U-Haul 2016 Annual Report Download - page 65

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AMERCO AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
F-9
Recognition of Investment Income. Interest income from bonds and mortgage notes is recognized
when earned. Dividends on common and preferred stocks are recognized on the ex-dividend dates.
Realized gains and losses on the sale or exchange of investments are recognized at the trade date.
Derivative Financial Instruments
Our objective for holding derivative financial instruments is to manage interest rate risk exposure
primarily through entering interest rate swap agreements. An interest rate swap is a contractual exchange
of interest payments between two parties. A standard interest rate swap involves the payment of a fixed
rate times a notional amount by one party in exchange for a floating rate times the same notional amount
from another party. As interest rates change, the difference to be paid or received is accrued and
recognized as interest expense or income over the life of the agreement. We do not enter into these
instruments for trading purposes. Counterparties to the interest rate swap agreements are major financial
institutions. In accordance with ASC 815 - Derivatives and Hedging, we recognize interest rate swap
agreements on the balance sheet at fair value, which is classified as prepaid expenses (asset) or accrued
expenses (liability). Derivatives that are not designated as cash flow hedges for accounting purposes
must be adjusted to fair value through income. If the derivative qualifies and is designated as a cash flow
hedge, changes in its fair value will either be offset against the change in fair value of the hedged item
through earnings or recorded in accumulated other comprehensive income (loss) until the hedged item is
recognized in earnings. See Note 11, Derivatives of the Notes to Consolidated Financial Statements.
Inventories, net
Inventories, net were as follows:
March 31,
2016
2015
(In thousands)
Truck and trailer parts and accessories (a)
$
68,665
$
62,701
Hitches and towing components (b)
17,483
15,308
Moving supplies and propane (b)
8,668
7,866
Subtotal
94,816
85,875
Less: LIFO reserves
(13,463)
(15,019)
Less: excess and obsolete reserves
(1,597)
(1,384)
Total
$
79,756
$
69,472
(a) Primarily held for internal usage, including equipment manufacturing and repair
(b) Primarily held for retail sales
Inventories consist primarily of truck and trailer parts and accessories used to manufacture and repair
rental equipment as well as products and accessories available for retail sale. Inventory is held at our
owned locations; our independent dealers do not hold any of our inventory.
Inventory cost is primarily determined using the last-in first-out method (“LIFO”). Inventories valued
using LIFO consisted of approximately 97% of the total inventories for both March 31, 2016 and 2015.
Had we utilized the first-in first-out method (“FIFO”), stated inventory balances would have been $13.5
million and $15.0 million higher at March 31, 2016 and 2015, respectively. In fiscal 2016, the negative
effect on income due to liquidation of a portion of the LIFO inventory was $0.1 million.