True Value 2009 Annual Report Download - page 39

Notes To Consolidated Financial Statements
($ in thousands)
24 True Value Company
9. INCOME TAXES
Income tax expense consisted of the following for fiscal years ended:
January 2, January 3, December 29,
($ in thousands) 2010 2009 2007
Current:
Federal $ – $ – $ –
State 49 61 29
Foreign – – –
Total current 49 61 29
Deferred:
Federal – – –
State – – –
Foreign – – –
Total deferred – – –
$ 49 $ 61 $ 29
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 2, January 3, December 29,
($ in thousands) 2010 2009 2007
Tax at Worldwide statutory rate $ 22,923 $ 22,501 $ 22,329
Effects of:
Patronage dividend (20,304) (19,919) (19,907)
State income taxes,
net of federal benefit 32 40 19
Decrease in valuation allowance (2,816) (2,820) (2,626)
Other, net 214 259 214
$ 49 $ 61 $ 29
Deferred income taxes reflect the net tax effects to True Value of
its net operating loss carryforwards, which expire in years through
2029, 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 decreased in 2009 by $3,811. This decrease
is attributable to $3,599 decrease primarily in other deferred
tax assets and liabilities and by a $212 decrease attributable to
amounts to be charged against members’ loss allocation accounts.
Total deferred tax assets, net of deferred tax liabilities, have a
full valuation allowance because True Value has concluded that,
based on the weight of available evidence; it is more likely than
not that the deferred tax assets will not be fully realized due to
True Value’s minimal taxable earnings after the distribution of the
patronage dividend to the members. Deferred tax assets will only
be realized to the extent net future earnings, after the distribution
of the patronage dividend to the members, are retained and after
accumulated net operating losses are exhausted by True Value.
The significant components of True Value’s deferred tax assets
and liabilities were as follows for fiscal years:
January 2, January 3,
($ in thousands) 2010 2009
Deferred tax assets:
Net operating loss carryforwards $ 4,054 $ 7,865
AMT credit carryforward 737 784
Nonqualified notices of allocation 6,927 7,271
Vacation pay 2,405 2,284
Deferred gain 14,510 15,558
Severance and restructuring costs 1,223 1,249
Book depreciation in excess of
tax depreciation 996 1,570
Rent expense 1,844 1,295
Inventory capitalization 738 713
Bad debt expense 2,457 973
Other 4,936 3,107
Total deferred tax assets 40,827 42,669
Valuation allowance for
deferred tax assets (37,409) (41,043)
Net deferred tax assets 3,418 1,626
Deferred tax liabilities:
Tax depreciation in excess
of book depreciation – –
Contributions to fund
retirement plans 3,418 1,626
Net deferred taxes $ – $ –