True Value 2008 Annual Report Download

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2008 annual report

Table of contents

  • Page 1
    2008 annual report

  • Page 2
    winning at retail

  • Page 3
    .... This is the future direction of True Value: delighting every customer, every time at every store, everywhere. That's what it means to be the best hardware store in town. That's our vision. That's winning with the customer. That's winning at retail. T RUE VA L UE COM PA NY 2008 A NNUA L REP OR...

  • Page 4
    ... the economic environment, our retail focus, commitment to profitable growth and unique position in the hardware industry enabled True Value to perform well versus the home improvement retail sector this year. Revenue was $2,013 million for the full year, a decrease of 1.4 percent versus 2007. Net...

  • Page 5
    ... key categories, generating over $2 million, or 3.4 percent, in savings. • C ollected point-of-sale (POS) data from 1,515 stores to improve fill rates, assortments and circulars as well as to help members identify sales opportunities in their region. ® T RUE VA L UE COM PA NY 2008...

  • Page 6
    ...retail paint strategy generated increased department sales and transactions for members, with more than 1,300 new color centers implemented in 2008. • Promotion: Establishing 19 regional marketing groups to localize circulars and promotions. In 2008, the nationally distributed $5 off $25 coupon...

  • Page 7
    We're guided by a clear commitment to help our members grow their business while driving top- and bottom-line results. With DTV at the center of our retail growth strategy, True Value is there every step of the way to help retailers implement the new format into their stores - whether it's ...

  • Page 8
    inviting

  • Page 9
    ... on average spent in dtv stores 6 designed with the customer in mind Customers entering a True Value hardware store expect a rewarding shopping experience. Once inside, shoppers explore the store, following clear signage to stocked shelves that beckon them to browse. Destination True Value (DTV...

  • Page 10
    discovering

  • Page 11
    ... dsv merchandised so drive sales Do-it-yourselfers in a True Value expect to find what they need to complete their home projects, and nothing makes them happier than discovering a good selection of well-organized products to help them do just that. A big part of True Value's job is delivering what...

  • Page 12
    connecting

  • Page 13
    ... to customers extends beyond hardware store doors. In 2008, the co-op established the True Value Foundation to unite its current charitable activities, including the annual True Value Charity Golf Classic and the True Value Scholarship Program, and new initiatives such as Painting a Brighter Future...

  • Page 14
    inspiring

  • Page 15
    ... 2009, retailers can expect more national promotions featuring compelling products and prices sure to entice customers. To draw shoppers to local stores, members can also use turnkey marketing solutions provided by the co-op. Distributing circulars drives incremental visits, sales and margin dollars...

  • Page 16
    growing leG eN D DTV stores - current DTV stores - converting DTV stores - future

  • Page 17
    ... growth destination true value (dtv) is at the center of our future growth with a winning format that members and customers appreciate. in 2009, true value plans to increase the number of dtv-related stores by an additional 100 nationwide. 52 dtv stores have opened in 23 different states to date

  • Page 18
    ..., Retail and Specialty Businesses Steve Poplawski, Senior Vice President, Logistics and Supply Chain Leslie Weber, Senior Vice President and Chief Information Officer Carol Wentworth, Vice President, Marketing 6 Jon Johnson, Vice President, Retail Finance Mark Flowers, Vice President, Retail...

  • Page 19
    ...John Nienhuis Printing: The Fox Company Lithographers she 'bess hardware ssore in sown' winners The 'Best Hardware Store in Town' award recognizes 13 True Value retailers that exemplify success based on the 5Ps of retailing. In its second year, members, member peers and retail consultants nominate...

  • Page 20
    8600 W. Bryn Mawr Ave. Chicago, IL 60631-3505 773.695.5000 www.truevaluecompany.com © 2009 True Value Company

  • Page 21
    2008 financial report

  • Page 22
    management's discussion and analysis of financial condition and results of operation ($ in thousands) Overview In 2008, True Value Company ("True Value") had a stable year, given the U.S. economic recession. While Net revenue was off slightly, True Value maintained its 2007 profit performance and...

  • Page 23
    ...ationary product price increases, a fuel surcharge and an additional week of revenue partially offset the seasonal and economic volume reductions. The extra week was the result of True Value's reporting calendar. Fiscal year 2007 was a 52-week reporting year and 2008 was a 53-week year. True Value...

  • Page 24
    ... average borrowings on the bank line were $77,863 in 2008, down 9.1% from $85,652 in 2007. Comp Store Sales: Warehouse revenue Vendor-direct revenue Paint manufacturing revenue Net Comp Store Sales Change in participating members: Terminated members: Warehouse revenue Vendor-direct revenue Paint...

  • Page 25
    ... True Value's distribution network. Logistics and manufacturing expenses 2008 2007 $ Expense Increase The year-to-date change in arbitration benefit and litigation was primarily due to the E&Y Matter. On March 26, 2008, the arbitration panel in the E&Y matter ordered E&Y to return to True Value...

  • Page 26
    ... which reduced the members' cost of doing business with True Value, include full credit on Policy A returned goods, free freight on promotional orders placed in the early order windows and co-op reimbursement for True Value produced circulars. Logistics and manufacturing expenses 2007 2006 $ Expense...

  • Page 27
    ... in accounts payable was primarily a result of lower product purchases and the decrease in accounts receivable was mainly due to the 53rd week of collections that exceeded the 53rd week of sales in True Value's 2008 fiscal year. The decrease in cash generated from operating activities in 2007...

  • Page 28
    ... and current ratio in 2008 compared to 2007 was primarily due to lower accounts payable as a result of the lower product purchases partially offset by lower accounts receivable as a result of the 53rd week of collections exceeding the 53rd week of sales. The increase in both True Value's net working...

  • Page 29
    ... as follows for the years ended: January 3, December 29, 2009 2007 Measurement Date Weighted average assumptions: Discount rate Lump sum rate 1/3/2009 12/29/2007 6.25% 5.00% 6.00% 5.50% The assumptions used to determine True Value's net periodic pension cost for all plans were as follows for...

  • Page 30
    ...uncertain tax positions as of December 30, 2007. As discussed in Note 11 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit retirement plans as of December 30, 2006. PricewaterhouseCoopers LLP Chicago, Illinois March 6, 2009 2008 FI...

  • Page 31
    ... that involves management or other employees who have a significant role in True Value's internal control over financial reporting. TRUE VALUE COMPANY Lyle G. Heidemann President and Chief Executive Officer Date: March 6, 2009 David A. Shadduck Senior Vice President and Chief Financial Officer...

  • Page 32
    ... True Value's management reviewed the results of its assessment with the Audit Committee of our Board of Directors. True Value's management, based on their assessment, has concluded that, as of January 3, 2009, True Value's internal control over financial reporting was effective. TRUE VALUE COMPANY...

  • Page 33
    ...-term debt including notes and capital lease obligations, less current maturities Deferred gain on sale leaseback Pension Other long-term liabilities Redeemable nonqualified Class B nonvoting common stock, $100 par value; 177,602 and 186,156 shares issued and fully paid Total long-term liabilities...

  • Page 34
    consolidated statement of operations ($ in thousands) January 3, December 29, December 30, For the Years Ended 2009 2007 2006 Net revenue Cost of revenue Gross margin Operating expenses: Logistics and manufacturing expenses Selling, general and administrative expenses Arbitration and ...

  • Page 35
    ...: Payment of patronage dividend Payment of notes, long-term debt and lease obligations Decrease in drafts payable Increase/(decrease) in revolving credit facility, net Proceeds from sale of Redeemable Class A common stock and subscriptions receivable Purchase of Class A and Class B common stock Net...

  • Page 36
    ... loss Balances at and for the year ended December 29, 2007 Net margin Reclass stock presented for redemptions to liabilities Amortization of deferred patronage Patronage dividend Class B stock applied against loss allocation Class A stock purchases Pension liability adjustment for deferred actuarial...

  • Page 37
    ... provide interest free loans to members to open new stores or make store expansions. The loans are for a period of ten years and are generally repaid through the members' non Class B common stock portion of the annual patronage dividend. True Value discounts the loan amount using market rates at the...

  • Page 38
    ... for each reporting unit (Hardware and Paint manufacturing). This test is completed annually unless significant events necessitate a more frequent test. The test completed at January 3, 2009, used a discount rate of 7% and assumed no revenue increases in future years. Rates used to discount cash...

  • Page 39
    ... to members in partial payment of the annual patronage dividend. There is no existing market for True Value common stock and there is no expectation that any market will develop. Accordingly, no earnings per share information is presented in the Consolidated Financial Statements. Fair Value of...

  • Page 40
    ... 29, ($ in thousands) 2009 2007 Manufacturing inventories: Raw materials Work-in-process and finished goods Manufacturing inventory reserves Less amounts due within one year $ 2,210 17,696 (2,753) 17,153 $ 1,733 17,508 (2,120) 17,121 The weighted average of stated interest rates on total debt...

  • Page 41
    ... an additional three years. True Value has not yet determined whether it will continue to offer a similar option to members to extend maturity dates in the future. Subordinated promissory installment notes are issued in payment of the redemption of qualified Class B common stock upon termination of...

  • Page 42
    ... costs and real estate taxes due to the lessor, where applicable. Capitalized leases expire at various dates and generally provide for purchase options but not renewals. Purchase options provide for purchase prices at either fair market value or a stated value, which is related to the lessor's book...

  • Page 43
    ...ownership requirements for True Value's Redeemable Class B nonvoting common stock by the issuance of Redeemable Class B nonvoting common stock in payment of the year-end patronage dividend. The shares of Redeemable Class B nonvoting common stock and other written notices distributed by True Value to...

  • Page 44
    ...in good standing are entitled to receive patronage dividend distributions from True Value on the basis of gross margins of merchandise purchased by each member. In accordance with True Value's By-Laws and Retail Member Agreement, the annual patronage dividend, as authorized by the board of directors...

  • Page 45
    ... adjustment to prior year arbitration reserve of $5,625, in the period ended April 1, 2006. On May 22, 2006, True Value satisfied a portion of the judgment by paying E&Y $384. On August 25, 2006 the Circuit Court upheld the arbitration panel's final award ordering True Value to pay attorneys' fees...

  • Page 46
    ... tax expense to income tax computed at the U.S. federal statutory tax rate of 35% was as follows for fiscal years ended: January 3, December 29, December 30, ($ in thousands) 2009 2007 2006 Tax at Worldwide statutory rate $ 22,501 Effects of: Patronage dividend (19,919) State income taxes, net...

  • Page 47
    ... in thousands) 2009 2007 Deferred tax assets: Net operating loss carryforwards AMT credit carryforward Nonqualified notices of allocation Vacation pay Deferred gain Severance and restructuring costs Book depreciation in excess of tax depreciation Rent expense Inventory capitalization Other Total...

  • Page 48
    ... Value's program to provide interest free loans to members to open new stores or make store expansions. The loans are for a period of ten years and are generally repaid through the members' non Class B common stock portion of the annual patronage dividend. The amount of the loans issued during 2008...

  • Page 49
    ... used to determine True Value's net periodic pension cost for all plans were as follows for the years ended: January 3, December 29, December 30, 2009 2007 2006 Measurement Date 12/29/2007 12/30/2006 12/31/2005 Weighted average assumptions: Discount rate Expected return on assets Rate of...

  • Page 50
    ... 27,053 The assumptions used to determine True Value's pension obligations for all plans were as follows for the years ended: January 3, December 29, 2009 2007 Weighted average assumptions: Discount rate Lump sum rate 6.25% 5.00% 6.00% 5.50% The discount rate of 6.25% was primarily based on...

  • Page 51
    ...to amendment. True Value recognized costs of $5,754, $5,134 and $3,103 for 2008, 2007 and 2006, respectively, for the 401k Plan. 12. segment infOrmatiOn True Value is principally engaged as a wholesaler of hardware and related products and is a manufacturer of paint products. True Value identifies...

  • Page 52
    ...nancial statements ($ in thousands) Information regarding the identified segments and the related reconciliation to consolidated information are as follows: ($ in thousands) As of and for the year ended January 3, 2009 Paint Manufacturing and Distribution Consolidated Totals Hardware Net sales...

  • Page 53
    8600 W. Bryn Mawr Ave. Chicago, IL 60631-3505 773.695.5000 www.truevaluecompany.com © 2009 True Value Company