<PAGE 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, 1997 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. _______________________________________________________________________ 0-7862 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (702) 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 [ ]. 22,614,087 shares of AMERCO Common Stock, $0.25 par value, were outstanding at February 12, 1998. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at February 12, 1998. 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. <PAGE 2> TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. a) Consolidated Balance Sheets as of December 31, 1997, March 31, 1997 and December 31, 1996................... 4 b) Consolidated Statements of Earnings for the Nine months ended December 31, 1997 and 1996................ 6 c) Consolidated Statements of Changes in Stockholders' Equity for the Nine months ended December 31, 1997 and 1996............................................... 7 d) Consolidated Statements of Earnings for the Quarters ended December 31, 1997 and 1996.............. 8 e) Consolidated Statements of Cash Flows for the Nine months ended December 31, 1997 and 1996................ 9 f) Notes to Consolidated Financial Statements - December 31, 1997, March 31, 1997 and December 31, 1996...................................... 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................... 26 <PAGE 3> THIS PAGE LEFT INTENTIONALLY BLANK <PAGE 4> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets December 31, March 31, December 31, ASSETS 1997 1997 1996 ------------------------------------ (unaudited) (audited) (unaudited) (in thousands) Cash and cash equivalents $ 31,822 41,752 20,873 Receivables 251,064 238,523 237,866 Inventories 78,242 65,794 54,857 Prepaid expenses 30,379 17,264 16,922 Investments, fixed maturities 864,321 859,694 885,865 Investments, other 147,545 127,306 117,684 Deferred policy acquisition costs 41,257 48,598 52,919 Other assets 73,355 72,997 68,240 ------------------------------------ Property, plant and equipment, at cost: Land 208,334 209,803 215,566 Buildings and improvements 830,747 814,744 811,008 Furniture and equipment 208,374 199,126 196,248 Rental trailers and other rental equipment 179,733 170,407 171,143 Rental trucks 1,041,591 947,911 940,701 ------------------------------------ 2,468,779 2,341,991 2,334,666 Less accumulated depreciation 1,128,819 1,094,925 1,088,618 ------------------------------------ Total property, plant and equipment 1,339,960 1,247,066 1,246,048 ------------------------------------ $ 2,857,945 2,718,994 2,701,274 ==================================== The accompanying notes are an integral part of these consolidated financial statements. <PAGE 5> December 31, March 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997 1996 ------------------------------------ (unaudited) (audited) (unaudited) (in thousands) Liabilities: Accounts payable and accrued liabilities $ 94,284 131,099 106,518 Notes and loans 1,074,409 983,550 933,410 Policy benefits and losses, claims and loss expenses payable 493,003 469,134 484,254 Liabilities from premium deposits 423,777 433,397 435,838 Cash overdraft 24,978 23,606 24,620 Other policyholders' funds and liabilities 26,695 30,966 31,663 Deferred income 42,803 35,247 33,991 Deferred income taxes 39,944 9,675 18,009 ------------------------------------ Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized - Series A preferred stock, with no par value, 6,100,000 shares issued and outstanding as of December 31, 1997, March 31, 1997 and December 31, 1996 - - - Series B preferred stock, with no par value, 100,000 shares issued and outstanding as of December 31, 1997, March 31, 1997 and December 31, 1996 - - - Serial common stock, with or without par value, 150,000,000 shares authorized - Series A common stock of $0.25 par value, 10,000,000 shares authorized, 5,762,495 shares issued as of December 31, 1997, March 31, 1997, and December 31, 1996 1,441 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized, 36,487,505 shares issued as of December 31, 1997, March 31, 1997 and December 31, 1996 9,122 9,122 9,122 Additional paid-in capital 337,444 337,933 338,528 Foreign currency translation adjustment (16,992) (14,133) (13,282) Unrealized gain on investments 7,749 4,411 1,614 Retained earnings 677,078 644,009 665,210 ------------------------------------ 1,015,842 982,783 1,002,633 Less: Cost of common shares in treasury, (19,635,913 shares as of December 31, 1997, March 31, 1997, and December 31, 1996) 359,723 359,723 348,923 Unearned employee stock ownership plan shares 18,067 20,740 20,739 ------------------------------------ Total stockholders' equity 638,052 602,320 632,971 Contingent liabilities and commitments $ 2,857,945 2,718,994 2,701,274 ==================================== <PAGE 6> AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Nine months ended December 31, (Unaudited) 1997 1996 ---------------------- (in thousands except per share data) Revenues Rental revenue $ 811,191 781,193 Net sales 143,866 141,728 Premiums 119,890 116,671 Net investment income 36,388 36,802 ---------------------- Total revenues 1,111,335 1,076,394 Costs and expenses Operating expense 683,240 673,728 Cost of sales 82,312 84,305 Benefits and losses 130,914 109,156 Amortization of deferred acquisition costs 10,679 12,404 Depreciation, net 59,880 51,186 ---------------------- Total costs and expenses 967,025 930,779 Earnings from operations 144,310 145,615 Interest expense, net of interest income of $10,307 and $21,402 in 1997 and 1996, respectively 49,301 35,060 ---------------------- Pretax earnings from operations 95,009 110,555 Income tax expense (32,169) (40,347) ---------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 62,840 70,208 Extraordinary loss on early extinguishment of debt, net (13,984) (2,319) ---------------------- Net earnings $ 48,856 67,889 ====================== Earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.15 2.17 Extraordinary loss on early extinguishment of debt, net (.64) (.09) ---------------------- Net earnings $ 1.51 2.08 ====================== Weighted average common shares outstanding 21,890,250 26,683,455 ====================== The accompanying notes are an integral part of these consolidated financial statements. <PAGE 7> AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Nine months ended December 31, (Unaudited) 1997 1996 ------------------- (in thousands) Series A common stock of $0.25 par value: 10,000,000 shares authorized, 5,762,495 shares issued as of December 31, 1997, March 31, 1997 and December 31, 1996 Beginning and end of period $ 1,441 1,441 ------------------ Common stock of $0.25 par value: 150,000,000 shares authorized, 36,487,505 shares issued as of December 31, 1997, March 31, 1997 and December 31, 1996 Beginning of period 9,122 8,559 Issuance of common stock - 563 ------------------ End of period 9,122 9,122 ------------------ Additional paid-in capital: Beginning of period 337,933 165,756 Issuance of common stock under ESOP 511 485 Issuance of common stock - 73,665 Issuance of preferred stock (1,000) 98,622 ------------------ End of period 337,444 338,528 ------------------ Foreign currency translation: Beginning of period (14,133) (11,877) Change during period (2,859) (1,405) ------------------ End of period (16,992) (13,282) ------------------ Unrealized gain (loss) on investments: Beginning of period 4,411 11,097 Change during period 3,338 (9,483) ------------------ End of period 7,749 1,614 ------------------ Retained earnings: Beginning of period 644,009 609,019 Net earnings 48,856 67,889 Dividends paid to stockholders: Preferred stock Series A ($1.59 per share) (9,723) (9,723) Preferred stock Series B($60.64 per share for 1997 and $19.75 per share for 1996) (6,064) (1,975) ------------------ End of period 677,078 665,210 ------------------ Less Treasury stock: Beginning of period 359,723 111,118 Net increase (12,426,836 shares in 1996) - 237,805 ------------------ End of period 359,723 348,923 ------------------ Less Unearned employee stock ownership plan shares: Beginning of period 20,740 23,329 Increase in loan 4 1 Proceeds from loan (2,677) (2,591) ------------------ End of period 18,067 20,739 ------------------ Total stockholders' equity $ 638,052 632,971 ================== The accompanying notes are an integral part of these consolidated financial statements. <PAGE 8> AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Quarters ended December 31, (Unaudited) 1997 1996 ------------------------- (in thousands except per share data) Revenues Rental revenue $ 234,345 226,772 Net sales 35,401 34,536 Premiums 40,045 43,922 Net investment income 12,752 11,662 ------------------------ Total revenues 322,543 316,892 Costs and expenses Operating expense 221,410 227,670 Cost of sales 20,658 21,666 Benefits and losses 48,881 42,440 Amortization of deferred acquisition costs 3,556 4,347 Depreciation, net 20,607 19,447 ------------------------ Total costs and expenses 315,112 315,570 Earnings from operations 7,431 1,322 Interest expense, net of interest income of $3,243 and $2,765 in 1997 and 1996, respectively 15,657 17,346 ------------------------ Pretax loss from operations (8,226) (16,024) Income tax expense 2,836 6,486 ------------------------ Loss from operations before extraordinary loss on early extinguishment of debt (5,390) (9,538) Extraordinary loss on early extinguishment of debt, net (9,846) (315) ------------------------ Net loss $ (15,236) (9,853) ======================== Loss per common share: Loss from operations before extraordinary loss on early extinguishment of debt $ (.49) (.72) Extraordinary loss on early extinguishment of debt, net (.45) (.02) ------------------------ Net loss $ (.94) (.74) ======================== Weighted average common shares outstanding 21,901,521 20,359,869 ======================== The accompanying notes are an integral part of these consolidated financial statements. <PAGE 9> AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Nine months ended December 31, (Unaudited) 1997 1996 --------------------- (in thousands) Cash flows from operating activities: Net earnings $ 48,856 67,889 Depreciation and amortization 92,184 71,813 Provision for losses on accounts receivable 3,496 2,791 Net (gain) loss on sale of real and personal property (667) (6,461) Gain on sale of investments (315) (173) Changes in policy liabilities and accruals 37,431 24,146 Additions to deferred policy acquisition costs (4,890) (11,873) Net change in other operating assets and liabilities (48,252) (56,759) -------------------- Net cash provided by operating activities 127,843 91,373 -------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (317,189) (159,744) Fixed maturities (94,451) (132,855) Equity investments (24,500) - Mortgage loans (13,380) (18,939) Real estate - (767) Proceeds from sale of investments: Property, plant and equipment 163,503 214,411 Fixed maturities 95,562 106,564 Real estate 685 599 Mortgage loans 15,222 35,525 Changes in other investments 1,793 (931) -------------------- Net cash provided (used) by investing activities (172,755) 43,863 -------------------- Cash flows from financing activities: Net change in short-term borrowings 171,500 (328,000) Proceeds from notes 300,000 487,800 Debt issuance costs (1,936) (4,724) Loan to leveraged Employee Stock Ownership Plan (4) (1) Proceeds from leveraged Employee Stock Ownership Plan 2,677 2,591 Extraordinary loss on early extinguishment of debt, net (13,984) (2,319) Principal payments on notes (380,641) (224,610) Issuance of common stock - 74,228 Issuance of preferred stock (1,000) 98,622 Net change in cash overdraft 1,372 (7,539) Dividends paid (15,787) (11,698) Treasury stock acquisitions - (237,805) Investment contract deposits 17,990 51,162 Investment contract withdrawals (45,205) (43,238) -------------------- Net cash provided (used) by financing activities 34,982 (145,531) -------------------- Increase (decrease) in cash and cash equivalents (9,930) (10,295) Cash and cash equivalents at beginning of period 41,752 31,168 -------------------- Cash and cash equivalents at end of period $ 31,822 20,873 ==================== The accompanying notes are an integral part of these consolidated financial statements. <PAGE 10> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1997, March 31, 1997 and December 31, 1996 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AMERCO, a Nevada corporation (the Company), is the holding company for U-Haul International, Inc. (U-Haul), Amerco Real Estate Company (AREC), Republic Western Insurance Company (RWIC) and Oxford Life Insurance Company (Oxford). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its subsidiaries, substantially all of which are wholly-owned. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The consolidated balance sheets as of December 31, 1997 and 1996, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the quarters ended December 31, 1997 and 1996 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such 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 significantly affect consolidated financial position or results of operations for the financial statements presented herein. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual financial statements and notes. Property, plant and equipment are carried at cost and are depreciated on the straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance is charged to operating expenses as incurred, while renewals and betterments are capitalized. Major overhaul costs are amortized over the estimated period benefited. Gains and losses on dispositions are netted against depreciation expense when realized. Basic earnings per share are computed by dividing net earnings after deduction of preferred stock dividends by the weighted average number of common shares outstanding, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of the Company. The Company does not have any potential common stock that was not included in the calculation of diluted earnings per share because it is antidilutive in the current period. Certain reclassifications have been made to the financial statements for the nine months ended December 31, 1996 to conform with the current year's presentation. <PAGE 11> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows: September 30, 1997 - ------------------ 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 $ 16,663 $ 16,499 1,154 (9) 17,644 U.S. government agency mortgage- backed securities $ 46,128 45,886 495 (1,174) 45,207 Obligations of states and political subdivisions $ 28,170 27,995 1,311 (2) 29,304 Corporate securities $ 162,740 166,435 4,136 (591) 169,980 Mortgage-backed securities $ 107,256 105,844 1,767 (757) 106,854 Redeemable preferred stocks 1,343 38,426 832 (75) 39,183 ---------------------------------------- 401,085 9,695 (2,608) 408,172 ---------------------------------------- September 30, 1997 - ------------------ Par Value Gross Gross Estimated Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ------------------------------------------------------ U.S. treasury securities and government obligations $ 11,685 11,757 900 - 12,657 U.S. government agency mortgage- backed securities $ 29,359 28,776 900 (4) 29,672 States, municipalities and political subdivisions $ 15,880 16,271 629 (54) 16,846 Corporate securities $ 299,952 302,766 9,910 (1,071) 311,605 Mortgage-backed securities $ 75,157 74,685 2,384 (128) 76,941 Redeemable preferred stocks 571 14,869 646 - 15,515 ---------------------------------------- 449,124 15,369 (1,257) 463,236 ---------------------------------------- Total $ 850,209 25,064 (3,865) 871,408 ======================================== In February 1997, the Company, through its insurance subsidiaries, invested in the equity of a limited partnership in a Texas-based self-storage corporation. RWIC invested $13,500,000 in exchange for a 27.3% limited partnership and Oxford invested $11,000,000 in exchange for a 22.2% limited partnership. U-Haul is a 50% owner of a corporation which is a general partner in the Texas-based self-storage corporation. The Company has a $10,000,000 note receivable from the corporation. <PAGE 12> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES A summary consolidated balance sheet for RWIC is presented below: September 30, --------------------- 1997 1996 --------------------- (in thousands) Investments - fixed maturities $ 413,196 395,365 Other investments 22,571 11,535 Receivables 119,367 130,285 Deferred policy acquisition costs 5,663 10,342 Due from affiliate 33,020 52,747 Deferred federal income taxes 17,531 17,573 Other assets 18,917 7,939 ------------------- Total assets $ 630,265 625,786 =================== Policy liabilities and accruals $ 361,146 339,542 Unearned premiums 50,586 66,433 Other policyholders' funds and liabilities 23,028 24,544 ------------------- Total liabilities 434,760 430,519 Stockholder's equity 195,505 195,267 ------------------- Total liabilities and stockholder's equity $ 630,265 625,786 =================== A summarized consolidated income statement for RWIC is presented below: Nine months ended September 30, ------------------------------- 1997 1996 ------------------------------- (in thousands) Premiums $ 118,753 108,432 Net investment income 23,222 22,742 ----------------------- Total revenue 141,975 131,174 Benefits and losses 113,749 92,330 Amortization of deferred policy acquisition costs 6,466 7,393 Other expenses 19,902 18,587 ----------------------- Income from operations 1,858 12,864 Federal income tax expense (35) (3,830) ----------------------- Net income $ 1,823 9,034 ======================= <PAGE 13> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF INSURANCE SUBSIDIARIES, continued A summary consolidated balance sheet for Oxford is presented below: September 30, --------------------- 1997 1996 --------------------- (in thousands) Investments - fixed maturities $ 451,125 490,500 Other investments 102,467 84,839 Receivables 12,357 14,906 Deferred policy acquisition costs 35,594 42,577 Due from affiliate 260 112 Other assets 1,667 2,318 ------------------- Total assets $ 603,470 635,252 =================== Policy liabilities and accruals $ 81,271 78,478 Premium deposits 423,777 435,838 Other policyholders' funds and liabilities 5,524 10,758 Deferred taxes 10,457 9,751 ------------------- Total liabilities 521,029 534,825 Stockholder's equity 82,441 100,427 ------------------- Total liabilities and stockholder's equity $ 603,470 635,252 =================== A summarized consolidated income statement for Oxford is presented below: Nine months ended September 30, ------------------------------- 1997 1996 ------------------------------- (in thousands) Premiums $ 19,259 21,276 Net investment income 13,400 13,949 ----------------------- Total revenue 32,659 35,225 Benefits and losses 17,165 16,826 Amortization of deferred policy acquisition costs 4,213 5,011 Other expenses 4,063 4,618 ----------------------- Income from operations 7,218 8,770 Federal income tax expense (2,036) (3,094) ----------------------- Net income $ 5,182 5,676 ======================= On November 18, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore) for $11,569,000. Encore's primary subsidiary is North American Insurance Company (NAI). NAI is an insurance company domiciled in the state of Wisconsin whose premium volume is primarily derived from the sale of credit life and disability products. On November 24, 1997 Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company for $2,243,000, domiciled in the state of Texas, whose premium volume is derived from the sale of credit life and disability products. These purchases greatly increase Oxford's distribution channels and enhance administrative capabilities in these markets. <PAGE 14> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 4. NOTES AND LOANS During the second quarter of fiscal 1998, the Company extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal 1999 through fiscal 2002. This resulted in an extraordinary loss of $4.1 million, net of tax of $2.3 million ($0.19 per share). In October 1997, the Company issued $300.0 million of Bond Back Asset Trust Certificates (BATs). The net proceeds were used to initially prepay floating rate indebtedness of the Company under revolving credit agreements. Subsequent to the funding of the BATs, the Company extinguished $256.0 million of 6.61% to 8.13% interest-bearing notes originally due in fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss of $9.8 million, net of tax of $5.4 million ($0.45 per share). During the second quarter of fiscal 1997, the Company extinguished $76.3 million of debt and $86.2 million of long-term notes originally due in fiscal 1997 through fiscal 1999. This resulted in an extraordinary loss of $2.3 million, net of tax of $1.4 million ($0.09 per share). 5. CONTINGENT LIABILITIES AND COMMITMENTS During the nine months ended December 31, 1997, a subsidiary of U-Haul entered into eighteen transactions, whereby the Company sold rental trucks and subsequently leased back. The Company has guaranteed $25,884,000 of residual values for these assets at the end of the respective lease terms. U-Haul also entered into two transactions, whereby the Company sold and subsequently leased back computer equipment. Following are the lease commitments for the leases executed during the nine months ended December 31, 1997, which have a term of more than one year (in thousands): Year ended Lease March 31, Commitments ------------------------------ 1998 $ (5,330) 1999 (5,735) 2000 (5,735) 2001 4,262 2002 11,766 Thereafter 39,007 -------- $ 38,235 ======== During the nine months ended December 31, 1997, the Company has reduced future lease commitments by $83,713,000 through early termination of certain leases. Residual value guarantees were also reduced by $14,301,000 in connection with the terminations. In the normal course of business, the Company is a defendant in a number of suits and claims. The Company 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 the Company, individually or in the aggregate, are expected to result in a material loss. <PAGE 15> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 6. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Nine months ended December 31, 1997 1996 --------------------- (in thousands) Receivables $ (12,262) 86,194 ===================== Inventories $ (12,448) (8,966) ===================== Accounts payable and accrued liabilities $ (38,065) (82,175) ===================== Income taxes paid in cash amounted to $1,367,000 and $4,780,000 for the nine months ended December 31, 1997 and 1996, respectively. Interest paid in cash amounted to $59,009,000 and $55,631,000 for the nine months ended December 31, 1997 and 1996, respectively. 7. EARNINGS PER SHARE Basic earnings per share are computed based on the weighted average number of shares outstanding for the year and quarterly periods, excluding shares of the employee stock ownership plan that have not been committed to be released. Preferred dividends include undeclared or unpaid dividends of the Company. Net income is reduced for preferred dividends for purposes of the calculation. The Company does not have any potential common stock that was not included in the calculation of diluted earnings per share because it is antidilutive in the current period. The following table reflects the calculation of the earnings per share (in thousands except per share data): Nine months ended Quarters ended December 31, December 31, 1997 1996 1997 1996 ---------------------- ---------------------- Earnings from operations before extraordinary loss on early extinguishment of debt $ 62,840 70,208 (5,390) (9,538) Less dividends on preferred shares 15,863 12,321 5,292 5,203 ---------------------- ---------------------- 46,977 57,887 (10,682) (14,741) Extraordinary loss on early extinguishment of debt (13,984) (2,319) (9,846) (315) ---------------------- ---------------------- Net earnings for per share calculation $ 32,993 55,568 (20,528) (15,056) ====================== ====================== Net earnings for per share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.15 2.17 (.49) (.72) Extraordinary loss on early extinguishment of debt, net (.64) (.09) (.45) (.02) ---------------------- ---------------------- Net earnings $ 1.51 2.08 (.94) (.74) ====================== ====================== Weighted average common shares outstanding 21,890,250 26,683,455 21,901,521 20,359,869 ====================== ====================== <PAGE 16> AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 8. RELATED PARTIES During the nine months ended December 31, 1997, a subsidiary 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 the Company. The Company's subsidiary received principal payments of $3,725,000 and interest payments of $5,014,000 from SAC Holdings during the period. The Company currently manages the properties owned by SAC Holdings pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The Company received management fees of $1,387,000 during the nine months ended December 31, 1997. The management fee percentage is consistent with the fees received by the Company for other properties managed by the Company. 9. NEW ACCOUNTING STANDARDS On April 1, 1995, the Company implemented Statement of Position 93-7, "Reporting on Advertising Costs", issued by the Accounting Standards Executive Committee in December 1993. This statement of position provides guidance on financial reporting on advertising costs in annual financial statements. The Company is currently reviewing its implementation procedures. Other pronouncements issued by the Financial Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. 10. SUBSEQUENT EVENTS In January 1998, the Company redeemed 25,000 shares of its Series B Preferred Stock for $25,000,000. The shares were convertible under certain circumstances into 1,000,000 shares, subject to the Company's prior right to redeem the Series B Preferred Stock, of AMERCO's Common Stock. On February 3, 1998, the Company declared a cash dividend of $3,241,000 ($0.53125 per preferred share) to preferred stockholders of record as of February 13, 1998. <PAGE 17> ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table shows industry segment data from the Company's three primary industry segments: Moving and Storage Operations, Property and Casualty Insurance and Life Insurance. Moving and Storage Operations is composed of the operations of U-Haul, which consists of the rental of trucks, automobile-type trailers and self-storage space and sales of related products and services and AREC. Property and Casualty Insurance is composed of the operations of RWIC, which operates in various property and casualty lines. Life Insurance is composed of the operations of Oxford, which operates in various life, accident and health and annuity lines. The Company's U-Haul Moving and Storage Operations are seasonal and proportionately more of the Company's revenues and net earnings are generated in the first and second quarters of each fiscal year (April through September). Moving and Property and Adjustments Storage Casualty Life and Operations Insurance Insurance Eliminations Consolidated ----------------------------------------------------------- (in thousands) Nine months ended December 31, 1997 Revenues: Outside $ 954,823 124,771 31,741 - 1,111,335 Intersegment - 17,204 918 (18,122) - ---------------------------------------------------------- Total revenues 954,823 141,975 32,659 (18,122) 1,111,335 ========================================================== Operating profit $ 135,234 1,858 7,218 - 144,310 ============================================ Interest expense 49,301 -------- Pretax earnings from operations $ 95,009 ======== Identifiable assets $1,952,967 630,265 603,470 (328,757) 2,857,945 ========================================================== Moving and Property and Adjustments Storage Casualty Life and Operations Insurance Insurance Eliminations Consolidated ----------------------------------------------------------- (in thousands) Nine months ended December 31, 1996 Revenues: Outside $ 923,032 118,883 34,479 - 1,076,394 Intersegment - 12,291 746 (13,037) - ---------------------------------------------------------- Total revenues 923,032 131,174 35,225 (13,037) 1,076,394 ========================================================== Operating profit $ 123,981 12,864 8,770 - 145,615 ============================================ Interest expense 35,060 -------- Pretax earnings from operations $ 110,555 ======== Identifiable assets $1,769,568 625,786 635,252 (329,332) 2,701,274 ========================================================== <PAGE 18> NINE MONTHS ENDED DECEMBER 31, 1997 VERSUS NINE MONTHS ENDED DECEMBER 31, 1996 Moving and Storage Operations Revenues consist of rental revenues and net sales. Rental revenues increased by $30.0 million, approximately 3.8%, to $811.2 million in the first nine months of fiscal 1998. This increase primarily reflects the growth in truck rental revenues which benefited from transactional growth and higher average revenue per transaction. Net sales revenues were $143.9 million in the first nine months of fiscal 1998, which represents an increase of approximately 1.6% from the first nine months of fiscal 1997 net sales of $141.7 million. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in a $4.8 million increase during the first nine months of fiscal 1998, which was partially offset by a net decrease in revenue from other sales categories. Cost of sales was $82.3 million in the first nine months of fiscal 1998, which represents a decrease of approximately 2.4% from $84.3 million for the same period in fiscal 1997. Lower material costs associated with the sale of gasoline which corresponds to a $1.2 million decline in gasoline sales was primarily responsible for the decline. Operating expenses increased to $677.4 million in the first nine months of fiscal 1998 from $663.6 million in the first nine months of fiscal 1997, an increase of approximately 2.1%. The change from the prior year primarily reflects a $7.9 million increase in insurance costs due to increased cost of risk and higher rental activity and a $4.7 million increase in lease expense due to new leasing activity within the rental fleet and with storage facilities. Collectively, all other operating expense categories increased by $1.2 million, approximately 0.2%, to $540.5 million. Net depreciation expense for the first nine months of fiscal 1998 was $59.9 million, as compared to $51.2 million in the same period of the prior year. Property and Casualty RWIC's gross premium writings for the nine months ended September 30, 1997 were $129.8 million, as compared to $133.0 million in the nine months ended September 30, 1996. This represents a decrease of $3.2 million, or 2.4%. As in prior periods, the rental industry market accounts for a significant share of total premiums, approximately 53.9% and 47.9% in the nine months ended September 30, 1997 and 1996, respectively. These writings include U-Haul customers, fleetowners and U-Haul as well as other rental industry insureds with similar characteristics. RWIC continues underwriting professional reinsurance via broker markets. Premiums in this area decreased during the nine months ended 1997 to 27.6% of total gross premiums, from comparable 1996 figures of 27.9%, due to the timing of premium recognition. RWIC continues its direct multiple peril coverage of various commercial properties and businesses in 1997. These premiums accounted for 13.2% of the total gross premiums for the nine months ended September 30, 1997 as compared to 9.5% for the same period in 1996. The increase is the result of planned business expansion. Premium writings in selected general agency lines were 5.3% of total gross premium writings for the period ended September 30, 1997 as compared to 14.7% in the same period of 1996. This decrease resulted from the cancellation of a general agency agreement in November 1996. Net earned premiums increased $10.4 million, or 9.6%, to $118.8 million for the nine months ended September 30, 1997, compared with premiums of $108.4 million for the period ended September 30, 1996. The increase was primarily due to planned business expansion in the rental industry and direct multiple peril markets, offset by a decrease of $4.8 million in general agency and assumed treaty reinsurance segments. The rental industry markets increased to $69.6 million or 58.6% over comparable 1996 figures of $57.0 million or 52.6% of total net earned premiums. The expansion of the direct multiple peril line resulted in an increase of $2.5 million over 1996's net earned premiums of $9.9 million for the period. The 1997 decrease of $3.0 million in the general agency lines resulted from the cancellation of an agency agreement in November 1996. Net investment income was $23.2 million for the period ended September 30, 1997, an increase of 2.2% over 1996 net investment income of $22.7 million. The marginal increase resulted from an increase in the amount of preferred stock in RWIC's portfolio. <PAGE 19> Underwriting expenses incurred were $140.1 million for the nine months ended September 30, 1997, an increase of $21.8 million, or 18.4% over 1996. Comparable underwriting expenses incurred for the first nine months of 1996 were $118.3 million. The increase is attributed to increased commission expense and losses incurred. Increased commission expense on the rental industry and direct multiple peril markets resulted from the planned increase in premium writings and represents $1.8 million of the increase. Losses incurred increased $19.8 million in the rental industry, general agency lines, and assumed treaty reinsurance segments, offset by a decrease in the direct multiple peril markets. Approximately $18.2 million of the increase in losses incurred is attributable to all programs and result from an increase in liabilities for unpaid claims due to estimated future losses on current and prior business, a component of losses incurred. Increased net paid losses in the general agency, assumed treaty reinsurance and rental industry lines, were offset by a decrease in the direct multiple peril segment. All other underwriting expenses increased in the aggregate by $2.0 million. RWIC completed the nine months ended September 30, 1997 with income before tax expense of $1.9 million as compared to $12.9 million for the same period ended September 30, 1996. This represents a decrease of $11.0 million, or 85.3% over 1996. Increased premium earnings and marginal investment income were offset by increased underwriting expenses as discussed above. Life Insurance Premiums from Oxford's reinsurance lines before intercompany eliminations were $13.1 million for the nine months ended September 30, 1997, a decrease of $2.5 million, or approximately 16.0% over 1996, and accounted for 68.0% of Oxford's premiums for the nine months ended September 30, 1997. These premiums are primarily from term life insurance and deferred annuity reinsurance agreements. Decreases in premiums are primarily from the aging of these reinsurance agreements. Premiums from Oxford's direct lines before intercompany eliminations were $6.2 million premiums for the nine months ended September 30, 1997, an increase of $0.5 million or 8.8% from the same period of 1996. This increase in direct premium is primarily attributable to the Company's disability and group life business. Oxford's direct business related to group life and disability coverage issued to employees of the Company for the nine months ended September 30, 1997 accounted for approximately 9.8% of premiums. Other direct lines, including credit life and health business, accounted for approximately 22.2% of Oxford's premiums for the nine months ended September 30, 1997. Net investment income before intercompany eliminations was $13.4 million and $13.9 million for the nine months ended September 30, 1997 and 1996, respectively. This decrease is due to a lower asset base resulting from a dividend paid to Oxford's parent. Benefits and expenses incurred were $25.4 million for the nine months ended September 30, 1997 and $26.5 million for the nine months ended September 30, 1996. Operating profit before tax and before intercompany elimination decreased by $1.6 million, or approximately 18.2%, in 1997 to $7.2 million, primarily due to the decrease in premium income and lower asset base attributable to the dividend paid to Oxford's parent. Interest Expense, net Interest expense net of interest income increased by $14.2 million to $49.3 million for the nine months ended December 31, 1997, as compared to $35.1 million for the nine months ended December 31, 1996. The increase is attributed to lower levels of interest income in the current fiscal year. Extraordinary Loss on Extinguishment of Debt During the second quarter of fiscal 1998, the Company extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal 1999 through fiscal 2002. This resulted in an extraordinary loss of $4.1 million, net of tax of $2.3 million ($0.19 per share). During the third quarter of fiscal 1998, the Company extinguished $256.0 million of 6.61% to 8.13% interest-bearing notes originally due in fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss of $9.8 million, net of tax of $5.4 million ($0.45 per share). During the second quarter of fiscal 1997, the Company extinguished $76.3 million of debt and $86.2 million of long-term notes originally due in fiscal 1997 through fiscal 1999. This resulted in an extraordinary loss of $2.3 million, net of tax of $1.4 million ($0.09 per share). <PAGE 20> Consolidated Group As a result of the foregoing, pretax earnings of $95.0 million were realized in the nine months ended December 31, 1997, as compared to $110.6 million for the same period in 1996. After providing for income taxes, earnings from operations were $62.8 million as compared to $70.2 million. Following deductions for an extraordinary loss from the early extinguishment of debt, net earnings for the nine months ended December 31, 1997 were $48.9 million, as compared to $67.9 million for the same period of the prior year. QUARTERLY RESULTS The following table presents unaudited quarterly results for the eleven quarters in the period beginning April 1, 1995 and ending December 31, 1997. The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements of the Company. The Company's U-Haul rental operations are seasonal and proportionally more of the Company's revenues and net earnings from its U-Haul rental operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period (in thousands except for per share data). Quarter Ended ------------------------------------ Jun 30 Sep 30 Dec 31 1997 1997 1997 ------------------------------------ Total revenues $ 372,021 416,771 322,543 Earnings from operations before extraordinary loss on early extinguishment of debt (4)(5) 29,198 39,032 (5,390) Net earnings (loss) 29,198 34,894 (15,236) Weighted average common shares outstanding 21,879,156 21,890,072 21,901,521 Earnings from operations before extraordinary loss on early extinguishment of debt per common share 1.09 1.54 (.49) Net earnings (loss) per common share (1)(4)(5) 1.09 1.35 (.94) Quarter Ended --------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1996 1996 1996 1997 --------------------------------------------- Total revenues $ 361,053 398,449 316,892 308,105 Earnings from operations before extraordinary loss on early extinguishment of debt (3) 40,005 39,741 (9,538) (16,024) Net earnings (loss) 40,005 37,737 (9,853) (16,024) Weighted average common shares outstanding (2) 32,015,301 27,675,192 20,359,869 21,868,241 Earnings from operations before extraordinary loss on early extinguishment of debt per common share (3) 1.15 1.29 (0.72) (0.97) Net earnings (loss) per common share (1) (2) (3) 1.15 1.22 (0.74) (0.97) Quarter Ended --------------------------------------------- Jun 30 Sep 30 Dec 31 Mar 31 1995 1995 1995 1996 --------------------------------------------- Total revenues $ 340,331 381,746 305,105 298,656 Net earnings (loss) 15,177 35,332 7,701 2,184 Weighted average common shares outstanding (2) 37,958,426 37,931,825 36,796,961 32,554,458 Net earnings (loss) per common share (1) (2) 0.31 0.85 0.13 (0.04) <PAGE 21> ________________ (1)Net earnings (loss) per common share amounts were computed after giving effect to the dividends on the Company's Preferred Stock. (2)Reflects the acquisition of treasury shares acquired pursuant to the Shoen Litigation as discussed in Note 14 of Notes to Consolidated Financial Statements in Item 8 of the Company's Form 10-K for the year ended March 31, 1997. (3)During the second quarter of fiscal 1997, the Company extinguished $76.3 million of debt and $86.2 million of long- term notes originally due in fiscal 1997 through fiscal 1999. This resulted in an extraordinary loss of $2.3 million, net of tax of $1.4 million ($0.09 per share). (4)During the second quarter of fiscal 1998, the Company extinguished $76.0 million of 10.27% interest-bearing notes originally due in fiscal 1999 through fiscal 2002. This resulted in an extraordinary loss of $4.1 million, net of tax of $2.3 million ($0.19 per share). (5)During the third quarter of fiscal 1998, the Company extinguished $256.0 million of 6.61% to 8.13% interest-bearing notes originally due in fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss of $9.8 million, net of tax of $5.4 million ($0.45 per share). <PAGE 22> QUARTER ENDED DECEMBER 31, 1997 VERSUS QUARTER ENDED DECEMBER 31, 1996 Moving and Storage Operations Revenues consist of rental revenues and net sales. Rental revenues increased by $7.6 million, approximately 3.3%, to $234.3 million in the third quarter of fiscal 1998. This increase reflects an $8.2 million increase in revenues from the rental of moving related equipment reflecting higher In-Townr transaction levels and an increase in the average revenue per transaction. Net sales revenues were $35.4 million in the third quarter of fiscal 1998, which represented an increase of approximately 2.6% from the third quarter of fiscal 1997 net sales of $34.5 million. Revenue growth from the sale of moving support items (i.e. boxes, etc.) and propane resulted in a $1.3 million increase during the quarter, which was offset by a $0.2 million net decrease in gasoline sales and other sales. Cost of sales was $20.7 million in the third quarter of fiscal 1998, which represents an decrease of 4.6% from $21.7 million for the same period in fiscal 1997. Lower material cost associated with the reduction of gasoline sales and a reduction in propane costs attributed to the decrease. Operating expenses decreased to $213.3 million in the third quarter of fiscal 1998 from $227.7 million in the third quarter of fiscal 1997, a decrease of approximately 6.3%. The decrease from the prior year resulted from management's increased focus on cost containment during off-peak rental periods. Net depreciation expense for the third quarter of fiscal 1998 was $20.8 million, as compared to $18.9 million in the same period of the prior year. Property and Casualty RWIC's gross premium writing for the quarter ended September 30, 1997 were $41.9 million as compared to $43.6 million in the third quarter of 1996. The rental industry market accounts for a significant share of total premiums, approximately 60.2% and 52.5% in the third quarters of 1997 and 1996, respectively. These writings include U-Haul, U-Haul customers and fleetowners as well as other rental industry insureds with similar characteristics. RWIC continues underwriting professional reinsurance via broker markets. Premiums in this area decreased during the third quarter of 1997 to 12.8% of total gross premiums, from comparable 1996 figures of 18.9%, due to the timing of premium recognition. RWIC continues its direct multiple peril coverage of various commercial properties and businesses in 1997. These premiums accounted for 15.6% of total gross premiums during third quarter 1997, as compared to 12.1% in 1996. This increase is the result of planned business expansion. Premiums in selected general agency lines accounted for an 11.4% share of written premiums in 1997 as compared to 16.5% share in 1996. This decrease resulted from the cancellation of a general agency agreement in November 1996. Net earned premiums decreased to $39.8 million for the quarter ended September 30, 1997, compared with $43.7 million for the quarter ended September 30, 1996. The premium decrease resulted from decreases in general agency, assumed treaty reinsurance and rental industry segments, partially offset by an increase in the direct multiple peril market. The cancellation of a general agency agreement in November 1996 resulted in a $1.7 million decrease from $2.4 million for the same period in 1996. The elimination of the premium accrual on the reinsurance program contributed $0.9 million to the decrease from 1996. Net earned premiums in the rental industry markets decreased $2.6 million from $27.1 million for the quarter ended September 1996. Partially offsetting this decrease was an increase of $1.3 million in net earned premiums on the direct multiple peril line due to planned business expansion. Net investment income was $7.9 million for the quarter ended September 30, 1997, an increase of 3.9% over 1996 net investment income of $7.6 million. The increase over 1996 resulted from increased cash flow from operations. Underwriting expenses incurred were $51.7 million for the quarter ended September 30, 1997, an increase of $3.6 million, or 7.5% over 1996. This change is attributable to increased losses incurred for the rental industry and direct multiple peril markets, offset by a decrease in commission expense on the assumed treaty reinsurance segment. Paid losses, a component of losses incurred, represented $4.2 million of the increase over 1996. The remaining losses incurred increase, $2.5 million, resulted from an increase in liabilities for unpaid claims due to estimated future losses for current and prior policies. The increases were partially offset by a $1.9 million decrease in commission expense resulting primarily from the elimination of the accrual for premiums and corresponding <PAGE 23> commissions on the assumed treaty reinsurance segment, as mentioned earlier. All other underwriting expenses decreased in the aggregate by $1.2 million. RWIC completed the third quarter of 1997 with income before tax expense of $(4.0) million as compared to $3.2 million for the comparable period ended September 30, 1996. This represents a decrease of $7.1 million, or 225.4% under 1996. Decreased earned premiums for the quarter and increased underwriting expenses were the primary cause. Life Insurance Premiums from Oxford's reinsurance lines before intercompany eliminations were $4.4 million for the quarter ended September 30, 1997, a decrease of $0.6 million or approximately 12.0% over 1996 and accounted for 66.7% of Oxford's premiums in 1997. These premiums are primarily from term life insurance and deferred annuity reinsurance agreements. Decreases in premiums are primarily from the aging of these reinsurance agreements. Premiums from Oxford's direct lines before intercompany eliminations were $2.2 million for the quarter ended September 30, 1997, an increase of $0.2 million or 10.0% from the prior year. This increase in direct premium is primarily attributable to group life and disability coverage issued to employees of the Company, which accounted for approximately 10.6% of premiums. Other direct lines, including credit life and health business, accounted for approximately 22.7% of Oxford's premiums for the quarter ended September 30, 1997. Net investment income before intercompany eliminations was $4.6 million and $4.5 million for the quarters ended September 30, 1997 and 1996, respectively. Benefits and expenses incurred were $7.7 million for the quarter ended September 30, 1997, a decrease of 10.5% under 1996. Comparable benefits and expenses incurred for the quarter ended September 30, 1996 were $8.6 million. This decrease is primarily due to decreases in death benefits, reserves and deferred acquisition cost amortization partially offset by increases in commissions and annuity benefits. Operating profit before tax and intercompany eliminations increased by $0.3 million or approximately 9.4% for the quarter ended September 30, 1997 to $3.5 million, primarily due to an increase in premium income and a decrease in death benefits. Interest Expense, net Interest expense, net of interest income, was $15.7 million for the quarter ended December 31, 1997 versus $17.3 million in the prior year's third quarter. This decrease was derived from a reduction in the average cost of borrowings due to the Company's debt restructuring program. Extraordinary Loss on Extinguishment of Debt During the third quarter of fiscal 1998, the Company extinguished $256.0 million of 6.61% to 8.13% interest-bearing notes originally due in fiscal 1999 through fiscal 2010. This resulted in an extraordinary loss of $9.8 million, net of tax of $5.4 million ($0.45 per share). Consolidated Group As a result of the foregoing, a pretax loss of $8.2 million was incurred for the quarter ended December 31, 1997, as compared to a pretax loss of $16.0 million for the same period in 1996. After providing for income taxes, a loss of $5.4 million was incurred during the third quarter of fiscal 1998 as compared to a loss of $9.6 million in the prior year. After providing for extraordinary losses from the early extinguishment of debt, a net loss of $15.2 million was incurred for the current quarter, as compared to a net loss of $9.9 million for the same period of the prior year. <PAGE 24> LIQUIDITY AND CAPITAL RESOURCES Moving and Storage Operations To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At December 31, 1997, net property, plant, and equipment represented approximately 68.6% of total U-Haul assets and approximately 46.9% of consolidated assets. In the first nine months of fiscal 1998, gross capital expenditures for property, plant and equipment were $317.2 million, as compared to $159.7 million in the first nine months of fiscal 1997. These expenditures primarily reflect expansion of the rental truck fleet, purchase of trucks previously leased and real property acquisitions. The capital needs required to fund these acquisitions were funded with internally generated funds from operations, debt and lease financings. Cash flows from operating activities were $95.9 million during the nine months ended December 31, 1997, as compared to $76.1 million during the nine months ended December 31, 1996. The increase results from increased revenues offset by a slight increase in operating expenses. At December 31, 1997, total notes and loans outstanding were $1,074.4 million as compared to $983.6 million at March 31, 1997 and $933.4 million at December 31, 1996. Property and Casualty Cash flows from operating activities were $7.9 million and $(19.0) million for the nine months ended September 30, 1997 and September 30, 1996, respectively. The change resulted from decreased due from affiliates and paid losses recoverable, offset by increases in accounts receivable and other assets and decreases in other liabilities and federal income tax payable. Also contributing are increased loss and expense reserves and a smaller unearned premium decrease than for the quarter ended September 30, 1996. The short-term investment portfolio was $1.5 million at September 30, 1997. This balance reflects funds in transition from maturity proceeds to long-term investments. The structure of the long-term portfolio is designed to match future liability cash needs. Capital and operating budgets allow RWIC to schedule cash needs in accordance with investment and underwriting proceeds. RWIC maintains a diversified securities investment portfolio, primarily in bonds at varying maturity levels. Approximately 95.0% of the portfolio is comprised of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity remains strong, with RWIC having 0.2% more invested assets than total liabilities. Stockholder's equity increased $3.2 million from $192.3 million at December 31, 1996 to $195.5 at September 30, 1997. RWIC considers current shareholder's equity to be adequate to support future growth and absorb unforeseen risk events. RWIC does not use debt or equity issues to increase capital and, therefore, has no exposure to capital market conditions. Life Insurance Oxford's primary sources of cash are premiums, deferred annuity sales and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. Cash flows from operating activities were $6.4 million and $13.7 million for the nine months ended September 30, 1997 and 1996, respectively. In 1997, cash flows provided(used) by financing activities were approximately $(9.5) million compared to $22.2 million for the nine months ended September 30, 1996. Cash flows from deferred annuity sales are a component of financing activities and result in the purchase of fixed maturities, which are a component of investing activities. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. At September 30, 1997 and 1996, short-term investments amounted to $6.1 million and $12.5 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford decreased to $82.4 million in 1997 from $100.4 million in 1996 as the result of cash dividends of $33.9 million paid to its parent on December 31, 1996. <PAGE 25> On November 18, 1997, Oxford purchased all of the issued and outstanding shares of Encore Financial, Inc. and its subsidiaries (Encore). Encore's primary subsidiary is North American Insurance Company (NAI). NAI is an insurance company domiciled in the state of Wisconsin whose premium volume is primarily derived from the sale of credit life and disability products. On November 24, 1997 Oxford purchased all of the issued and outstanding shares of Safe Mate Life Insurance Company, domiciled in the state of Texas, whose premium volume is derived from the sale of credit life and disability products. These purchases greatly increase Oxford's distribution channels and enhance administrative capabilities in these markets. Applicable laws and regulations of the State of Arizona require the Company's insurance subsidiaries to maintain minimum capital and surplus determined in accordance with statutory accounting practices in the amount of $600,000. In addition, the amount of dividends that can be paid to shareholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus which can be distributed as dividends without regulatory approval is zero at September 30, 1997. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. Consolidated Group During each of the fiscal years ending March 31, 1998, 1999 and 2000, U-Haul estimates gross capital expenditures will average approximately $250-$300 million as a result of the expansion of the rental truck fleet and self-storage locations. This level of capital expenditures, combined with an average of approximately $75 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $325-$375 million. Management estimates that U-Haul will fund between 75% and 88% of these requirements with internally generated funds, including proceeds from the disposition of older trucks and other asset sales. The remainder of the anticipated capital expenditures are expected to be financed through existing credit facilities, new debt placements, lease fundings and equity offerings. Credit Agreements The Company'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, the Company routinely enters into sale and leaseback transactions. As of December 31, 1997, the Company had $1,074.4 million in total notes and loans outstanding and unutilized committed lines of credit of approximately $180.0 million. In October 1997, the Company issued $300.0 million of Bond Back Asset Trust Certificates (BATs). The net proceeds were initially used to prepay floating rate indebtedness of the Company under revolving credit agreements. Subsequent to the funding of the BATs, the Company extinguished $256.0 million of 6.61% to 8.13% in interest-bearing notes originally due in fiscal 1999 through fiscal 2010. Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios and placing certain additional liens on its properties and assets. At December 31, 1997, the Company was in compliance with these covenants. The Company is further restricted in the issuance of certain types of preferred stock. The Company is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment, or mandatory prepayment, or that allow the holders thereof to require the Company or any subsidiary of the Company to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. <PAGE 26> PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits 3.1 Restated Articles of Incorporation (1) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 (2) 4.1 AMERCO and Citibank, N.A. Trustee Second Supplemental Indenture Dated as of October 22, 1997 4.2 Calculation Agency Agreement 4.3 6.65%-AMERCO Series 1997 A Bond Backed Asset Trust Certificates ("BATs") Due October 15, 1999 27 Financial Data Schedule b. Reports on Form 8-K. No report on Form 8-K was filed for the quarter ended December 31, 1997. _____________________________________ (1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 0-7862. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, file no. 0-7862. <PAGE 27> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERCO ___________________________________ (Registrant) Dated: February 12, 1998 By: /S/ GARY B. HORTON ___________________________________ Gary B. Horton, Treasurer (Principal Financial Officer)