U-Haul 2009 Annual Report Download - page 66

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AMERCO AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Derivative Financial Instruments
The Company’s 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.
The Company does not enter into these instruments for trading purposes. Counterparties to the Company’s interest rate
swap agreements are major financial institutions. In accordance with SFAS 133, Accounting for Derivative Instruments and
Hedging Activities (As Amended) (“SFAS 133”), the Company recognizes interest rate swap agreements on the balance
sheet at fair value, which are 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 recognized in other comprehensive income (loss) until the hedged item is
recognized in earnings. Refer to Note 11 Interest on Borrowings of the Notes to Consolidated Financial Statements.
Inventories, net
Inventories, net were as follows:
2009 2008
Truck and trailer parts and accessories (a) $ 63,206 $ 56,959
Hitches and towing components (b) 13,736 13,538
Moving supplies and propane (b) 7,217 7,470
Subtotal 84,159 77,967
Less: LIFO reserves (12,469) (11,076)
Less: excess and obsolete reserves (941) (1,542)
Total $ 70,749 $ 65,349
(a) Primarily held for internal usage, including equipment manufacturing and repair
(b) Primarily held for retail sales
(In thousands)
March 31,
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 Company-owned locations; our independent
dealers do not hold any of the Company’s inventory.
Inventory cost is primarily determined using the last-in, first-out method (“LIFO”). Inventories valued using LIFO
consisted of approximately 96% and 95% of the total inventories for March 31, 2009 and 2008, respectively. Had the
Company utilized the first-in, first-out method (“FIFO”), stated inventory balances would have been $12.5 million and
$11.1 million higher at March 31, 2009 and 2008, respectively. In fiscal 2009, the effect on income due to liquidation of a
portion of the LIFO inventory was $0.6 million.
F-11