True Value 2007 Annual Report Download - page 40

2007 FINANCIAL REPORT | 19
N O T E S T O
CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
existing market for True Value common stock and there is no
expectation that any market will develop. Accordingly, no earn-
ings per share information 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 their
stated interest rates approximating market rates. These estimated
fair value amounts have been determined using available market
information or other appropriate valuation methodologies.
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
receivable or group of receivables comprises a significant per-
centage 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 obligation 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 members with past due accounts receiv-
able to True Value.
Use of Estimates
The preparation of financial statements in conformity with
accounting 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 accompanying 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 Uncer-
tainty in Income Taxes,” an interpretation of FASB Statement
No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial state-
ments in accordance with FASB Statement No. 109, “Accounting
for Income Taxes.” This Interpretation prescribes a recognition
threshold and measurement attribute for the financial state-
ment recognition and measurement of a tax position taken or
expected to be taken in a tax return. This interpretation also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transi-
tion. On February 1, 2008, the FASB issued FASB Staff Position
No. FIN 48-2, “Effective Date of FASB Interpretation No. 48 for
Certain Nonpublic Enterprises” (“FSP FIN 48-2”). FSP FIN 48-2
establishes that FIN 48 is effective for annual periods beginning
after December 15, 2007 for nonpublic entities that have not
issued a full set of U.S. generally accepted accounting principles
annual financial statements prior to the issuance of FSP FIN
48-2. Therefore, True Value has deferred adoption of FIN 48 to
Fiscal 2008 and is currently evaluating the impact this standard
will have on its financial statements, but does not expect the
impact of its adoption to be material.
2. INVENTORIES
Inventories consisted of the following at:
December 29, December 30,
($ in thousands) 2007 2006
Manufacturing inventories:
Raw materials $ 1,733 $ 2,323
Work-in-process and finished goods 17,508 23,635
Manufacturing inventory reserves (2,120) (2,489)
17,121 23,469
Merchandise inventories:
Warehouse inventory 309,311 286,830
Merchandise inventory reserves (12,498) (12,453)
296,813 274,377
$ 313,934 $ 297,846
The amount of warehouse, general and administrative costs
included in ending inventory was $20,649 and $20,679 at
December 29, 2007 and December 30, 2006, respectively. Ware-
house, general and administrative costs incurred for 2007 and
2006, were $94,075 and $95,470, respectively.