True Value 2008 Annual Report Download - page 46

notes to consolidated financial statements
2008 FINAN CIA L REP OR T :: 25
The matter was returned to the American Arbitration Association
for action by the panel, which determined on March 26, 2008, that
the portion of their original award attributable to expert witness
fees was $3,345. Accordingly, that amount was due to True Value
and was recorded, net of $480 due to True Value’s outside legal
counsel, in the condensed consolidated statement of operations
for the fiscal year ended 2008. The payment due to True Value
was received on April 25, 2008. On June 20, 2008, True Value filed
a petition to vacate and motion for interest seeking the recovery
of an additional $1,800 in attorney’s fees from E&Y. On July 17,
2008, E&Y filed its response and a Rule 137 motion seeking E&Y’s
attorneys’ fees related to True Value’s petition to vacate. The hear-
ing on True Value’s motion to vacate was held on September 5,
2008. On October 23, 2008, the Circuit Court denied True Val-
ue’s motion to vacate. On December 10, 2008, the Circuit Court
denied True Value’s motion for interest. On February 23, 2009,
the Circuit Court denied E&Y’s Rule 137 motion.
Other Matters
True Value is subject to various claims and lawsuits in the ordinary
course of business. True Value believes that the results of pending
legal proceedings and claims, including any known claims settled
during the quarter, will not have a material adverse effect on
the financial condition, results of operations or cash flows of
True Value.
9. INCOME TAXES
Income tax expense consisted of the following for fiscal years
ended:
January 3, December 29, December 30,
($ in thousands) 2009 2007 2006
Current:
Federal $ – $ – $ –
State 61 29 54
Foreign – – –
Total current 61 29 54
Deferred:
Federal – – –
State – – –
Foreign – – –
Total deferred – – –
$ 61 $ 29 $ 54
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 business
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 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 $ 22,329 $ 25,492
Effects of:
Patronage dividend (19,919) (19,907) (18,488)
State income taxes,
net of federal benefit 40 19 35
Decrease in valuation allowance (2,820) (2,626) (7,247)
Other, net 259 214 262
$ 61 $ 29 $ 54
Deferred income taxes reflect the net tax effects to True Value of
its net operating loss carryforwards, which expire in years through
2028, alternative minimum tax credit carryforwards, which do not
expire, nonqualified notices of allocations, which are deductible
when redeemed and do not expire, and temporary differences
between the carrying amounts of assets and liabilities for finan-
cial reporting purposes and the amounts used for income tax
purposes. The deferred tax effect of the net operating loss
carryforward was increased in 2008 by $2,571. This increase is
attributable to the net effect of a $2,816 increase primarily in
other deferred tax assets and liabilities and by a $245 decrease
attributable to amounts to be charged against members’ loss
allocation accounts. The 2006 valuation allowance change over
the prior year was a result of the decision made by the board of
directors to increase the current year retention of income thereby
reducing the accumulated deficit account.
Total deferred tax assets, net of deferred tax liabilities, have a
full valuation allowance because True Value has concluded that,
based on the weight of available evidence; it is more likely than
not that the deferred tax assets will not be fully realized due to
True Value’s minimal taxable earnings after the distribution of
the patronage dividend to the members. Deferred tax assets
will only be realized to the extent net future earnings, after
the distribution of the patronage dividend to the members,
are retained and after accumulated net operating losses are
exhausted by True Value.
($ in thousands)