True Value 2009 Annual Report Download - page 19

Management’s Discussion and Analysis
of Financial Condition and Results of Operation
4 True Value Company
The remaining gross margin components partially offset the unfa-
vorable sales volume impact and were driven by the following
factors; first, freight-in expense declined $8,628 as a result of lower
fuel costs, rates and lower volume this year compared to last year.
Second, gross margin on delivery of product to the members
improved by $5,161 as compared to last year, as a result of True
Value no longer absorbing a portion of the costs in 2009. Third,
lower subsidy of $2,566 due to lower volume of color centers to
members this year compared to 2008. Fourth, product margin
rates were higher by $1,826. The 2009 increased product mar-
gin rates were primarily the result of inflationary price increases
passed onto the membership in the second half of 2008. Fifth,
change in inventory reserves was favorable by $1,695 primarily
due to lower levels of inventory. The remaining favorability was
predominately related to net improvements in miscellaneous pro-
grams and events with certain vendors in 2009 compared to 2008.
Logistics and $ Expense
manufacturing expenses 2009 2008 (Decrease)
For the Year Ended $57,463 $61,154 $(3,691)
Percent to Net Revenue 3.2% 3.0%
Logistics and manufacturing expenses decreased by $3,691, or
6.0%, as compared to the prior year primarily due to lower direct
warehouse wages and lower fixed costs.
Selling, general and $ Expense
administrative expenses 2009 2008 (Decrease)
For the Year Ended $92,784 $93,913 $(1,129)
Percent to Net Revenue 5.1% 4.7%
SG&A expenses decreased by $1,129, or 1.2%, as compared to
the prior year. SG&A expenses decreased predominately due to
lower overall expenses on items including outside services, rents
and leases, severance, software maintenance, travel and various
other favorable items. In addition, True Value’s 2008 fiscal year
included a 53rd week of salaries and related benefits of $1,256
compared to 2009 which only included 52 weeks. Partially off-
setting these favorable SG&A variances were a 2008 favorable
vacation policy adjustment of $2,500 and a 2008 net favorable
adjustment to an arbitration matter of $3,007 that did not reoc-
cur in 2009. In addition, the overall achievement of performance
targets was higher in 2009 resulting in higher incentive expense
of $1,723 and bad debt expense was higher by $2,100 due to
additional reserves on high-risk members.
$ Expense
Interest expense 2009 2008 (Decrease)
Third-parties $3,168 $5,435 $(2,267)
Percent to Net Revenue 0.2% 0.3%
Third-party interest expense decreased by $2,267, or 41.7%,
as compared to last year. This decrease in expense was due to
both lower Bank Facility interest rates and a lower average out-
standing debt level. True Value’s average interest rate and daily
outstanding debt level were lower by 2.4% and $32,967, respec-
tively, compared to 2008.
$ Net
Margin
Net margin 2009 2008 Increase
For the Year Ended $65,446 $64,228 $1,218
Percent to Net Revenue 3.6% 3.2%
The 2009 Net margin of $65,446 increased by $1,218, or 1.9%, from
the 2008 Net margin of $64,228 for reasons as discussed above.
($ in thousands)