True Value 2010 Annual Report Download - page 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
18 True Value Company
REPAIRS AND MAINTENANCE EXPENSE
Expenditures which extend the useful lives of True Value’s property
and equipment are capitalized and depreciated on a straight-line
basis over the remaining useful lives of the underlying assets.
Otherwise, repair and maintenance expenditures are expensed
as incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to True Value’s manufac-
turing operations are expensed as incurred. Such costs amounted
to $1,058, $1,017 and $1,116 in 2010, 2009 and 2008, respectively,
and are included in Logistics and manufacturing expenses.
SHIPPING AND HANDLING COSTS
Amounts incurred for shipping and handling are included in
Cost of revenue.
INCOME TAXES
Deferred tax assets and liabilities are determined based on cumu-
lative temporary differences between the amounts shown on the
financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to reverse. At January 1, 2011, True Value 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, and that a full valuation
allowance is required. Deferred tax assets will only be realized
to the extent that 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.
True Value and its subsidiaries file income tax returns in the
United States as well as all states, many local U.S. jurisdictions
and China. True Value is no longer open to audit for any U.S.
federal, state, local or non-U.S. income tax jurisdiction for years
2004 and prior. True Value is still subject to state audits in seven
states for our tax year 2005 and remains open to audit for most
jurisdictions for years 2006 through current.
PER SHARE INFORMATION
True Value’s Redeemable Class A voting common stock is owned
by members. True Value’s Redeemable Class B nonvoting common
stock outstanding was issued to members in partial payment of
the annual patronage dividend. There is no existing market for
True Value common stock and there is no expectation that any
market will develop. Accordingly, no earnings per share infor-
mation 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 installment
notes, approximate fair value. The total carrying amount of debt
and credit facilities approximates fair value due to True Value’s
obligation to redeem them at carrying value and the inability of
the notes to trade in a market outside of True Value.
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 receiv-
able or group of receivables comprises a significant percentage
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 obliga-
tion 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 receivable to True Value.
USE OF ESTIMATES
The preparation of financial statements in conformity with account-
ing 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 accom-
panying notes. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board
issued Accounting Standards Update (“ASU”) No. 2010-06, which