True Value 2007 Annual Report Download - page 47

26 | TRUE VALUE COMPANY
N O T E S T O
CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
True Value operates as a nonexempt cooperative and is allowed
a deduction in determining its taxable income for amounts paid
as qualified patronage dividends based on margins from busi-
ness done with or on behalf of members and for the redemption
of nonqualified notices of allocation. The reconciliation of income
tax expense to income tax computed at the U.S. federal statu-
tory tax rate of 35% was as follows for fiscal years:
($ in thousands) 2007 2006 2005
Tax at Worldwide statutory rate $ 22,329 $ 25,492 $ 16,690
Effects of:
Patronage dividend (19,907) (18,488) (15,616)
State income taxes,
net of federal benefit 19 35 33
Decrease in valuation allowance (2,626) (7,247) (1,403)
Other, net 214 262 347
$ 29 $ 54 $ 51
Deferred income taxes reflect the net tax effects to True Value of
its net operating loss carryforwards, which expire in years
through 2025, alternative minimum tax credit carryforwards,
which do not expire, nonqualified notices of allocations, which
are deductible when redeemed and do not expire, and tempo-
rary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. The deferred tax effect of the net
operating loss carryforward was reduced in 2007 by $2,485. This
reduction is attributable to the net effect of a $412 decrease
attributable to amounts to be charged against members’ loss
allocation accounts and by a $2,073 decrease primarily in other
deferred tax assets and liabilities. The 2006 valuation allowance
change over the prior year was a result of the decision made by
the board of directors to increase the current year retention of
income thereby reducing the accumulated deficit account.
Total deferred tax assets, net of deferred tax liabilities, have a
full valuation allowance because True Value has concluded that,
based on the weight of available evidence, it is more likely than
not that the deferred tax assets will not be realized. Deferred tax
assets will only be realized to the extent future earnings are tax-
able to True Value and not allocated to members as tax-deductible
patronage dividends.
The significant components of True Value’s deferred tax assets
and liabilities were as follows for fiscal years:
($ in thousands) 2007 2006
Deferred tax assets:
Net operating loss carryforwards $ 5,294 $ 7,778
AMT credit carryforward 784 784
Nonqualified notices of allocation 7,598 8,016
Bad debt provision 438 440
Vacation pay 3,200 3,041
Reserves and accruals 124 108
Deferred gain 16,669 17,780
Severance and restructuring costs 1,015 1,090
Book depreciation in excess of
tax depreciation 2,218 1,659
Rent expense 1,903 2,300
Inventory capitalization 885 523
Other 6,497 6,214
Total deferred tax assets 46,625 49,733
Valuation allowance for deferred tax assets (44,628) (48,070)
Net deferred tax assets 1,997 1,663
Deferred tax liabilities:
Contributions to fund retirement plans 1,997 1,663
Net deferred taxes $ – $ –
10. SUPPLEMENTAL CASH FLOW INFORMATION
The annual patronage dividend is satisfied through cash payments
and issuance of subordinated promissory notes and Redeem-
able Class B nonvoting common stock; for members with loss
allocation accounts, the Class B nonvoting common stock is off-
set to satisfy members’ remaining allocation of the 1999 loss.
Non-cash operating and financing activities relating to the issu-
ance of patronage dividends were as follows for the years ended:
December 29, December 30, December 31,
($ in thousands) 2007 2006 2005
Distribution of annual
patronage dividend:
Patronage dividend
payable in cash $17,392 $15,713 $13,257
Issuance of subordinated
promissory notes 8,857 2,862 1,228
Issuance of Redeemable
Class B non-voting
common stock 28,721 30,222 22,548
Reduction of Loss
allocation accounts 1,161 3,277 6,837
Total $56,131 $52,074 $43,870