors, among others, that could contribute to or cause such differences, or that could affect AMERCO's stock price. GENERAL Information on industry segments is incorporated by reference from "Item 1. Financial Statements - Notes 1, 3 and 8 of Notes to Consolidated Financial Statements". The notes discuss the principles of consolidation, summarized consolidated financial information and industry segment and geographical area data, respectively. In consolidation, all intersegment premiums are eliminated and the benefits, losses and expenses are retained by the insurance companies. RESULTS OF OPERATIONS NINE MONTHS ENDED DECEMBER 31, 2000 VERSUS NINE MONTHS ENDED DECEMBER 31, 1999 Moving and Storage Operations Revenues consist of rental revenues, net sales and investment and interest income. Total rental revenue was $951.1 million and $907.8 million for the nine months ended December 31, 2000 and 1999, respectively. Net revenues from the rental of moving related equipment increased by $35.8 million. This increase is primarily attributable to higher truck and trailer rental revenues. Storage revenues increased $8.2 million due to increases in rates and in the number of storage rooms rented. Net sales revenues were $155.1 million and $148.7 million for the nine months ended December 31, 2000 and 1999, respectively. Revenue growth resulted from the sale of moving support items (i.e. boxes, etc.), which led to the majority of the increase, and from an increase in the sale of hitches. Net investment and interest income was $22.4 million and $15.0 million for the nine months ended December 31, 2000 and 1999, respectively. The increase is due to increased investments. Cost of sales was $87.6 million and $87.7 million for the nine months ended December 31, 2000 and 1999, respectively. Operating expenses before intercompany eliminations were $742.8 million and $721.0 million for the nine months ended December 31, 2000 and 1999, respectively. Increased expenditure levels for personnel and rental equipment maintenance, due to an increase in truck rental transactions and in fleet size, were primarily responsible. Net depreciation expense was $59.8 million and $54.8 million for the nine months ended December 31, 2000 and 1999, respectively. The increase reflects depreciation on the rental truck fleet. Operating profit before tax and intercompany elimination was $103.5 million and $98.2 million for the nine months ended December 31, 2000 and 1999, respectively. 21 Real Estate Operations Rental revenue before intercompany eliminations was $54.1 million and $55.0 million for the nine months ended December 31, 2000 and 1999, respectively. Intercompany revenue was $52.6 million and $53.1 million for the nine months ended December 31, 2000 and 1999, respectively. Net investment and interest income was $7.8 million and $5.7 million for the nine months ended December 31, 2000 and 1999, respectively. This increase correlates to an increase in investments in notes and mortgages. Net depreciation expense was $8.0 million and $6.8 million for the nine months ended December 31, 2000 and 1999, respectively. The increase is due to the build out of storage facilities. Operating profit before tax and intercompany elimination was $12.2 million and $18.4 million for the nine months ended December 31, 2000 and 1999, respectively. The decrease reflects increases in lease expenses. Property and Casualty RepWest's premiums were $135.7 million and $100.3 million for the nine months ended September 30, 2000 and 1999, respectively. General agency premiums were $37.5 million and $11.6 million for the nine months ended September 30, 2000 and 1999, respectively. Assumed treaty reinsurance premium was $50.5 million and $35.0 million for the nine months ended September 30, 2000 and 1999, respectively. Rental industry revenue was $28.2 million and $35.6 million for the nine months ending September 30, 2000 and 1999, respectively. This change was caused by the restructuring of the rental industry Business Auto General Liability Policy. Net investment income was $23.7 million and $24.8 million for the nine months ended September 30, 2000 and 1999, respectively. The reduction is attributable to decreased gains and decreased invested assets. Benefits and losses were $116.4 million and $82.4 million for the nine months ended September 30, 2000 and 1999, respectively. This increase is due to new agency programs in Non-Standard Auto and Transportation, as well as in assumed treaty reinsurance business. The amortization of deferred acquisition costs (DAC) was $10.1 million and $10.3 for the nine months ended September 30, 2000 and 1999, respectively. Operating expenses were $37.8 million and $23.4 million for the nine months ended September 30, 2000 and 1999, respectively. The increase is a result of commissions on new agency business premium writings as well as assumed reinsurance treaties, increased personnel expenses and changes in claims handling procedures. Operating profit (loss) before tax and intercompany elimination was $(4.9) million and $9.1 million for the nine months ended September 30, 2000 and 1999, respectively. The decrease is the result of additional incurred losses and operating expense, and decreased investment income, offset by an increase in earned premiums. 22 Life Insurance Net premiums were $78.3 million and $71.5 million for the nine months ended September 30, 2000 and 1999, respectively. The difference was primarily due to a $2.5 million increase in the credit insurance lines and a $4.1 million increase in the Medicare supplement line. Premiums related to other health insurance products increased $0.4 million. Earned premiums from life insurance and annuitizations decreased $0.2 million. Net investment income before intercompany eliminations was $18.2 million and $16.0 million for the nine months ended September 30, 2000 and 1999, respectively. The increase was due to improved interest rate spreads on the interest sensitive products and a larger invested asset base. Benefits were $54.2 million and $44.6 million for the nine months ended September 30, 2000 and 1999, respectively. Medicare supplement benefits increased $6.4 million from 1999 and credit insurance benefits increased $2.0 million from 1999. Other health insurance benefits increased $1.6 million for the year primarily from one-time charges and poor group disability experience. Annuity benefits increased $0.8 million from 1999. The life insurance lines have had better mortality experience in 2000, resulting in a $1.2 million decrease in benefits from 1999. Amortization of DAC was $15.0 million and $17.2 million for the nine months ended September 30, 2000 and 1999, respectively. The decrease is due to credit reinsurance. Operating expenses were $19.9 million and $15.5 million for the nine months ended September 30, 2000 and 1999, respectively. The increase is due to premium volume increases. Operating profit before tax and intercompany eliminations was $7.4 million and $10.3 million for the nine months ended September 30, 2000 and 1999, respectively. The decrease is due to loss ratios on the Medicare supplement business and Credit insurance business. Interest Expense Interest expense was $65.2 million and $61.0 million for the nine months ended December 31, 2000 and 1999, respectively. The increase can be attributed to increases in the average debt outstanding and in the average cost of debt. Consolidated Group As a result of the foregoing, pretax earnings totaled $95.5 million and $116.0 million for the nine months ended December 31, 2000 and 1999, respectively. After providing for income taxes, net earnings from operations were $61.7 million and $75.1 million for the nine months ended December 31, 2000 and 1999, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net earnings were $59.6 million and $75.1 million for the nine months ended December 31, 2000 and 1999, respectively. 23 QUARTER ENDED DECEMBER 31, 2000 VERSUS QUARTER ENDED DECEMBER 31, 1999 Moving and Storage Operations Revenues consist of rental revenues, net sales and investment and interest income. Total rental revenue was $270.8 million and $264.8 million for the quarters ended December 31, 2000 and 1999, respectively. Net revenues from the rental of moving related equipment increased by $4.0 million. This increase is primarily attributable to higher truck and trailer rental revenues. Storage revenues increased $2.0 million due to increases in rates and in the number of storage rooms rented. Net sales revenues was $41.1 million and $38.5 million for the quarters ended December 31, 2000 and 1999, respectively. Revenue growth resulted from the sale of moving support items (i.e. boxes, etc.) which led to the majority of the increase during the quarter. Net investment and interest income was $8.9 million and $5.2 million for the quarters ended December 31, 2000 and 1999, respectively. The increase is due to increased investments. Cost of sales was $21.6 million and $25.0 million for the quarters ended December 31, 2000 and 1999, respectively. Operating expenses before intercompany elimination were $251.0 million and $244.6 million for the quarters ended December 31, 2000 and 1999, respectively. The increase reflects higher personnel and rental equipment maintenance expenditures associated with an increase in truck rental transactions and inventory levels. Net depreciation expense was $20.6 million and $20.8 million for the quarters ended December 31, 2000 and 1999, respectively. Operating loss before tax and intercompany elimination was $18.0 million and $19.7 million for the quarters ended December 31, 2000 and 1999, respectively. Real Estate Operations Rental revenue before intercompany eliminations was $18.0 million and $18.4 million for the quarters ended December 31, 2000 and 1999, respectively. Intercompany revenue remained constant at $17.8 million for the quarters ended December 31, 2000 and 1999. Net investment and interest income was $2.8 million and $0.9 million for the quarters ended December 31, 2000 and 1999, respectively. This increase correlates to an increase in investments in notes and mortgages. Net depreciation expense was $2.7 million and $2.2 million for the quarters ended December 31, 2000 and 1999, respectively. Operating profit before tax and intercompany elimination was $4.1 million and $4.5 million for the quarters ended December 31, 2000 and 1999, respectively. The decrease reflects increases in lease expenses. 24 Property and Casualty RepWest's premiums were $63.4 million and $35.7 million for the quarters ended September 30, 2000 and 1999, respectively. The increase is directly related to general agency premiums, which were $17.3 million and $3.4 million for the quarters ended September 30, 2000 and 1999, respectively. Assumed treaty reinsurance premium were $27.5 million and $14.1 million for the quarters ended September 30, 2000 and 1999, respectively. Net investment income was $8.0 million and $8.1 million for the quarters ended September 30, 2000 and 1999, respectively. Benefits and losses incurred were $56.3 million and $28.7 million for the quarters ended September 30, 2000 and 1999, respectively. The increase is a result of new general agency business writings in Non-Standard Auto and Transportation, as well as in assumed treaty reinsurance business. The amortization of deferred acquisition costs (DAC) was $3.8 million and $3.3 million for the quarters ended September 30, 2000 and 1999, respectively. The increase is due to the increase in new business. Operating expenses were $18.0 million and $7.8 million for the quarters ended September 30, 2000 and 1999, respectively. The change is due to increased commission expense resulting from new agency business premium writings on Non Standard Auto and Transportation coverages, as well as assumed treaty business. General and administrative expenses also increased due to an increase in personnel and overhead required to support new business expansion. Operating profit (loss) before tax and intercompany elimination was $(6.8) million and $4.1 million for the quarters ended September 30, 2000 and 1999, respectively. This decrease is the result of increased incurred losses and operating expense, offset by an increase in earned premiums. 25 Life Insurance Net premiums were $26.8 million and $24.3 million for the quarters ended September 30, 2000 and 1999, respectively. The change is primarily due to a $0.3 million increase in the credit insurance line and a $1.5 million increase in the Medicare supplement line. Annuitizations and premiums from other health and life insurance products increased $0.7 million. Net investment income before intercompany eliminations remained constant at $5.8 million for the quarters ended September 30, 2000 and 1999. Benefits were $18.5 million and $14.3 million for the quarters ended September 30, 2000 and 1999, respectively. Medicare supplement benefits increased $2.7 million from 1999 due to higher loss ratios. Other health insurance benefits increased $0.9 million due to poor group disability experience. Annuity benefits increased $0.6 million. Amortization of DAC was $4.8 million and $6.1 million for the quarters ended September 30, 2000 and 1999, respectively. Amortization from annuities decreased $0.5 million, other health insurance amortization decreased $0.2 million and the credit insurance amortization decreased $0.6 million for the quarter. Operating expenses were $6.6 million and $5.9 million for the quarters ended September 30, 2000 and 1999, respectively. This increase included $1.6 million in Medical Supplement commissions to agents, partially offset by a decrease of $0.8 million in administration costs and surrender charge income of $0.2 million. Operating profit before tax and intercompany eliminations was $2.6 million and $3.8 million for the quarters ended September 30, 2000 and 1999, respectively. The decrease is due to loss ratios on the Medicare supplement business. Interest Expense Interest expense was unchanged at $21.2 million for the quarters ended December 31, 2000 and 1999. Consolidated Group As a result of the foregoing, pretax loss was $26.6 million and $14.8 million for the quarters ended December 31, 2000 and 1999, respectively. After providing for income taxes, net loss from operations was $17.1 million and $9.3 million for the quarters ended December 31, 2000 and 1999, respectively. Following deductions for an extraordinary loss from the early extinguishment of debt, net loss was $19.2 million and $9.3 million for the quarters ended December 31, 2000 and 1999, respectively. 26 LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul maintains a large inventory of rental items. In the nine months ended December 31, 2000 and 1999, capital expenditures were $280.0 million and $269.5 million, respectively. These expenditures primarily reflect the expansion of the rental truck fleet. The capital required to fund these acquisitions was obtained through internally generated funds from operations and through lease financings. Cash provided (used) by operating activities was ($33.4) million and $128.6 million for the nine months ended December 31, 2000 and 1999, respectively. The decrease resulted primarily from an increase in receivables. At December 31, 2000, total outstanding notes and loans payable was $1,182.1 million as compared to $1,137.8 million at March 31, 2000. Real Estate Operations Cash provided by operating activities was $75.8 million and $6.3 million for the nine months ended December 31, 2000 and 1999, respectively. The increase resulted from an increase in accounts payable. Property and Casualty Cash provided (used) by operating activities was $20.3 million and $(9.2) million for nine months ended September 30, 2000 and 1999, respectively. This change resulted from increases in unearned premium, funds withheld and decreased accounts receivable from December 1999 to September 2000. The increase was offset by a decrease in loss and loss adjusting expense reserves from December 1999 to September 2000 and decreased net income. RepWest's cash and cash equivalents and short-term investment portfolio were $12.0 million and $1.4 million at September 30, 2000 and 1999, respectively. The increase is a result of $5.4 million in short-term assets that were on hand at September 2000 to cover a pending securities settlement. In addition, short-term assets were increased during the period due to increased claim payments generated by new business. RepWest maintains a diversified securities investment portfolio, primarily in bonds, at varying maturity levels with 88.0% of the fixed-income securities consisting of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong with current invested assets equal to 97.2% of total liabilities. The liability for reported and unreported losses is based upon company historical and industry averages. Unpaid loss adjustment expenses are based on historical ratios of loss adjustment expenses paid to losses paid. Unpaid loss and loss expenses are not discounted. 27 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. Cash provided (used) by operating activities was ($0.3) million and $5.6 million for the nine months ended September 30, 2000 and 1999, respectively. The decrease is due to higher benefit payouts in relation to collected premium. Cash provided (used) by financing activities was $7.1 million and ($0.1) million for the nine months ended September 30, 2000 and 1999, respectively. The increase is due to a better ratio of annuity deposits to withdrawals. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. Short-term investments were $59.7 million and $52.1 million for the nine months ending September 30, 2000 and 1999, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Consolidated Group During each of the fiscal years ended March 31, 2001, 2002 and 2003, AMERCO estimates gross capital expenditures will average approximately $313 million primarily reflecting rental fleet rotation. This level of capital expenditures, combined with an average of approximately $72 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $385 million. Credit Agreements AMERCO's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes and revolving lines of credit with domestic and foreign banks. Principally to finance its fleet of trucks and trailers, AMERCO routinely enters into sale and leaseback transactions. As of December 31, 2000, AMERCO had $1,182.1 million in total notes and loans payable outstanding and unutilized lines of credit of approximately $67.2 million. Certain of AMERCO's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties, assets and restricting the issuance of certain types of preferred stock. At December 31, 2000, AMERCO was in compliance with these covenants. Reference is made to Note 5 of Notes to Consolidated Financial Statements in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 for additional information about AMERCO's credit agreements. 28 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, 2000. 29 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the normal course of business, AMERCO is a defendant in a number of suits and claims. AMERCO is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or cleanup of underground fuel storage tanks. It is the opinion of management that none of the suits, claims or proceedings involving AMERCO, individually or in the aggregate, are expected to result in a material loss. Reference is made to Part I, Item 1, Business, in AMERCO's Annual Report on Form 10-K for the fiscal year ended March 31, 2000 for a discussion of certain environmental proceedings. On June 24, 1997, five (5) current and/or former Moving Center General Managers (GMs) and one (1) Area Field Manager (AFM) filed suit in Marin County Superior Court, Case No. BC 203532, entitled Sarah Saunders, et. al. vs. U-Haul ----------------------- ------ Company of California, Inc., claiming that they were entitled to be compensated - --------------------------- for all overtime hours worked. In addition, these Plaintiffs sought class action status purporting to represent all persons employed in California as either a salaried GM or AFM since September 1993. On September 30, 1997, a virtually identical lawsuit was filed in Los Angeles County Superior Court, Case No. BC 178775, entitled Wyatt Crandall vs. U-Haul International, Inc. and U-Haul -------------- ------------------------------------- Co. of California. This action did not include AFMs, but did purport to be - ----------------- brought on behalf of GMs and GM trainees. These cases were consolidated by the Court in Los Angeles on October 15, 1998. On June 10, 1999, Plaintiff's motion to certify the AFMs as a class was denied and the motion to certify the GMs as a class was granted. Notice of certification was mailed on or about August 24, 1999. The class opt-out period ended on October 11, 1999. The case was bifurcated and the liability portion of the case was tried to the Court beginning in November 2000. The Court found for the Plaintiffs on January 8, 2001. The damage portion of the case will be tried to the Court beginning April 9, 2001. Management does not expect the Plaintiffs' damage claims to result in a material loss; however, there remains the possibility that an adverse outcome could have a material adverse effect on AMERCO's results of operations for the year in which the judgment is rendered. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation (1) 3.2 Restated By-Laws of AMERCO as of August 27, 1997 (2) 10.1 Management Agreement between Fifteen SAC Self Storage Corporation and a subsidiary of AMERCO 10.2 Management Agreement between Sixteen SAC Self Storage Corporation and a subsidiary of AMERCO (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended December 31, 2000. _________________ (1) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 1-11255. (2) Incorporated by reference to AMERCO's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, file no. 1-11255. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U-Haul International, Inc. ____________________________________ (Registrant) Dated: February 13, 2001 By: /S/ DONALD W. MURNEY ____________________________________ Donald W. Murney, Treasurer (Principal Financial Officer) EX-10.1 2 pma15.txt PROPERTY MANAGEMENT AGREEMENT WITH FIFTEEN SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of January 29, 2001 among Fifteen SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A attached hereto and --------- incorporated herein by reference (each such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the real property and self-storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by- space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) [RESERVED]. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMEHT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A hereto. Each property manager agrees that its --------- monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of-pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non-exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Fifteen SAC Self-Storage Corporation, a Nevada corporation By: /S/ Mark V. Shoen ________________________ Mark V. Shoen, President U-Haul Co. of California, Inc. By: /S/ Donald Wm. Murney ___________________________ Donald Wm. Murney, Treasurer U-Haul Co. of Massachusetts, Inc. By: /S/ Donald Wm. Murney __________________________ Donald Wm. Murney, Treasurer U-Haul Co. of New York, Inc. By: /S/ Donald Wm. Murney __________________________ Donald Wm. Murney, Treasurer U-Haul Co of New Jersey, Inc. By: /S/ Donald Wm. Murney __________________________ Donald Wm. Murney, Treasurer U-Haul Co. of Texas, Inc. By: /S/ Donald Wm. Murney ___________________________ Donald Wm. Murney, Treasurer U-Haul Co of Connecticut, Inc. By: /S/ Donald Wm. Murney ___________________________ Donald Wm. Murney, Treasurer U-Haul Co. of Arkansas, Inc. By: /S/ Donald Wm. Murney ____________________________ Donald Wm. Murney, Treasurer Exhibit A 884015 U-HAUL STORAGE 1301 ALOSTA AVENUE GLENDORA CA 91740 GLENDORA 837025 U-HAUL CENTER 6 MERRILL STREET SALISBURY MA 01952 OF SALISBURY 882053 U-HAUL STORAGE 3527 IVAR AVENUE ROSEMEAD CA 91770 IVAR AVENUE 882079 U-HAUL STORAGE 5600 BUSINESS AVENUE CLAY NY 13041 BUSINESS AVENUE 882081 U-HAUL STORAGE 611 BLACKWOOD CLEMENTON CLEMENTON NJ 08024 LAURELWOOD 883002 U-HAUL STORAGE 7225 SOUTH HULEN FORT WORTH TX 76133 SOUTH HULEN 883082 U-HAUL STORAGE 3029 FAIRFIELD AVENUE BRIDGEPORT CT 06605 BLACK ROCK 884051 U-HAUL 1103 WEST 287 BYPASS WAXHACHIE TX 75165 WAXAHACHIE 884074 U-HAUL STORAGE 9302 INTERSTATE 30 LITTLE ROCK AR 72209 I-30 884076 U-HAUL STORAGE 2455 TARRANT ROAD GRAND PRAIRIE TX 75050 TARRANT ROAD EX-10.2 3 pma16.txt PROPERTY MANAGEMENT AGREEMENT WITH SIXTEEN SAC PROPERTY MANAGEMENT AGREEMENT ----------------------------- THIS PROPERTY MANAGEMENT AGREEMENT (this "Agreement") is entered into as of January 29, 2001 among Sixteen SAC Self-Storage Corporation, a Nevada corporation, with its principal place of business at 715 South Country Club Drive, Mesa, AZ 85210 ("Owner"), and the property managers identified on Exhibit A attached hereto and --------- incorporated herein by reference (each such property manager is respectively referred to herein as "U-Haul"). RECITALS -------- A. Owner owns the real property and self-storage related improvements thereon located at the street addresses identified on Exhibit A hereto (hereinafter, collectively the "Property"). B. Owner intends that the Property be rented on a space-by- space retail basis to corporations, partnerships, individuals and/or other entities for use as self-storage facilities. C. Owner desires that U-Haul manage the Property and U-Haul desires to act as the property manager for the Property, all in accordance with the terms and conditions of this Agreement and as more specifically designated on Exhibit A hereto. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Owner and U-Haul hereby agree as follows. 1. Employment. ---------- (a) Owner hereby retains U-Haul, and U-Haul agrees to act as manager of the Property upon the terms and conditions hereinafter set forth. (b) Owner acknowledges that U-Haul, and/or U-Haul affiliates, is in the business of managing self-storage facilities, both for its own account and for the account of others. It is hereby expressly agreed that notwithstanding this Agreement, U-Haul and such affiliates may continue to engage in such activities, may manage facilities other than those presently managed by U-Haul and its affiliates (whether or not such other facilities may be in direct or indirect competition with Owner) and may in the future engage in other business which may compete directly or indirectly with activities of Owner. (c) In the performance of their respective duties under this Agreement, each U-Haul property manager shall occupy the position of an independent contractor with respect to Owner. Nothing contained herein shall be construed as making the parties hereto (or any of them) partners or joint venturors, nor (except as expressly otherwise provided for herein) construed as making U-Haul an agent or employee of Owner or of any other U-Haul property manager hereunder. 2. Duties and Authority of U-Haul. ------------------------------ (a) GENERAL DUTIES AND AUTHORITY. Subject only to the restrictions and limitations provided in paragraphs (o) and (p) of this Section 2 and the right of Owner to terminate this Agreement as provided in Section 6 hereof, U-Haul shall have the sole and exclusive authority to fully manage the Property and supervise and direct the business and affairs associated or related to the daily operation thereof, and, to that end on behalf of Owner, to execute such documents and instruments as, in the sole judgment of U-Haul, are reasonably necessary or advisable under the circumstances in order to fulfill U-Haul's duties hereunder. Such duties and authority shall include, without limitation, those set forth below. (b) RENTING OF THE PROPERTY. U-Haul shall establish policies and procedures for the marketing activities for the Property, and may advertise the Property through such media as U-Haul deems advisable, including, without limitation, advertising with the Yellow Pages. U-Haul shall have the sole discretion, which discretion shall be exercised in good faith, to establish the terms and conditions of occupancy by the tenants of the Property, and U-Haul is hereby authorized to enter into rental agreements on behalf and for the account of Owner with such tenants and to collect rent from such tenants. U-Haul may jointly advertise the Property with other properties owned or managed by U-Haul, and in that event, U-Haul shall reasonably allocate the cost of such advertising among such properties. (c) REPAIR, MAINTENANCE AND IMPROVEMENTS. U-Haul shall make, execute, supervise and have control over the making and executing of all decisions concerning the acquisition of furniture, fixtures and supplies for the Property, and may purchase, lease or otherwise acquire the same on behalf of Owner. U-Haul shall make and execute, or supervise and have control over the making and executing of all decisions concerning the maintenance, repair, and landscaping of the Property. U-Haul shall, on behalf of Owner, negotiate and contract for and supervise the installation of all capital improvements related to the Property; provided, however, that U-Haul agrees to secure the prior written approval of Owner on all such expenditures in excess of $5,000.00 for any one item, except monthly or recurring operating charges and/or emergency repairs if in the opinion of U-Haul such emergency-related expenditures are necessary to protect the Property from damage or to maintain services to the tenants as called for in their respective leases. (d) PERSONNEL. U-Haul shall select all vendors, suppliers, contractors, subcontractors and employees with respect to the Property and shall hire, discharge and supervise all labor and employees required for the operation and maintenance of the Property. Any employees so hired shall be employees of U-Haul, and shall be carried on the payroll of U-Haul. Employees may include, but will not be limited to, on-site resident managers, on-site assistant managers, and relief managers located, rendering services, or performing activities on the Property in connection with its operation and management. The cost of employing such persons shall not exceed prevailing rates for comparable persons performing the same or similar services with respect to real estate similar to the Property. (e) AGREEMENTS. U-Haul shall negotiate and execute on behalf of Owner such agreements which U-Haul deems necessary or advisable for the furnishing of utilities, services, concessions and supplies, for the maintenance, repair and operation of the Property and such other agreements which may benefit the Property or be incidental to the matters for which U-Haul is responsible hereunder. (f) OTHER DECISIONS. U-Haul shall make all decisions in connection with the daily operation of the Property. (g) REGULATIONS AND PERMITS. U-Haul shall comply in all material respects with any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body, having jurisdiction over the Property, respecting the use of the Property or the maintenance or operation thereof. U-Haul shall apply for and attempt to obtain and maintain, on behalf of Owner, all licenses and permits required or advisable (in the sole judgment of U-Haul) in connection with the management and operation of the Property. (h) RECORDS AND REPORTS OF DISBURSEMENTS AND COLLECTIONS. U-Haul shall establish, supervise, direct and maintain the operation of a system of record keeping and bookkeeping with respect to all receipts and disbursements in connection with the management and operation of the Property. The books, records and accounts shall be maintained at the U-Haul office or at such other location as U-Haul shall determine, and shall be available and open to examination and audit quarterly by Owner, its representatives, any mortgagee of the Property, and such mortgagee's representative. On or before thirty (30) days after the close of each quarter, U-Haul shall cause to be prepared and delivered to Owner, a monthly statement of receipts, expenses and charges, together with a statement of the disbursements made by U-Haul during such period on Owner's behalf. (i) [Reserved]. (j) COLLECTION. U-Haul shall be responsible for the billing and collection of all accounts receivable and for payment of all accounts payable with respect to the Property and shall be responsible for establishing policies and procedures to minimize the amount of bad debts. (k) LEGAL ACTIONS. U-Haul shall cause to be instituted, on behalf and in the name of Owner, any and all legal actions or proceedings U-Haul deems necessary or advisable to collect charges, rent or other income due to Owner with respect to the Property and to oust or dispossess tenants or other persons unlawfully in possession under any lease, license concession agreement or otherwise, and to collect damages for breach thereof or default thereunder by such tenant, licensee, concessionaire or occupant. (l) INSURANCE. U-Haul shall use its best efforts to assure that there is obtained and maintained in force, fire, comprehensive liability and other insurance policies in amounts generally carried with respect to similar facilities. U-Haul may in its discretion obtain employee theft or similar insurance in amounts and with such deductibles as U-Haul deems appropriate. U-Haul shall promptly provide Owner with such certificates of insurance as Owner may reasonably request in writing, evidencing such insurance coverage. (m) TAXES. During the term of this Agreement, U-Haul shall pay from Owner's funds, prior to delinquency, all real estate taxes, personal property taxes, and all other taxes assessed to, or levied upon, the Property. If required by the holder of any note secured by the Property, U-Haul will set aside, from Owner's funds, a reserve from each month's rent and other income collected, in an amount required by said holder for purposes of payment of real property taxes. (n) [RESERVED]. (o) LIMITATIONS ON U-HAUL AUTHORITY. Notwithstanding anything to the contrary set forth in this Section 2, U-Haul shall not, without obtaining the prior written consent of Owner, (i) rent storage space in the Property by written lease or agreement for a stated term in excess of one year, (ii) alter the building or other structures of the Property in any material manner; (iii) make any other agreements which exceed a term of one year and are not terminable on thirty day's notice at the will of Owner, without penalty, payment or surcharge; (iv) act in violation of any law; or (v) act in violation of any duty or responsibility of Owner under any mortgage loan secured by the Property. (p) SHARED EXPENSES. Owner acknowledges that certain economies may be achieved with respect to certain expenses to be incurred by U-Haul on behalf of Owner hereunder if materials, supplies, insurance or services are purchased by U-Haul in quantity for use not only in connection with the Property but in connection with other properties owned or managed by U-Haul or its affiliates. U-Haul shall have the right to purchase such materials, supplies, insurance and/or services in its own name and charge Owner a pro rata allocable share of the cost of the foregoing; provided, however, that the pro rata cost of such purchase to Owner shall not result in expenses greater than would otherwise be incurred at competitive prices and terms available in the area where the Property is located; and provided further, U-Haul shall give Owner access to records so Owner may review any such expenses incurred. (q) DEPOSIT OF GROSS REVENUES. All Gross Revenues (as hereinafter defined) shall be deposited into a trust bank account maintained by U-Haul (or its parent company) as trustee for the benefit of the Owner. To the extent that the Gross Revenues are deposited into a collective trust account maintained by U-Haul (or its parent company) for the benefit of multiple property owners, such trust account will clearly identify the beneficiaries and U-Haul (or its parent company) shall reconcile such account daily and maintain such records as shall clearly identify each day the respective interest of each beneficiary in such collective trust account. Gross Revenues of the Owner shall be applied first to the repayment of Owner's senior debt with respect to the Property, and then to U-Haul in reimbursement of expenses and for management fees as provided under Section 4 below. 3. Duties of Owner. --------------- Owner hereby agrees to cooperate with U-Haul in the performance of U-Haul's duties under this Agreement and to that end, upon the request of U-Haul, to provide, at such rental charges, if any, as are deemed appropriate, reasonable office space for U-Haul employees on the premises of the Property and to give U-Haul access to all files, books and records of Owner relevant to the Property. Owner shall not unreasonably withhold or delay any consent or authorization to U-Haul required or appropriate under this Agreement. 4. Compensation of U-Haul. ---------------------- (a) MANAGEMENT FEE. Owner shall pay to U-Haul as the full amount due for the services herein provided a fee (the "Management Fee") equal to six percent (6%) of the "Gross Revenue" derived from or connected with the Property so managed by U-Haul hereunder. The term "Gross Revenue" shall mean all receipts (excluding security deposits unless and until Owner recognizes the same as income) of Owner (whether or not received by U-Haul on behalf or for the account of Owner) arising from the operation of the Property, including without limitation, rental payments of lessees of space in the Property, vending machine or concessionaire revenues, maintenance charges, if any, paid by the tenants of the Property in addition to basic rent, parking fees, if any, and all monies whether or not otherwise described herein paid for the use of the Property. "Gross Revenue" shall be determined on a cash basis. The Management Fee shall be paid promptly at the end of each calendar quarter and shall be calculated on the basis of the "Gross Revenue" of such preceding quarter. The Management Fee shall be paid to each U-Haul property manager herein identified based on the Gross Revenue of each respective Property for which such property manager is responsible as set forth on Exhibit A hereto. Each property manager agrees that its --------- monthly Management Fee shall be subordinate to that month's principal balance and interest payment on any first lien position mortgage loan on the Property. It is understood and agreed that the Management Fee will not be reduced by the cost to Owner of those employees and independent contractors engaged by or for Owner, including but not limited to the categories of personnel specifically referred to in Section 2(d). Except as provided in this Section 4, it is further understood and agreed that U-Haul shall not be entitled to additional compensation of any kind in connection with the performance by it of its duties under this Agreement. (b) REIMBURSEMENT OF CERTAIN EXPENSES. In addition to the Management Fee described above, U-Haul shall be entitled to reimbursement from Owner, on a quarterly basis, for all out-of-pocket expenses incurred by U-Haul hereunder in connection with the management and operation of the Property, including, without limitation, taxes, insurance, operational expenses, overhead, litigation and dispute resolution related expenses, capital improvement expenses, and costs of sales. 5. Use of Trademarks, Service Marks and Related Items. -------------------------------------------------- Owner acknowledges the significant value of the "U-Haul" name in the operations of Owner's property and it is therefore understood and agreed that the name, trademark and service mark, "U-Haul", and related marks, slogans, caricatures, designs and other trade or service items shall be utilized for the non-exclusive benefit of Owner in the rental and operation of the Property, and in comparable operations elsewhere. It is further understood and agreed that this name and all such marks, slogans, caricatures, designs and other trade or service items shall remain and be at all times the property of U-Haul and its affiliates, and that, except during the term hereof and as expressly provided herein, Owner shall have no right whatsoever therein. Owner agrees that during the term of this agreement the sign faces at the property will have the name "U-Haul." The U-Haul sign faces will be paid for by Owner. Upon termination of this agreement at any time for any reason, all such use by and for the benefit of Owner of any such name, mark, slogan, caricature, design or other trade or service item in connection with the Property shall, in any event, be terminated and any signs bearing any of the foregoing shall be removed from view and no longer used by Owner. In addition, upon termination of this Agreement at any time for any reason, Owner shall not enter into any new leases of Property using the U-Haul lease form or use other forms prepared by U-Haul. It is understood and agreed that U-Haul will use and shall be unrestricted in its use of such name, mark, slogan, caricature, design or other trade or service item in the management and operation of other storage facilities both during and after the expiration or termination of the term of this Agreement. 6. Termination. ----------- Owner or U-Haul may terminate this Agreement with or without cause by giving not less than thirty days' written notice to the other party pursuant to Section 11 hereof. In addition, if Owner fails to pay U-Haul any amounts owed under this Agreement when due, U-Haul may terminate this Agreement by giving Owner not less than ten days written notice pursuant to Section 11 hereof. Notwithstanding the foregoing, however, U-Haul shall not resign as property manager of the Property until a nationally recognized and reputable successor property manager is available and prepared to assume property management responsibilities with respect to the Property in question Upon termination of this Agreement, U-Haul shall promptly return to Owner all monies, books, records and other materials held by U-Haul for or on behalf of Owner. In addition, if U-Haul has contracted to advertise the Property in the Yellow Pages, Owner shall, at the option of U-Haul, continue to be responsible for the cost of such advertisement and shall either (i) pay U-Haul the remaining amount due under such contract in a lump sum; or (ii) pay U-Haul monthly for the amount due under such contract. 7. Indemnification. --------------- Owner hereby agrees to indemnify and hold each of U-Haul, all persons and companies affiliated with U-Haul, and all officers, shareholders, directors, employees and agents of U-Haul and of any affiliated companies or persons (collectively, the "Indemnified Persons") harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages, and claims in connection with the management of the Property (including the loss of use thereof following any damage, injury or destruction), arising from any cause except for the willful misconduct or gross negligence on the part of the Indemnified Persons. In addition, no Indemnified Person shall be liable for any error of judgment or for any mistake of fact or law, or for anything which it may do or refrain from doing hereafter, except in cases of willful misconduct or gross negligence. U-Haul hereby agrees to indemnify and hold Owner harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments, damages and claims in connection with the management of the Property arising from the willful misconduct of, gross negligence of, or breach of this Agreement by the Indemnified Persons. In addition, U-Haul shall not be liable to Owner for the acts or omissions of U-Haul's officers, shareholders, directors, employees, and agents except for U-Haul's own gross negligence or willful misconduct. 8. Assignment. ---------- This Agreement may be assigned by Owner in connection with any mortgage loan on the Property, whether pursuant to a conditional or unconditional, absolute assignment. U-Haul shall have the right to assign this Agreement to an affiliate or a wholly or majority owned subsidiary; provided, however, any such assignee must assume all obligations of U-Haul hereunder, Owner's rights hereunder will be enforceable against any such assignee and U-Haul shall not be released from its liabilities hereunder unless Owner shall expressly agree thereto in writing. 9. Headings. -------- The headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10. Governing Law. ------------- The validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of Arizona. 11. Notices. ------- Any notice required or permitted herein shall be in writing and shall be personally delivered or mailed first class postage prepaid or delivered by an overnight delivery service to the respective addresses of the parties set forth below their signatures on the signature page thereof, or to such other address as any party may give to the other in writing. Any notice required by this Agreement will be deemed to have been given when personally served or one day after delivery to an overnight delivery service or five days after deposit in the first class mail. 12. Severability. ------------ Should any term or provision hereof be deemed invalid, void or unenforceable either in its entirety or in a particular application, the remainder of this Agreement shall nonetheless remain in full force and effect and, if the subject term or provision is deemed to be invalid, void or unenforceable only with respect to a particular application, such term or provision shall remain in full force and effect with respect to all other applications. 13. Successors. ---------- This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest. 14. Attorneys' Fees. --------------- If it shall become necessary for any party hereto to engage attorneys to institute legal action for the purpose of enforcing their respective rights hereunder or for the purpose of defending legal action brought by the other party hereto, the party or parties prevailing in such litigation shall be entitled to receive all costs, expenses and fees (including reasonable attorneys' fees) incurred by it in such litigation (including appeals). 15. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Scope of Property Manager Responsibility. ---------------------------------------- The duties, obligations and liability of each property manager identified herein shall extend only so far as to relate to the Property for which such property manager is managing located in the domicile state of such property manager, as more specifically described on Exhibit A hereto, and no individual property manager hereunder shall be liable for the acts or omissions of any other property manager hereunder. Each property manager shall use its best efforts to assist Owner in fulfilling Owner's obligations arising under any loan to Owner that is secured by the Property, including but not limited to preparing and providing financial and accounting reports, and maintaining the Property. Each property manager agrees that it will perform its obligations hereunder according to reasonable industry standards, in good faith, and in a commercially reasonable manner. U-Haul agrees that, in discharging its duties hereunder, it will not have any relationship with any of its affiliates that would be less favorable to Owner than would reasonably be available in a transaction with an unaffiliated party. [Rest of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first above written. "Owner" Sixteen SAC Self-Storage Corporation, a Nevada corporation By: /S/ MARK V. SHOEN --------------------------- Mark V. Shoen, President U-Haul Co. of Arizona, Inc. By: /S/ DONALD WM. MURNEY /S/ WILLIAM C. COLEMAN 1/30/2001 --------------------------- -------------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of New York, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of New Jersey, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of California, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of Texas, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of Connecticut, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer U-Haul Co. of Missouri, Inc. By: /S/ DONALD WM. MURNEY --------------------------- Donald Wm. Murney, Treasurer Exhibit A 882061 U-HAUL 500 NORTH SCOTTSDALE ROAD SCOTTSDALE AZ 85281 RIO SALADO 882080 U-HAUL STORAGE 2055 RIDGEWAY AVENUE GREECE NY 14616 RIDGEWAY AVENUE 882083 U-HAUL STORAGE 94 CONNECTICUT DRIVE BURLINGTON NJ 08016 BURLINGTON 882089 U-HAUL STORAGE 36 NORTH SYCAMORE AVENUE PASADENA CA 91107 SYCAMORE AVE 883001 U-HAUL STORAGE 6404 BROWNING DRIVE FORT WORTH TX 76181 RUFE SNOW 884014 U-HAUL STORAGE 3401 ALMA DRIVE PLANO TX 75023 ALMA 709022 U-HAUL CENTER 6201-6261 WHITE LANE BAKERSFIELD CA 93309 WHITE LANE 884025 U-HAUL STORAGE 1200 NEWFIELD STREET (RT MIDDLETOWN CT 06457 MIDDLETOWN 884061 U-HAUL STORAGE 7741-43 ECKHART ROAD SAN ANTONIO TX 78240 WESTCHASE 884063 U-HAUL STORAGE 2101 S KINGSHWY BLVD ST. LOUIS MO 63110 SOUTHSIDE -----END PRIVACY-ENHANCED MESSAGE-----