True Value 2008 Annual Report Download - page 39

notes to consolidated financial statements
18 :: T RUE VALUE COMPA NY
Per Share Information
True Value’s Redeemable Class A voting common stock is owned
by members. True Value’s Redeemable Class B nonvoting common
stock now outstanding was issued 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 informa-
tion is presented in the Consolidated Financial Statements.
Fair Value of Financial Instruments
The carrying amounts of True Value’s financial instruments, which
were comprised primarily of accounts and notes receivable,
accounts payable, short-term borrowings, long-term debt and
subordinated promissory and subordinated promissory install-
ment notes, approximate fair value. The total carrying amount
of debt and credit facilities approximates fair value due to True
Value’s obligation to redeem them at carrying value, the inability
of the notes to trade in a market outside of True Value and their
stated interest rates approximating market rates.
Concentration of Credit Risk
Credit risk pertains primarily to True Value’s trade receivables.
True Value extends credit to its members as part of its day-to-day
operations. True Value believes that because no specific receiv-
able or group of receivables comprises a significant percentage
of total trade accounts, its risk with respect to trade receivables
is limited. Additionally, True Value’s management believes that
its allowance for doubtful accounts is adequate with respect to
member credit risks. Also, the Certificate of Incorporation and
By-Laws specifically provide that True Value may set off its obliga-
tion to make any payment to a member for such member’s stock,
notes, interest and declared and unpaid dividends against any
obligation owed by the member to True Value. True Value, but
not the member, may at its sole discretion exercise these set-off
rights when any such funds become due to former members with
outstanding accounts receivable to True Value and current mem-
bers with past due accounts receivable to True Value.
Use of Estimates
The preparation of financial statements in conformity with account-
ing principles generally accepted in the United States of America
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accom-
panying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”)
issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement 109”
(“FIN 48”) to create a single model to address accounting for
uncertainty in tax positions. FIN 48 clarifies what criteria must
be met prior to recognizing the financial statement benefits of a
position taken in a tax return and requires companies to include
additional qualitative and quantitative disclosures related to
such positions within their financial statements. The disclosures
include potential tax benefits from positions taken for tax return
purposes that have not been recognized for financial reporting
purposes and a tabular presentation of significant changes dur-
ing each period. The disclosures also include a discussion of the
nature of the uncertainties, factors which could cause change,
and an estimated range of reasonably possible changes in tax
uncertainties. FIN 48 also requires a company to recognize a
financial statement benefit for a position taken for tax return
purposes when it will be more likely than not that the position
will be sustained. On February 1, 2008, the FASB issued FASB
Staff Position No. FIN 48-2, “Effective Date of FASB Interpreta-
tion No. 48 for Certain Nonpublic Enterprises” (“FSP FIN 48-2”).
FSP FIN 48-2 establishes that FIN 48 is effective for annual peri-
ods beginning after December 15, 2007 for nonpublic entities
that have not issued a full set of U.S. generally accepted account-
ing principles annual financial statements prior to the issuance
of FSP FIN 48-2. On December 30, 2008, the FASB issued FASB
Staff Position No. FIN 48-3, “Effective Date of FASB Interpreta-
tion No. 48 for Certain Nonpublic Enterprises” (“FSP FIN 48-3”).
FSP FIN 48-3 establishes that FIN 48 is effective for annual peri-
ods beginning after December 15, 2008 for nonpublic entities
that have not issued a full set of U.S. generally accepted account-
ing principles annual financial statements prior to the issuance
of FSP FIN 48-3, however, earlier adoption is permitted as of the
beginning of an enterprise’s fiscal year.
True Value adopted FIN 48 as of December 30, 2007. Based upon
a review of prior tax returns and other relevant information, True
Value has determined that a net operating loss claimed on a
prior tax return does not meet the more-likely-than-not standard
under FIN 48. However, the adoption of FIN 48 does not have an
impact on True Value’s financial statements because True Value
never recorded a tax benefit for the net operating loss in prior
year financial statements.
True Value’s policy is to record interest and penalties on its
unrecognized tax benefits in income tax expense. As of Janu-
ary 3, 2009, True Value has not accrued any additional expense
for interest or penalties because an adverse determination by
the Internal Revenue Service would not result in any additional
federal or state taxes.
True Value and its subsidiaries file income tax returns in the United
States as well as all states and many local jurisdictions and China.
True Value is no longer open to audit for any U.S. federal, state,
($ in thousands)